Andrew Leigh — Inequality and Egalitarianism [Australian Policy Series]

This episode is the second of my live policy salons. It was recorded in Sydney on January 29, 2025.

What is the relationship between economic equality and egalitarianism in the cultural sense? Where does Australia's egalitarian tradition come from? Are we too egalitarian? Is economic inequality increasing? What's been driving it? And does it even matter?

We sit down with Andrew Leigh to discuss these questions and more.

Dr. Andrew Leigh MP is Australia’s Assistant Minister for Competition, Charities, and Treasury, and Assistant Minister for Employment. An economist by training, he was previously Professor of Economics at the Australian National University and earned his PhD from Harvard. The main theme of his academic research has been inequality.

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Video

Transcript

JOSEPH WALKER: Well, thank you all for coming. Allow me to set some context before we begin the conversation.

The defining characteristic of Australian culture is our egalitarianism. That's been true for at least the last 150 years.  

One of the curious things about Australian history is that that ethos of egalitarianism crystallised into a national identity around the 1890s—paradoxically a period of much higher economic inequality than today. 

If you go back to the late 19th century and the early 20th century, Australia was a place of stark social disparities. It was a time when real jolly swagmen roamed the lands. It was a time when Australia had a higher share of people working as domestic servants than the United States. By 1910, the top 1% received 12% of all personal income. The top 0.1% received 4% of all personal income—a share that was 40 times their proportionate share.  

According to our guest this evening, the broad story of Australian inequality post-Federation falls into two distinct phases. From those highs at Federation through to the 1970s, inequality fell. From the 1980s to today, it's risen. While inequality today isn't quite as high as it was in the 1910s, depending on how you measure it, it's getting pretty close.  

So what's been driving this trend? Does it even matter? And how do we reconcile it with Australia's deep-seated cultural egalitarianism?  

There are few people as well placed to help us answer these questions as Andrew Leigh. Andrew is Australia's Assistant Minister for Competition, Charities and Treasury, and Assistant Minister for Employment. Before entering politics, he was an Economics professor at ANU. I think it's fair to say that the dominant theme that runs through Andrew's academic research has been inequality, going all the way back to his PhD thesis. 

He's also one of my favourite people in the world and, as of tonight, shares equal first place for all-time podcast appearances.  

So, Andrew, welcome back to the show.  

ANDREW LEIGH: Well, thank you, Joe. Great to join you on Gadigal Land in the hippest podcasting venue I have ever been in. Thank you for having me along. And thanks to everyone for being part of a discussion not only about inequality, but also very much about Australia's national identity. I'm looking forward to it.  

WALKER: Absolutely. So the way this will work is we're going to have a chat. This isn't going to be a substitute for Andrew's book, Battlers and Billionaires. I've bought you all a copy so you can read it in your own time. It's a gem. 

But my focus is going to be a little more idiosyncratic. I'm going to ask the questions that I want to ask. 

One of the things I learned receiving some tutoring in the economics of inequality over the past couple of weeks is just how much falls under this umbrella. 

I'm not going to cover everything tonight. But fortunately, we have a very smart audience here with us this evening who can supplement my questions with their own. 

We'll hear your questions at the end. Please bear in mind my two heuristics for asking good questions. First, ask a question to which you're genuinely curious to hear the answer. And second, the more specific your question, the better. 

So with that, Andrew, as a sign of my utmost respect and in the great Australian tradition of egalitarianism, I'm going to prod and challenge you for the next 60 or so minutes. Are you ready?  

LEIGH: Absolutely. Joe, there is a lot of inequality and preparation among podcast hosts, and you are definitely in the top 1%. So I'm excited and scared in equal measure.  

WALKER: First question, if we distinguish economic inequality—as measured by, for example, Gini coefficients—from cultural egalitarianism in the sense of John Hirst's “equality of manners”, how do you think about the causal relationship between those two variables?  

LEIGH: I think in a cross-nation sense, they do go together. So you look at egalitarian Sweden and hideously unequal Latin America. In Latin America, the norms around how people interact across classes are far more stark than you see in Scandinavia. In Scandinavia, the equality of manners reflects the equality of incomes. 

But I think you're right to say that if you look within a country over time, it doesn't appear that those two things go together very much. Your point about Australia in the 1800s, I think, is bang on. That was a country where you had squatters owning huge tracts of land, often because it had been granted to them by the early governors. And then you had people that would literally walk from job to job, earning only what they could get as day labourers. That's a more unequal nation than we have today. But that's the crucible in which the notion that Jack wasn't just as good as his master but maybe better, that produced the Henry Lawson poems and all of those tales of egalitarianism that we hold dear.  

