Does high employment require high social inequality?

Until quite recently, Australia could boast that it had achieved a reasonable balance between employment and equality. Sure, we substantially deregulated the labour market but we also invested heavily in human capital and maintained a strong social safety net. However the Howard Government’s recent workplace and welfare measures have put us firmly in the American camp.

Does the Nordic social model offer Australians an alternative policy route to high employment? Many believe not. They argue that Nordic tax and redistribution policies cannot be exported to countries with a very different set of social values and priorities. There is more than a core of truth in that view.

Nordic redistribution policies rest on three pillars: deep-rooted egalitarian values (which stand out clearly in all international surveys); an electoral system which ensures that these values are fully reflected in the parliament; and a population which is ethnically homogeneous and geographically concentrated. These features are lacking in most other countries. For example, in the US and Australia, poor people tend to be predominantly from minority groups and are often geographically and socially segregated from the better off people, producing a “them” and “us” mentality.

But Australians still have a strong and passionate belief in equality of opportunity - the notion that everyone should have an equal chance to achieve their full potential, irrespective of their social background. It is the essence of what we all mean by a “fair go”. Since the Nordic “social investment” model is all about equalising opportunities, parts of it should appeal to Australian values.

Of course, we can never go a long way down the Nordic path. But the confident assertion of Howard ministers that the only way to improve our employment performance is through harsh welfare-workplace measures, which produce greater inequality, is a half-truth masquerading as economic science.