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Mann, Scott --- "Arguments for Inequality: Why They Don't Work" [2007] UWSLawRw 2; (2007) 11(1) University of Western Sydney Law Review 40



Modern political and legal philosophy has followed Aristotle in seeing different theories of justice addressing different kinds of social practices. Theories of distributive justice concern the distribution of the benefits and burdens of social life across individuals and groups. Theories of retributive justice deal with the nature and justification of punishment. As political theorist Andrew Levine points out, the guiding idea for Aristotle, and for most subsequent researchers, has been that of ‘treating like cases alike’. But there are many different ways in which such ‘likeness’ can be, and has been, understood.[1]

At first sight it might appear that it is the latter, retributive form of justice that is the main concern of law. But while criminal law is indeed concerned with issues of retribution, issues of distributive justice bear upon virtually all areas of law. Corporations law, consumer law, employment law, tax law, and tort law are built around ideas and assumptions concerning fair or just distribution of resources between individuals and social groups. And the day-to-day operation of these laws has profound implications for such distribution in contemporary society.

The actual distribution of benefits and burdens is particularly significant for criminal law, with higher levels of inequality significantly positively correlated with levels of violent crime around the world. Levels of social inequality also have profound implications for effective access to legal resources and influence upon the law-making process.

Changes in dominant political ideology inevitably impact upon legislation, statutory interpretation and judicial decision-making. And a major change in such ideology in recent years with profound implications for law and society has been the increasing acceptance and attempted justification of increasing social inequality. This paper explores, and refutes, the arguments offered in support of such increasing inequality.


During the post-war boom, social liberal ideology identified significant inequality as a fundamental social problem that needed to be addressed by appropriate social policy intervention. Radical inequalities of social and political power, income, wealth, and opportunity were seen as both unfair and unjust and as unacceptable in utilitarian terms, insofar as they contributed to – avoidable – mistrust and lack of social cohesion, to aggression, physical and mental illness, crime, and conflict. It was also seen as possible to significantly reduce such inequality through social policies of redistribution and welfare, full employment and cheap housing.

Over the last thirty years, throughout the English speaking world and beyond, the social democratic consensus has been replaced, as core ideology of major parties and directing force of government policies, by what has been called economic rationalism, neoliberalism or the Washington Consensus. In the forefront of neoliberal ideology is the prioritisation of individual freedom of choice, where such freedom is seen as maximised through the operation of free markets and business corporations, with a minimum of state intervention and regulation.

Rather than being identified as an ethical and practical problem, to be addressed by responsible social policy, significant inequality has come to be seen as an integral component of a just, efficient and prosperous society. Certain positions in society are seen as functionally more important than others. These more functionally significant social roles require special skills for their effective performance or are particularly demanding, difficult and stressful to perform, in part because of the great social responsibility associated with them.

In keeping with the centrality of free markets in neoliberal ideology, such functional significance is understood – primarily - in terms of individual contribution to social wealth creation, measured by the market value of output. Greater wealth creation involves greater skill, training, effort, sacrifice, stress and responsibility, and needs to be rewarded accordingly. Only a limited number of individuals in any society have the innate talents that can be trained into the skills required. Or the ambition, drive and commitment to undertake the appropriate training and responsibility.[2] Such training typically involves sacrifices on the part of those undergoing the training. And such positions involve greater responsibility and stress than is involved in less significant social roles.

In order to induce the talented persons to undergo these sacrifices, such positions must carry an inducement value in the form of disproportionate access to monetary payment, power, and respect. At the other end of the scale, there will always be people who freely choose to renounce any such legitimate and socially useful striving in favour of sloth or crime. It is fair and socially functional that such individuals should reap the rewards of such free choices in terms of poverty, privation and punishment. As well as being ‘just deserts’ for those involved, so do such economic marginalisation and criminal retribution function to encourage others to do a better job.

Given that many talented or ambitious individuals work to give their children the best possible start in the world, it would be counterproductive to try to prevent them from bequeathing their own accumulated wealth to their families. This undermines the crucial functional role of differential reward. It is also unjust, insofar as ‘genuine’ ownership of such legitimate rewards integrally involves the owner’s right to give them away to any other person of their choice.[3]


Neoclassical welfare economics, as a central pillar of neoliberal ideology, claims to show that ‘given competitive market conditions, utility-maximising consumers and profit-maximising entrepreneurs automatically act and interact so as to maximise social welfare’.[4] Free markets produce ‘Pareto optimum’ outcomes where ‘no change in production and no additional amount of commodity exchange could make a single individual any better off without worsening the position of some other individual.’[5] Given any particular initial distribution of wealth, the free market ensures the achievement of the maximum possible level of welfare, as measured in terms of consumers’ utilities, returns to capital and labour, and rewards to entrepreneurs.

Market efficiency is understood in terms of firms combining the factors of production in the most cost effective ways, and consumers obtaining their products at the lowest possible costs - given existing technology. Competition promotes optimum entrepreneurial efficiency in organising the production process, innovation and specialisation supporting productivity increase, while keeping down prices to consumers.

New producers are attracted to areas of increasing demand where profits are higher than ‘normal’, thereby increasing output to meet such demand. But such increased output drives prices down, with excess profits eliminated, and lower efficiency firms forced out of the sector, to re-establish an equilibrium of supply and demand based upon ‘normal’ equilibrium profits as minimum level of revenue above costs sufficient to motivate entrepreneurs to continue to conduct business.