WALKER: So where do you think Australia's egalitarian culture comes from historically? 

I can tell at least two stories. The first story would be the kind of story we find in Manning Clark, which is that there was a limited supply of labour in the early days of the colony. So land is plentiful, labour's scarce, and accordingly, workers have a relatively more even balance of power with capitalists, certainly much more so than in Europe or North America. 

The second story is that when the colonists leave Europe to set up a new settlement, whether that's in Canada, America, Australia, they kind of carry a shard of the European political culture with them that gets frozen at the time. And so when America is setting up their political institutions, the dominant political philosopher is probably John Locke. By the time Australia is doing the same, it's Jeremy Bentham. And so there's much less, you know, Gladstonian Liberalism, and much more kind of Benthamite utilitarianism in the air that's flowing through to our egalitarian ideology. 

Which of those two stories seems more important to you in explaining why we have this egalitarian culture? Or am I missing some kind of other story? 

LEIGH: So I think your first one is the more important, and I'll add one more, a third theory.

In Australia in the 1800s, you have a country in which labour is scarce and land is plentiful. It's almost the opposite to what you see in Europe, where it's possible to drive down wages because there are many workers around to do the job. Whereas when you get to Australia, you simply can't mistreat your workers because there's not very many of them. And so as a result, you see a lot of the early trade unions forming here. The eight-hour day emerges. In the 1800s, workers in Sydney are earning significantly more than their counterparts in Chicago and London because workers are more scarce.

I'm kind of less attracted to the theory of political philosophers.

But I do think that one other factor is the role of the gold rushes. So the gold rushes are a moment where essentially luck determines your wealth. And so regardless of the skills that you have or the hierarchy that you've occupied, you're able to make it based on the chance of whether your particular plot has enough gold in it. That shakes things up, as, of course, does migration. You know, when countries are settled for very long periods, then hierarchies can emerge. You think about the way in which the hierarchies entrench themselves in Venice, the stories about long French aristocratic families. None of that exists in a settler society like Australia in the 1800s, where, apart from the first nations people, basically everyone's just gotten off a boat.

WALKER: The gold rush story is interesting. I hadn't considered that, but that does make sense. So I think it's in his book Australia, by the great Australian historian Keith Hancock… 

So if anyone hasn't heard of this book, Australia, it's kind of our version of Tocqueville's Democracy in America or Bagehot’s The English Constitution. It's kind of like a book that just captures the spirit of Australia at the time. Took me about two weeks to get a second-hand copy. It's out of print. There's definitely some kind of interesting project there in republishing this book. 

But in Australia, if I remember correctly, there's this line where Hancock says something like, within a decade of the Gold Rush, basically the whole Chartist programme had been implemented in Australia. So that would support the Gold Rush story, because the timing is so tight there, right?

LEIGH: Yes. And you've got massive immigration, so you have this decade of the gold rushes, in which the Australian population triples, in which the population of Melbourne goes up by a factor of seven. 

And that's got to create social fluidity and a whole lot of mixing. It means that those workers are coming in and essentially setting up a society around what they want. 

Now, it's a very masculine society. And so when we're talking about equality for whom, this is not a society that has provided equal opportunities by gender. There's certainly the massive mistreatment of first nations people, including massacres of that period. 

But among settler males, there is a greater degree of equality than they would find in the countries from which they're coming.

WALKER: So if we imagine some kind of cultural dimension: egalitarian-inegalitarian. And we could survey people internationally and place countries somewhere along this dimension—I assume social scientists have done this; I just can't quote any research off the top of my head. But presumably, Australia sits more towards the egalitarian end of the continuum. If you think about the tall poppy syndrome, would that be at the extreme egalitarian end of the continuum?

LEIGH: So, I find the tall poppy syndrome much more complained about than in reality. I don't strike many people who are horrified by success, whether it's in business or on the sporting field or in the arts. 

But in terms of Australian egalitarianism, I think there is that notion that being successful doesn't cause us to put you up on a pedestal. We're a country that doesn't stand up when the Prime Minister enters the room. It's a simple thing, but in most countries, when the national leader enters the room, everyone instinctively stands up. 

There's no private areas in Australian beaches. You can't buy a chunk of land, although, of course, as we discovered in recent weeks, you can plant your cabana and see how long it takes for other people to get annoyed. 

And many of us sit in the front seat of taxis, which is not something that is the norm in other countries where the chauffeur approach holds. 

I love the word 'mate', and I came to love it even more when I was living for four years in the United States because it does have a lovely egalitarian flavour to it. Yes, there's a gendered aspect to 'mate'; I'm doing my best to break that down by using mate for all my male and female friends.

WALKER: It's interesting because politicians are kind of the biggest tall poppies of all, right? 

Wasn't there some—you remind me—there was some “mate-gate” scandal at Parliament many years ago. Do you remember this?

LEIGH: I do, indeed. A memo went around from the Department of Parliamentary Services instructing all security guards that they were not to address parliamentarians as 'mate'. 

It generated bipartisan outrage. Parliamentarians of both sides flocked to the floor to say that they were very happy to be called 'mate'—one saying it was the best four-letter word he got called—and the Department of Parliamentary Services very quickly backed down. 

So, yeah, I was in Parliament House this morning, and the security guard and I said, 'thanks, mate' to one another. The tradition persists.

WALKER: That's great. Another one struck me while I was watching the inauguration the other week: we don't call our prime ministers 'prime minister' after they leave office, but the Americans keep calling their presidents 'president'. 

I wonder whether there is some kind of trade-off between an egalitarian culture and how innovative you are, to the extent that tall poppy syndrome is a problem. I think we have some people from the tech and VC ecosystem with us tonight. It would be interesting to hear whether that holds Australia back.

LEIGH: So Joshua Gans and I explore this a little bit in a book called Innovation + Equality: How to get a future that's more Star Trek than Terminator. We argued that it's partly the size of the prize, but also it is the downside risk. Societies are able to get more innovation if they can provide a social safety net that ensures that you can start and fail and then start again. 

The very best of this is the notion in some places—Tel Aviv, Silicon Valley—that having failed sets you up for better success in the future. 

So we don't just want to think about inequality driving innovation. In fact, I don't know of much evidence that there is a strong relationship between, say, patent production and inequality across countries.

WALKER: To push back on you: if we maintain this distinction between economic equality and cultural egalitarianism, it's the cultural egalitarianism I'm interested in. So I don't have good evidence for this, but just anecdotally, my sense is that tall poppy syndrome is a real thing that holds back Australian innovativeness—if you compare us with a country like, say, America, which is much harsher, much more cutthroat, prides excellence and, you know, ostentatious displays of wealth and success, it does seem to encourage more risk-taking.

LEIGH: Yeah, I mean, the survey result that I've noticed is fear of failure in starting a business, and Australians are much more fearful than Americans about the prospect of failure. 

I haven't met any would-be entrepreneurs who are worried that if they were to succeed, people might thumb their nose at them in the street. 

But, you know, there's also not a sense among successful entrepreneurs that they're really lording it over others. Many of the tech entrepreneurs take the approach that they have been lucky rather than that it is just their skill that's been brought to bear and therefore look to give back, in some cases in very substantial ways. So, you know, I think that reflects the notion that they're not just about trying to grab a huge chunk of assets for themselves, that wasn't what drove them as much as just an intrigue of big ideas and an interest in making a difference.

WALKER: So do you think we're above or below the optimal level of egalitarianism in Australia, on this cultural dimension?

LEIGH: Look, I think the culture is right, but the question is how long it can hold up as economic inequality gets higher and higher. 

Just over the course of the last couple of decades, we've seen the share of Australian wealth held by the top 200 increase fivefold and the share of Australian wealth held by the top 20 increased ninefold. 

We've seen increases in expenditure inequality, income inequality, wealth inequality, and of course the run-up in house prices, which I'd argue has also increased the gap between the haves and the have-nots. All of that does strain the Australian egalitarian values and, I think, means they can't forever endure in a nation that's becoming increasingly unequal.

WALKER: Yeah, I have many questions on this. Just one last question on innovation before we move on. 

It's interesting to ask whether we even want to become more innovative. There's this 2012 paper by Daron Acemoglu and a few others which talks about there being this sort of international equilibrium between “cutthroat democracies” like America and then the more “cuddly democracies” like Australia or the Scandinavian countries. I guess the argument here is just: America's pushing the frontiers of technological progress, and that comes with costs, that comes with higher inequality, comes with a reduced social safety net. 

That's great for them, but for countries like Australia, it's more rational just to kind of free-ride on American technological progress. 