Consumer purchasing decisions send signals to the producers as to which goods and services to continue supplying. Competition amongst such producers ensures that the prevailing market price is kept to a minimum.[6] It therefore generally makes sense, wherever possible, to shift provision of goods and services out of the regulated state sector and into the competitive private sector.

Assuming a fixed amount of capital for a firm in the short term, we can consider the consequences of varying the amount of labour employed and derive a schedule for the marginal product of labour – or the product added by an additional worker for each different level of employment. The assumption is that – beyond a point of maximum scale economies - such marginal product declines continuously as more labour is added. Given the money value of the marginal product of labour determined by labour productivity and market prices of goods, and the price of labour determined by the aggregate market for labour, an individual firm will maximise its profit by hiring labour up to point where the marginal product of such labour is equal to the wage rate; where marginal revenue equals marginal costs. The same goes for capital. With a given amount of labour, we find a similarly declining marginal value product of capital, with profit maximisation where interest (as cost of capital) equals marginal value product of capital. This means that in a free market, in equilibrium, both workers and suppliers of capital are rewarded in proportion to their actual contribution to the value of the product.[7]

Greater value-creating-skills tend to be in limited supply because of the limited availability of relevant innate talents and the high levels of sacrifice and stress involved in acquiring or exercising them. Hence they will receive greater reward in a free market. Greater amounts of capital made available by particular individuals will receive greater rewards, reflecting the greater sacrifice involved in their provision, in terms of effort of acquisition and foregone consumption by the individuals concerned. So as well as being optimally efficient, free markets are also generally fair in their determination of returns to labour and capital.


Beyond core civil and political rights to life and property, to political participation and fair treatment in law, neoliberals are generally hostile to the broad extension of human rights found in the UDHR.[8] They reject the idea of government responsibility for directly ensuring the realisation of economic, social and cultural rights to jobs, to education, to healthcare and to social security, [9] insofar as these things are seen as most efficiently and most fairly acquired through free market transactions.

Government financed provision of welfare services encourages sloth and wastefulness on the part of the recipients and can only be paid for by taxing effective wealth creation by others. This is seen as fundamentally unfair and unjust and as undermining property rights. Some work hard and see their legitimate rewards confiscated, some do nothing and receive expensive services for free.

Talented people are deterred from acquiring socially necessary skills or taking on necessary social responsibilities. Entrepreneurs are deterred from developing new technologies, new businesses and new jobs by high taxation of wealth, profits and income. Workers are deterred from hard work and thrift (providing savings to fund new investment) by access to free services. The end result is that the majority are worse off, since there are less jobs and less social wealth to pay for such education, healthcare and legal services.


Neoliberals generally see business corporations as appropriate organisations of control of major productive forces, with ownership of corporate assets vested in private shareholders. Such corporations are seen as efficient structures of organisation by virtue of their effective mobilisation and integration of the work of professional experts, directed by a central authority.

Equality of opportunity, promotion through the hierarchy based upon merit, and reward in proportion to social contribution, ensure efficiency and fairness. Higher positions involve greater skill, knowledge, experience, stress, and responsibility. Greater material rewards to those higher up the pyramid motivate others to strive to join them by developing and applying socially valuable abilities. Higher profits are both the consequence of effective management and the means to ensure the rewards which drive such effective management.

It is fair and rational that shareholders who sacrifice immediate consumption and risk exposure in the stock-market to supply the physical capital for such corporations are legally empowered to select board members to manage such assets, and to receive a return which reflects both the extent of their sacrifice – and risk - and the social utility of their investment. Managers who successfully maximise returns to such shareholders continue to receive their support and a share of the profits.[10]


These ideas are increasingly influential in shaping perceptions and policy. They are taught in universities around the world. But there are serious ethical, factual, and practical problems with all aspects of the neoliberal argument.

Considering first the economic underpinnings of neoliberal ideas we see that Pareto analysis uncritically accepts any initial pattern of wealth distribution and then supports changes which ‘harm no-one and make some people better off - in their own estimation’. It therefore fails to challenge initial inequality or to consider the consequences of such inequality for subsequent developments.[11]

The Pareto analysis treats individual consumption and investment as completely rational, free and direct expressions of reliable utility calculations. In fact, decision making in the market is shaped and manipulated by advertisers and marketers, and most consumers’ funds, information and options are seriously restricted. The analysis ignores the many things of real value which have no market price. And it precludes objective assessments of genuine social improvement – in terms of universal – and equal – satisfaction of basic human needs, focusing instead upon subjective individual assessments of utility in market acquisition.

It is easy to see why conservative economists shifted from objective to subjective measures of utility at an early stage of development of neo-classical theory. On any reasonable interpretation, beyond the satisfaction of basic needs, the marginal utility of wealth falls away very rapidly. So a social system that fails to satisfy the basic needs of many while heaping up increasingly value-less wealth in the hands of a few demands radical redistribution for objective utility maximisation.

On a subjective interpretation of utility, by contrast, we cannot say that such excess wealth is worth less to its recipients than is the satisfaction of the basic needs of the poor. ‘Progress’ can be measured only in terms of at least one party’s subjective judgement that the situation has improved, while no-one sees themself as worse off.

Orthodox theory sees the marginal revenue product of labour as dependent upon the number of units of labour already employed ‘and on the quantity and quality of other, complimentary inputs’[12] rather than upon ‘the intrinsic quality’ of the additional labour input itself. So the neo-classical analysis actually provides little support for the idea of ‘reward in proportion to the value of individual contribution’. We know that workers are more productive if they can use better technology. But they have no control over provision of such technology. Why then should some suffer because of the inferior technology provided to them or the bad business decisions of their bosses.

As has frequently been pointed out, there is actually no way to measure the marginal productivity of capital because it cannot – typically – be broken down into homogenous minimal units which can be simply added together as can labour. Even if we could disentangle the value contribution of capital, there is no reason why such value creation should necessarily bear any particular relation to the process of provision of such capital by particular individuals. It doesn’t matter whether such individuals have inherited such funds, or stolen them, they receive just the same returns as those who have acquired them through socially useful sacrifice, effort or stress.

Neoclassical theory notoriously neglects the true significance of negative ‘externalities’ – or deleterious consequences for third parties arising out of market exchanges. And ‘free markets’ are typically short lived as the scale economies of bigger operations allow them to crush or absorb their smaller competitors. And privatisation of public monopolies committed to public service and support of the welfare state all too often creates pernicious private monopolies committed only to profit maximisation.

The trend towards competitive price and profit reduction encourages collusion and monopoly price fixing between different producers within a sector. This typically means restriction of output, leading to wastage of productive resources – including workers left without employment. Bigger profits for the monopoly sector mean smaller profits for the non-monopoly sectors that have to pay monopoly prices for their inputs.

Monopolies and oligopolies ‘use their power over economic resources to suppress socially beneficial innovation’, to control consumption through extensive advertising and marketing, ‘to limit the freedom of entry of new firms’, and ‘to influence government policy to serve their interests at the expense of other community concerns.’[13]

In the real world of twenty-first century global capitalism, powerful monopolies and oligopolies control and restrict production so as to maximise their profits at the expense of consumers and workers denied employment. Destruction of traditional employment and lack of investment in many areas create oversupply of labour, which, along with political restriction of workers rights and powers of resistance, forces wages down below subsistence with no reference to real labour productivity.[14]

At the upper end of the scale, wide dispersal of share ownership and the information gulf between owners and controllers of large corporations allows senior executives to determine their own salaries, again, without reference to real productivity.


At the heart of the capitalist system is a fundamental conflict of rights between that of a business to negotiate a work contract with an individual worker, without ‘outside interference’, and the worker’s right to job security, decent pay and conditions. The imbalance of power created by the limited availability of desirable jobs, and the workers inability to live decently without employment, undermines any idea of free and fair negotiation.

Government steps towards ensuring employment for all who want to work and decent social security payments for those who can’t, recognition and support for strong trade unions as agents of collective bargaining with management, support for legislative regulation of wages and conditions (including minimum wage and unfair dismissal laws) and arbitration by independent legal authorities can go some way towards redressing this imbalance. But neoliberals in power have worked to undermine and dismantle all such protections, thereby rendering the wage contract increasingly unconscionable.

Inheritance involves conflict between the right of the property holder to dispose of their property as they wish, no matter how much of it they have amassed, and how little others might have, and the right of members of the younger generation to equal economic opportunities. Most likely the offspring of the rich and the powerful will already enjoy the benefits of the high quality education, health care and ‘contacts’. For them to also inherit vast wealth while the majority inherits little or nothing creates radically unequal opportunity between social class groups.[15]

Unrestricted inheritance also undermines the neoliberal principle of reward for the value of social contribution. Even if talent is inherited, as the wealthy and powerful sometimes claim, talented inheritors don’t need to use their talents for the social good in order to gain differential reward. Through inheritance they are already rewarded for nothing. And their inherited wealth concentration makes such wealth unavailable to reward other talented people. Inheritance is therefore a major threat to efficient social functioning on the neoliberal ‘special skills’ model considered earlier.


Unrestricted inheritance of money or physical capital makes it possible for individuals to live a life of privilege, without any ‘real’ social contribution whatsoever, merely consuming the income from such capital. They can pay for the best advice and assistance in safeguarding and extending their wealth.

Even if individuals have earned the money for their investment, through socially valuable effort and sacrifice, it is far from clear why they should get a lifetime of reward – in terms of regular dividend payments and capital appreciation – from a single contribution of capital. Such reward is actually paid for through the labour of generations of workers who typically have very little share in the surplus they are generating.

Investors ‘risk-taking’ is significantly restricted by limited liability. Such investors benefit from the corporations efforts to generate profits on their behalf in perpetuity, but are not personally responsible for any obligations which the corporation might incur or harms it might inflict in the process, beyond the value of their investment.

The greatest rewards of share ownership go to insiders, able to benefit at the expense of the majority of less well informed shareholders. The inherent ‘asymmetry of information’ between the majority of shareholders and managerial ‘insiders’ provides the basis for substantial gains through ‘insider trading’.

In many cases rewards are achieved by speculation, rather than meaningful contribution to the long term wellbeing of any particular productive operations. Speculation tends to destabilise share and currency markets and thereby cause major social disruption. Most of those who benefit from share ownership have not actually contributed anything to the funding of the corporations in question, since they have acquired their shares from other shareholders. And far more money flows out of corporations than flows into them as a result of operation of share-markets, so that such markets actually constitute a huge drain on corporate resources of funds which could have been used for capital accumulation and job creation.


At best we can say that some shareholders take a risk by holding on to the shares of particular corporations for prolonged periods, thereby maintaining the share values of the corporations in question, and allowing such corporations to benefit from such stable or increasing values, in terms of access to further investment capital.