So, you know, they'll create new iPhones for us, and we'll just keep providing services to Asia and keep being a big mine with a parliament attached to it. You know, they can have their Elon Musks and their Sam Altmans; we'll have our Gina Rineharts and our progressive welfare systems. 

What's wrong with that vision of Australia? Why can't we just stay as innovative as we are and free-ride on countries like America?

LEIGH: Well, innovation has traditionally been a major source of productivity growth and a rise in living standards. You can borrow some of that internationally, but you'll need to develop a lot of it yourself. You think about Australian innovations like the stump-jump plough, which wouldn't have been invented in a place where you didn't have stumps to jump. So having local innovation really matters. 

And yes, you can think about innovation as being people chasing a pot of gold at the end of the rainbow and how do we make that pot of gold bigger? 

Or you can think about creating opportunities for people who aren't currently getting them. So we know that patents are much more likely to be filed by men, by people whose parents were innovators, by people who went to good schools, by people who grew up rich.

And that means there's a whole host of lost Marie Curies and lost Albert Einsteins out there in more disadvantaged families. So to link up those people with mentors, with skills, with the funding they need, produces more innovation. And by the way, it also gets you more equality. What's not to like?

WALKER: So let's talk about economic inequality. In reading Battlers and Billionaires, my sense is that you prefer talking about inequality in terms of top income or wealth shares rather than Gini coefficients. Am I reading you correctly? And why do you seem to prefer those metrics?

LEIGH: So my mentors in studying inequality were Christopher Jencks, a sociologist who supervised my thesis, and the late Sir Tony Atkinson, who developed his own inequality metrics, many of them based on the bottom of the income distribution. 

But as I was finishing my PhD, a couple of French mathematicians turned economists, Thomas Piketty and Emmanuel Saez, started to say, look, we can use tax data to estimate top incomes, and it's got two advantages. Firstly, we can get it at times before they did surveys, which means we can go back a century with annual data rather than a couple of decades with sporadic data. 

But secondly, we're going to have a measure that everyone can understand. I can certainly articulate for you, Joe, why I think the Atkinson indices and the Gini coefficient are really good ways of thinking about inequality right across the distribution. But with all respect to my wonderful mum and dad here, I couldn't give them a quick explanation of what the Atkinson index is actually doing. Whereas if I tell you the income share of the top 1%, you know it straight away, and we understand what we're talking about, and that drives the conversation. 

So I think Piketty and Saez were right, not only in terms of the data that was the way to go, but also in terms of the public conversation. The explosion of discussion around inequality that followed the publication of Piketty's Capital is really a testament to the way in which having that clarity of a metric can drive a public conversation.

WALKER: Interesting. So I guess, putting aside the marketing benefits of those metrics, do you think they're somehow more accurate in helping us answer the kind of questions that we want to ask?

LEIGH: No, they're just one way of determining what's going on. The top 1% share doesn't tell you anything about where, say, the 10th percentile is relative to the 50th percentile. But it turns out that as an empirical matter, a lot of these metrics go together. So I once sat down with all of the metrics, the Gini coefficients, the income shares, 90/50, 50/10, and compared them to those top income shares, and the correlations are very high. 

And it allows us to shine a torch into places we just wouldn't be able to go otherwise. I wouldn't be able to set out in Battlers and Billionaires a century-long story of Australian inequality if we hadn't moved to looking at those top income shares derived from the tax data.

WALKER: So since the 1980s, what do you think has been the most important driver of pre-tax income inequality in Australia?

LEIGH: So I'd put it down to three big things. The first is the combination of technology and globalisation, which have acted to increase the returns to superstars across a range of fields. 

The second is the reduction in union membership. Union membership was half the workforce in the early 80s, down to about one in eight now. 

And the third is the reductions in top tax rates, which seem to track quite strongly against inequality. Of course, the way this works isn't just mechanical, it's also because if I take away a larger share of your dividend returns, you've got less to reinvest, which means you earn less investment next year. 

So I'd say about a third, a third, a third across technology and globalisation, de-unionisation, tax cuts.

WALKER: I suppose the other thing with the top tax cuts is you might incentivise people to take on more work.

LEIGH: Yeah, you certainly see an effect. People are receptive to tax rates, and so that certainly flows through as well.

WALKER: Is that a less important effect than being able to reinvest the capital earnings?

LEIGH: It's a while since I looked at it. I think it's a smidgen less important, but both matter.