There are risks to individuals with limited resources investing in physical capital. Those who borrow money to start a small business are particularly vulnerable. They are typically undercapitalised and at the mercy of the monopoly prices of the big corporations without any of the benefits of economies of scale, political clout, large scale advertising, or access to cheap labour overseas and tax minimisation through transfer pricing available to big transnationals. Many new small businesses collapse in debt at the first serious economic downturn or interest rate rise, despite the best efforts of those concerned.

Small investors are at serious risk of suffering as a consequence of the insider trading made possible by the information gulf between owners and controllers of corporate enterprise. So are they at the mercy of fraudulent and incompetent managers and accountants of particular corporate operations and investment funds and of periodic large scale market adjustments that bring down the honest and efficient along with the inefficient and dishonest. With all their savings or retirement income bound up in such shares, they can indeed suffer badly from even short term and limited falls in share prices.

But neoliberals have been notoriously weak in addressing any of these issues, with some indeed arguing for decriminalisation of insider training. They have taken the lead in market deregulation which has facilitated and encouraged corporate fraud and criminality.

At the other end of the scale of wealth and power, large-scale shareowners can protect themselves from downturns and fraud by large and diversified portfolios and by access to inside information. Their other assets and income allow them to weather the storm of even large scale downturns, and benefit from the new period of growth and higher share values arising from such downturns. To try to justify the vast wealth of this latter group – of the less than 10% of wealthy families who own more than 50% of shares world wide, in terms of the obvious problems of the former, is misleading to say the least.[16]

Those on subsistence wages do indeed make significant sacrifices in saving small sums to put into share-markets. They could indeed be going without necessities to do so. But to suggest that the wealthy make any such sacrifices – through failing to convert all their wealth to immediate consumption – is not just misleading, but also dangerously immoral.


Considering the increasingly inflated remuneration of corporate executives, we see further problems with ideas of reward for socially useful effort and sacrifice, stress and responsibility. Here again, positions are likely to be inherited rather than achieved (by special training or other sacrifice), as those at the top ‘look after their own’. Even if special training is involved it’s far from clear that it really is such a misery and a sacrifice. Many actually enjoy their university days, and such experiences are typically funded at least in part by taxpayers rather than directly by those undergoing the training in question.

Interesting and rewarding jobs provide significant recompense for onerous educational sacrifice, with little moral justification for a lifetime of extra salary as well. It is those who are stuck with unrewarding drudge work who should receive extra payment.

There is a paradox here, in terms of neoliberal appeals to ideas of corporate efficiency to try to justify radical inequality. According to their own theory, such efficiency rests upon long term planning and control, rather than free market chaos. But such planning inevitably favours and fosters bureaucratic hierarchy rather than individual initiative; monopoly and oligopoly rather than competitive price reduction. And neoliberal ideology is implacably opposed to any such economic planning by state authorities.

A central emphasis upon the role of collaboration and integration of work activities in order to maximise productivity in the modern corporation again makes it difficult, and potentially counterproductive, to try to apportion differential reward in proportion to the value of individual contributions. Empirical evidence refutes the claim that high levels of inequality support high levels of productivity, Kawachi and Kennedy refer to Matt Bloom’s research involving major league baseball in the USA, where increasing disparities of reward for different players have developed since the late 80’s.[17]

Contrary to [neoliberal] predictions, the wider the pay dispersion in any given team, the worse was the performance of individual players. Unequal pay distribution had significantly negative effects on player performance, over and above the effects of base pay, past performance, age and experience. More tellingly, wider pay differentials translated into worse team performance. More unequal teams won fewer games and they did worse financially in terms of fan attendance.[18]

Kawachi and Kennedy suggest two possible explanations: that wider pay differentials produce feelings of unfairness and resentment which reduce individual performance, or that such differentials create disincentives to cooperation in a game reliant upon effective teamwork. Players concentrate upon trying to improve their own performance to increase their individual reward at the expense of effective cooperation with others. It’s likely that both play a part.

The relevance of these considerations for ‘wider segments of the labour market’ would seem to depend upon the importance of effective cooperation in the organisations concerned for quality and quantity of output. But it is the effective integration of labour on a large scale that is supposed to be the basis for efficiency and productive success of the modern corporation. And Kawachi and Kennedy here refer to the research of Cowherd and Levine, who found wider pay dispersion in US manufacturing firms in the 90’s resulted in lower quality products.[19]

Particularly significant here are the much higher growth rates achieved by the major capitalist economies during the post war boom, with much lower levels of inequality than in the subsequent phase of neoliberal ‘reform’. As Self observes, ‘not long ago top earners in Sweden paid over 90% [of their income] in taxes without any discernable adverse effects upon the good economic and export performance of Sweden at the time.’[20] And the Japanese economy was particularly successful during a period of restriction of top managerial salaries to a small multiple of wages on the shop floor, when Japanese CEOs were known to take voluntary pay cuts to preserve workers jobs.

For the largest 500 US companies the ratio of CEO pay to production worker earnings rose from 30 in 1970 to 570 in 2000, with most of the increase taking the form of stock options. This contrasts with ratios in the 10-25 range in Japan and Europe.[21]

Yet there is no evidence to support claims of any better US CEO performance. On the contrary, there was a close link between this massive inflation of executive compensation in the USA and ‘the wave of corporate scandals (Enron, WorldCom, etc) that engulfed the USA after the stock market boom subsided in 2000.’ As Krugman observed,

a system that lavishly rewards executives for success tempts those executives, who control much of the information available to outsiders, to fabricate the appearance of success … aggressive accounting, fictitious transactions that inflate sales, whatever it takes.[22]


Far from corporate executives necessarily needing any particular unique skills or abilities, their position of power and privilege would seem to enable them to command the actions of others with every possible kind of special skill or ability that might be needed. And in relation to issues of rational efficiency, stress and responsibility, it is the ways in which reality departs from the neoliberal ideal that are most significant.

Robert Jackall’s empirical investigations of American corporations suggest that real structures are ‘patrimonial’ rather than rationally efficient. In other words, individuals are encouraged to curry favour with those above them in the hierarchy in the hope of protection and promotion, while they plot against those on the same level and exploit those below them. As Jackall says,

[i]t is characteristic of this authority system that details are pushed down and credit is pulled up. Superiors do not like to give detailed instructions to subordinates. The official reason for this is to maximise subordinates autonomy. The underlying reason is, first to get rid of tedious details. Most hierarchically organised occupations follow this pattern; one of the privileges of authority is the divestment of humdrum intricacies. This also insulates higher bosses from the peculiar pressures that accompany managerial work at the middle levels and below; the lack of economy over ones time because of continual interruption from ones subordinates, telephone calls from customers and clients, and necessary meetings with colleagues; the piecemeal fragmentation of issues both because of the discontinuity of events and because of the way subordinates filter news; and the difficulty of minding the store while sorting out sometimes unpleasant personal details. Perhaps more important, pushing details down protects the privilege of authority to declare that a mistake has been made.[23]

Such a system functions to effectively push stress and responsibility down the corporate hierarchy, rather than concentrating them at the top. Far from CEOs ‘deserving’ their increasingly vast recompense by virtue of the great burden of stress and responsibility they bear, the whole system is actually constructed to relieve them of any such stress and responsibility.[24]


Corporations lack human minds and human bodies. But the legal fiction of corporate personhood, distinct from shareholders and corporate officers, is maintained by identifying some of the corporations’ senior managers, ‘those designated as directors, officers or executives’ as if they were the ‘mind’ of the organisation. This might be thought to apportion responsibility for corporate wrongdoing to such individuals. But, generally, this is not the case.[25]

As Glasbeek says,

as the thoughts and acts of … the directors and officers of the corporation are treated as if they were the thoughts and acts of the corporation, they are, legally speaking only, of course, not the thoughts and acts of the directors and officers as people. It follows that the corporation, and not the directors and officers, should be held legally responsible for those thoughts and acts. As a consequence, investors in the corporation are not the only ones blessed with limited liability for risks created by their wealth – seeking activities through the corporation. Directors and Officers and executives have a form of limited liability as well.[26]

The complexity and cost of investigating and prosecuting corporate crimes to the cash-strapped and under-resourced public authorities entrusted with such tasks and the very substantial resources available to corporate executives to deter and defend any such prosecutions leaves such executives largely immune from genuine legal responsibility and the stresses associated with it.


These observations – of decreasing stress up the social power hierarchy - receive strong support from the epidemiological studies of Marmot, Wilkinson, Kawachi, Kennedy and others. Marmot’s classic studies of different employment grades in the occupational hierarchy of the British public service[27] demonstrated a direct relation between ranking, mortality and morbidity. As he says, ‘the men at the bottom of the hierarchy have, at ages 40 to 64, four times the risk of death of the administrators at the top of the hierarchy.’ Each occupational level was found to have higher mortality than the one above it in the hierarchy. The gradient got shallower at older ages, ‘but even at the oldest age, the bottom group has twice the mortality of the top group.’[28] Those lower down the hierarchy had higher levels of lifestyle risk factors, in the areas of smoking, blood pressure, plasma cholesterol, and blood sugar, which did contribute to higher mortality and morbidity. But adjusting for such factors made only a slight different to the results.

Since the gradient applies to incidence of disease and since relatively high quality public health services were, at the time, available to all British citizens, quality of health care does not explain the difference. Those lower in the hierarchy were found to have much more health care by virtue of higher levels of serious illness.[29]

Evidence from many different directions, particularly experimental manipulation of status hierarchies in monkey populations, as well as other large scale epidemiological studies of human populations, point to work stress, as major cause of both the underlying health gradient and of the greater lifestyle risk factors down the hierarchy.[30]

As Marmot says, ‘the nature of the hierarchy is the less control (and less reward for effort) the lower you go’.[31] A fight and flight response, evolved to deal with brief emergencies, becomes increasingly chronically activated by increasing insecurity, powerlessness, and fear as we move down the social hierarchy. Without the opportunity to relieve stress through fight or flight, the prolongation of the stress reaction of increased heart rate and blood pressure, and rapid transmission of nutrients to muscles through the inhibition of insulin secretion undermines the bodily functions of tissue repair, growth, immune response, digestion, leading ultimately to illness and death.[32]

Lower ranking public servants at the time of research had job security, and living wages as well as access to comprehensive social welfare provisions. Those in the lower reaches of corporate hierarchies in the contemporary world typically lack all of these things. They are in a situation where job loss will have a potentially disastrous impact on all aspects of their lives. This is in radical contrast to those at the top, who have the financial and social resources to see them through such job loss without any such consequences.


There is now plenty of evidence showing that high levels of inequality within and between countries is seriously bad for the health and well-being of those worse off. Absolute poverty in the third world leads to millions dying of easily treatable and preventable infectious diseases and accidents. In the developed world, the extent of inequality within nations and regions is strongly correlated with lack of trust between people, with weakness of community life, higher homicide rates, higher levels of hostility, and worse health outcomes, including higher infant mortality rates for the less-well-off. The reduced life expectancy of poorer people in high inequality situations, five, ten or fifteen years less than that of the richer people, brings down the average life expectancy for more unequal societies.[33]

In leading to increased inequality, so do unregulated markets lead to objectively measurable declines in real social welfare, or to measurably lower levels of welfare than could be achieved under alternative possible arrangements. Pareto optimal outcomes, which increase wealth at the top without greater increase at the bottom, are objectively anti welfare and anti social well-being.


Even if we could measure the market value of individual contribution there is the question of whether this is a fair or rational basis for individual reward. The market fails to give any value to many different forms of obviously valuable social contribution of work and resources from housework to provision of necessary social infrastructures, from mutual assistance in subsistence farming to provision of sustainable energy. At the same time it does value and reward production of many things of questionable or negative social value (including pollution and global warming).

Even if we accept market values as social values, and can measure individual value contributions, the question arises of whether it would not still be fairer to reward time and effort devoted to useful production rather than value produced. Neoliberal theory itself suggests that some people are more productive simply because of inherited abilities – of strength and skill – which they have done nothing themselves to develop or improve, while others have made major efforts, but because of inherited limitations are still able to produce lesser amounts of social value. Is it really fair and just that the former receive more than the latter? Surely people should be rewarded for their actual useful – chosen amount of - socially valuable effort and sacrifice (including income lost or misery sustained during training), rather than for things over which they have no control.

The common law criminal justice system does not generally punish actions over which the actors concerned have no control – which they have not freely and intentionally (or recklessly) undertaken, such as harming others during epileptic fits. Why then, should the economy punish individuals for things over which they have no control, by paying lower wages to those who, by chance, lack inherited physical and mental advantages?[34]

Even if it turns out that we could measure individual value contributions (as ‘real’ social values) and that such measures do indeed correspond to current wage and salary differentials, and that such differentials really do increase overall wealth production, there would still be very strong moral and practical arguments against maintaining such differentials.

It is morally unacceptable and unjust to deny any human beings satisfaction of basic needs while heaping up increasingly value-less rewards for the few. And we can see that the real ‘wealth’ of a society lies in the quality of life of the citizenry as measured in terms of health, lifespan, safety, security, trust, collaboration, and realisation of the human potentials of all. The evidence shows that this is as much an issue of distribution and of the quality of output as of the actual quantity or market value of output. So even if it were true that overall quantity and market value of output could be increased by significant inequality of reward, it would still make basic utilitarian sense to sacrifice some such quantity and value in favour of reduced inequality.

Only if wealth production would necessarily fall so significantly - under a more egalitarian arrangement - as to push a first world territory back into pre-industrial poverty, would there be ethical and practical reasons for maintaining significant differentials. And we have no reason to believe such a result to be necessary or even likely. On the contrary, available evidence suggests that increased equality would lead to significant productive gains, through greater mutual support, respect, trust, good health, collaboration, and optimum realisation of the potentials of all.[35]


In their recent study of Who Gets What,[36] Frank Stillwell and Kirrily Jordan map out recent trends of increasing inequality in Australia, at least in part, as a result of the policies of successive neoliberal governments, both Labor and Liberal. In particular, they highlight the evidence suggesting ‘a long term redistribution of income away from labour and towards capital’ in Australia since the mid 70s, with wages as a share of total income falling from 62.5% in 1975, to 53% in 2005-6, and profits rising from 16% in 1975-6 to 27.5% in 2005-6.

As they say,

the inegalitarian effects of the redistribution … become more apparent when viewed in conjunction with figures on the concentration of ownership of capital. A recent study carried out by the ASX found that … in 2004 ... only 10.6% of the population held more than $100, 000 in direct share ownership, with 27.7% holding more than $10,000. 56% were holding none and therefore received no income from this form of capital.[37]

At the same time, the dividend imputation credit system has increased the proportion of income going to the wealthy minority of major shareholders:

Ostensibly designed to alleviate double taxation of dividends, this imputation system allows tax paid by companies to be refunded to shareholders receiving franked tax-free dividends. The effect has been a massive redistribution of income to corporate shareholders.[38]

Wages have become increasingly uneven across occupations and within them, with a much greater proportion of managers and administrators in the top income brackets. Stillwell and Jordan show that the ratio of CEO remuneration to average earnings has increased from 18:1 in 1989-90 to 63:1 in 2004-5, with Macquarie Bank CEO, Allan Moss, for example, receiving ‘an annual pay of $21.2 million in 2005’, equivalent to $400,000 per week.’[39]

While the neoliberal Howard government has ‘significantly reduced welfare payments to some of the most disadvantaged groups in society’, so too have they delivered substantially higher tax cuts to those on higher incomes, with ‘the poorest 50% of taxpayers receiving just 19% of the cuts’ in 2005-2006.

The unequalising effects of government policy have been further compounded by cuts in company tax rates, … and reduction in the effective rate of capital gains tax ... Analysis of the official tax statistics shows that the annual revenue collected from [capital gains] tax fell from $5.3 billion to $3.3 billion over the three years immediately following the … halving of the effective rate of [that] tax in 1999. In the very first year some 68,000 taxpayers earning over $100,000 – less than 1% of all taxpayers – received half of all the capital gains received by individuals during that year … amounting to an average tax cut of $220 per week.[40]

As Stillwell and Jordan emphasise, such tax cuts to the already wealthy,

undermine the government’s ... ability to spend on public goods, social services and social security provisions [are] constrained. So the generosity to the owners of capital is matched by a corresponding austerity in respect of social infrastructure spending and payments to welfare recipients.’[41]


Increasing inequality of wealth is closely bound up with increasing inequality of political power insofar as private wealth – including corporate wealth - can be used to support particular political parties, programmes and causes in various different ways. And such political power, can in term, be used to further increase private wealth. As Stiglitz points out,

in sophisticated economies such as the United States, outright bribery has been largely replaced by political campaign contributions … Forty-one companies (including General Electric, Microsoft and Disney), which invested – ‘contributed’ - $150 million to political parties and campaigns for U.S. federal candidates between 1991 and 2001, enjoyed $55 billion in tax breaks in three tax years alone. Pharmaceutical companies spent $759 million to influence 1,400 congressional bills between 1998 and 2004 … [and] the U.S. government has made their interests paramount in international trade negotiations, and under the new Medicare drug benefit the government is proscribed from bargaining for lower prices – a provision worth billions of dollars just by itself.[42]

Things have not gone as far in Australia as in the U.S. heartland of neoliberalism. It remains to be seen how far they will go.

[*] Senior Lecturer, School of Law, University of Western Sydney.

[1] See Andrew Levine, Engaging Political Philosophy (2002) 36.

[2] This argument is particularly clearly formulated by sociologists Kingley Davis and Wilbert Moore, ‘Some Principles of Stratification’ (1945) 10 American Sociological Review 242. This article is quoted and discussed in Ichiro Kawachi and Bruce Kennedy, The Health of Nations (2006) 86-87.

[3] It is also argued that such ‘death taxes’ involve double taxing of funds from which income or profit taxes have already been extracted.

[4] E K Hunt, History of Economic Thought (2002) 379.

[5] Ibid 381.

[6] As Stilwell notes, according to this model, ‘not only do consumers choices signal what is to be produced, but consumers acquire their goods and services at the lowest prices consistent with sustaining the necessary levels of production.’ Frank Stilwell, Political Economy (2002) 174.

[7] Given that such differential reward – in proportion to actual contribution - will inevitably lead to inequality of ‘outcome’, it could be said that such inequality is a necessary price to pay for market efficiency. This would suggest an essentially functional justification of such inequality – in terms of the universal benefits of such free and efficient market relations, rather than in terms of reward for effort and sacrifice, as in the ‘traditional’ argument.

[8] Universal Declaration of Human Rights, GA Res 217 A (III) (1948).

[9] International Covenant on Economic, Social and Cultural Rights, opened for signature 16 December 1966, 999 UNTS 3 (entered into force 3 January 1976).

[10] Neoliberals are long time supporters of the idea of rewards in the form of stock options for such managers to ensure their ongoing diligence in maximising share values through maximising corporate wealth. The disastrous consequences of this policy were brought home to many by its role in driving the ‘creative accounting’ and major corporate collapses of the 1990s. See Joseph Stiglitz, The Roaring Nineties (2003) ch 5.

[11] As Hunt says, ‘in a world of class conflicts, imperialism, exploitation, alienation, racism, sexism, and scores of other human conflicts, where are the changes that might make some better off without making others worse off? Improve the plight of the oppressed and you worsen the situation of the oppressor – as perceived by the oppressor, of course. Any important social, political and economic situations where improving the lot of one social unit is not opposed by naturally antagonistic social units are indeed rare. The domain of this theory would…seem to be so restrictive as to hardly warrant investigation…’ Hunt, above n 4, 385.

[12] Robin Hahnel, The ABC of Political Economy (2002) 29.

[13] Stilwell, above n 6, ch 21.

[14] Business leaders and orthodox economists try to justify US $1 a day wages in their third world operations, with six and seven day weeks of dawn to dusk labour, appalling working conditions and even child labour, on the grounds that any paid work is better than none. But it is they themselves who created the large scale unemployment that they now exploit through their promotion of ill-conceived ‘development’ projects that generated unpayable third world debt, including big dam projects and export agribusiness in the countries concerned, at the expense of traditional farmers, thrown off their lands, and through their cheap and subsidised food exports to those countries, forcing small scale farmers, who cannot compete, into bankruptcy, through creating odious third world debt. They refuse to consider the real alternatives of land reform in the interests of self sufficiency, total debt relief and the replacement of free trade with fair trade.

[15] The neoliberal answer is to sacrifice equal opportunity to the rights of property. But there is no principled basis for such a move. And reference to the needs – and opportunities – of the majority leads to the alternative conclusion. As Hahnel says, ‘while some freedom of consumption for the older generation is sacrificed by outlawing inheritance, this minor restriction of a right is necessary to protect a more fundamental right of the younger generation to equal economic opportunities.’ Robin Hahnel, Economic Justice and Democracy (2005) 23-24. There are other ethical issues raised here. In a world where those who are not masters will inevitably be slaves, without adequate access to basic necessities, then it would seem that it is a parents duty to do everything they can to ensure that their own children are masters rather than slaves. But it is the duty of responsible government to ensure that this is not the situation confronting parents. That all members of the younger generation have the opportunity of a good life without the need for inherited wealth. With as much as 80% of personal wealth coming either from ‘direct inheritance or the income of inherited wealth’ [see Hahnel, above n 12, 27-28.] such inheritance is a major contribution to the increasing inequality of wealth in contemporary society. Therefore so is it also a major contributor to the adverse social welfare consequences of such inequality, in terms of loss of social cohesion, crime, morbidity and mortality. Confronted with such realities, neoliberals frequently fall back on appeal to the social benefits of inheritance to the less well off. But to compare a little bit of inherited assistance for struggling families with inheritance of great business empires entirely misses the point. Here we need to ask why such families are struggling in the first place. And we need to recognise that it is perfectly possible to draw some legal lines somewhere between the two sorts of cases.

[16] In the US, by 1989, ’the richest 1% of families held 45% of all non-residential real estate, 62% of all business assets, 49% of all publicly held stock, and 78% of all bonds.’ See Hahnel, above n 12, 21. To suggest that these people sacrifice anything to buy or hold such shares is very misleading. They certainly don’t go hungry to do so. Not buying shares with the sort of money available to these people would be the sacrifice – with bank interest rates less than dividend payouts; certainly they are not going to spend it all on immediate consumption; there is only so much a human can consume.

Risk taking in itself is not generally seen to have any intrinsic moral or social value. Gambling is now generally seen as a highly socially and personally destructive habit. In this case it must presumably have functional significance in terms of the social contribution of the corporations supported by such risk taking. Such gambling might therefore be justified in relation to appropriately ethical investment. But it’s difficult to see how this could be so in relation to production of cigarettes, gas-guzzling limos or coal.

We must remember that every dollar that actually contributes to investment in coal, uranium or genetically modified foods could have been invested in sustainable, healthy and non-polluting wind power and organics. The fact that more profits can currently be made from the former as against the latter casts serious doubts over ideas of market efficiency. Unrequited externalities subsidise the costs of toxic and unsustainable technologies.

[17] Bloom measured individual player performance using several well-established indicators. To gauge team performance, he used the winning percentage, fan attendance, and the team’s finishing position at the end of the season.

[18] Kawachi and Kennedy, above n 2, 89-90.

[19] Ibid 91.

[20] Peter Self, Rolling Back the Market (2000) 27.

[21] Andrew Glyn, Capitalism Unleashed; Finance, Globalisation and Welfare (2006) 58.

[22] Ibid 59; Paul Krugman, ‘Corporate Mischief’, New York Times, 5 June 2002, 111.

[23] Robert Jackall, Moral Mazes: The World of Corporate Managers (1988) 20.

[24] Ibid 20.

[25] Harry Glasbeek, Wealth by Stealth (2002) 11-12.

[26] Ibid 12. It’s true that ‘in recent times, as the public has become more conscious of the many unredressed harms done by, and through, corporations, legislators have felt themselves obliged to impose some responsibility for corporate behaviour on real people – on directors and officers.’ A significant recent example here, arising out of the massive corporate frauds of the 1990, is the Sarbanes-Oxley Act (passed in 2002) which requires CEO’s to hand over ‘any profits from bonuses or stock sales during the 12 months after a final report subsequently ‘restated’ because of ‘misconduct’. But generally ‘these attempts have met with a storm of protest’ and remain limited in their application and significance. Glyn, above note 21, 62.

[27] Starting with Whitehall 1, involving a prospective study of 18,000 people over a 25 year period.

[28] Michael Marmot, The Status Syndrome (2004) 39.

[29] Ibid 129.

[30] Here stress is understood in terms of the lack of balance between demands made on an individual and the level of their control over resources and circumstances necessary to meet such demands, on the one hand, and the lack of balance between effort and reward on the other.

[31] Relative mortality of lower grades to higher shifted from 1.8 (times that of the top grade) to 1.5 over the 25 years of the study. And this raised the obvious question of why lifestyle risk factors became increasingly common lower down the social hierarchy. A second study found lower control in lower ranks ‘whether we consider peoples self reports or managers’ assessments of how much control each job entailed’. And ‘this gradient in control over work appears to have strong implications for the gradient in heart disease and mental illness.’ Marmot, above n 28, 29.

[32] Marmot, above n 28, 129.

[33] See eg, Richard G Wilkinson, The Impact of Inequality (2005).

[34] Hahnel, above n 15, 25-27.

[35] Here indeed, we have good reason to believe that the alleged social benefits of high levels of inequality (of reward) are not really social benefits at all. As Kawachi and Kennedy argue, quoting sociologist Melvin Tumin, rebutting the Davis and Moore position, there is good reason to believe that: [1] Social inequalities function to limit the possibility of discovery of the full range of talent available in a society. [2] Social inequalities function to provide the elite in a society with the political power necessary to procure acceptance and dominance of an ideology that rationalises the status quo as logical, natural and morally right. [3] To the extent that inequalities in social rewards cannot be made fully acceptable to the less privileged in society, social inequalities function to encourage hostility, suspicion, and distrust among the various segments of society and thus to limit the possibilities of extensive social integration [4] To the extent that participation depends on the sense of significant membership in the society, social inequalities cause social exclusion and function to distribute the motivation to participate unequally in a population. See Melvin M. Tumin ‘Some Principles of Stratification: A Critical Analysis’ (1953) 18 American Sociological Review 387, discussed in Kawachi and Kennedy, above n 2, 100-101.

[36] Frank Stilwell and Kirrily Jordan, Who Gets What (2007) 21-22.

[37] Ibid 23.

[38] Ibid 155.

[39] Ibid 126.

[40] Ibid 155.

[41] Ibid 155.

[42] Joseph Stiglitz, Making Globalisation Work (2006) 191.

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