WALKER: One of the interesting things I learned reading Battlers and Billionaires the second time around, recently, was that the computer revolution of the late 90s, early 2000s didn't increase Australian inequality by as much as it increased American inequality. The reason for this is that our education boom was delayed by at least a generation and carried over into the 21st century. 

So the broader model here is obviously Claudia Goldin and Lawrence Katz's view of inequality as a race between education and technology. I guess the mechanism there is that technology has tended to automate routine tasks and replace those lower-skilled workers, whereas it's tended to complement non-routine, more creative tasks and make those higher-skilled workers more productive.

And so if educational gains are outpacing technological advancement, then we'll have a supply of high-skilled workers that can meet that technologically-driven demand. 

But if we're not increasing the rate of educational attainment at the same pace as the rate of technological progress, then the demand for those high-skilled workers obviously outstrips the supply, drives up their wages and increases inequality. 

And so in Australia, we don't see the same increase in inequality as a result of the computer revolution because we're still educating an increasing percentage of the population through the 90s and the 2000s. 

But one of the things I learned from you was that we could have done even better here if it wasn't just the quantity of Australian education that was increasing, but the quality.

And I was kind of shocked to learn that at least since mid-century, we've been doing poorly on math and literacy scores. And then, since the early 2000s, our PISA scores have been deteriorating as well. So what explains this? What is going on with Australian test scores?

LEIGH: So one of the challenges is that we had a way of getting very talented teachers in front of Australian kids throughout the 1960s and 1970s. 

The main way in which we did that was rampant gender pay discrimination across the professions. The consequence was that you had very few talented women going into law, into medicine, into dentistry, and you had lower quality service in all of those fields as a result. Just as you'd get if you kept half of the talented applicants out of any occupation, you got worse doctors, worse dentists, worse business people.

 Where did those talented women go? Well, overwhelmingly, they went into teaching and nursing. That meant that the calibre, the academic aptitude, of those going into teaching in the 1950s and 1960s was artificially increased.

Now, through the 1970s and 1980s, you had a reduction in gender pay gaps and in the rampant gender pay discrimination in those other sectors. Gender pay discrimination is legal before the equal pay cases of 1969 and 1972, and there's a change in norms as well that sees a lot of reduction in gender pay discrimination in those other fields. Talented women then flow into those fields, and the question is, what does teaching do as a response? Does it significantly increase the wages in order to continue attracting the same level of academic talent that it had beforehand? 

No, it doesn't. Indeed, teaching wages slip a little behind the wages of other professional occupations. 

So you see this in the academic aptitude of new teachers. Chris Ryan and I looked at trends from the early 80s to the early 2000s, and some other evidence (although not quite as good) in the decades since. 

That's not surprisingly correlated with Australian test scores going backwards to the tune of somewhere between half a year to a year of achievement over the course of the last couple of decades.

WALKER: That's huge, right?

LEIGH: Yeah, it's massive. The OECD's PISA test comes and tests year 9s, and the typical year 9 now is scoring about where the typical year 8 student would have scored back at the start of the century.

WALKER: The Harvard political philosopher Michael Sandel says that individual upward mobility through education is an inadequate solution to inequality because it carries with it this implicit judgment that people who don't receive the credential are somehow less meritorious than those who do. He's written about this in his book The Tyranny of Merit, and he says that it kind of explains the populist backlash and resentment that carried Trump into the White House. As a policymaker, what do you do with this argument?

LEIGH: I just finished reviewing Piketty and Sandel's little book Equality, which is really an edited conversation between the two of them. Maybe you and I should think about a version similarly to come out, Joe. 

And both of them are concerned about the way in which education is now viewed in many countries. Piketty has a book which talks about the way in which voting patterns by education have shifted quite markedly over the last couple of generations, with parties of the left now increasingly drawing votes from high-educated voters, whereas two generations ago they drew votes from low-educated voters. 

Sandel worries about education being used as a kind of moral justification for inequality, with highly educated people saying to less educated people, well, the reason you're where you are is because you didn't try hard enough to get a great education. 

Both of them are particularly worried about the way in which US universities have failed to open up spaces as the population has grown, and the way in which that educational language can bite. 

So I think for progressive governments like ours, creating more educational opportunities really matters. Creating more opportunities to go to TAFE matters. Creating more opportunities to go to university is really important. Tracking the statistics on the number of university students who are first-in-family can help produce better results. Some universities do a whole lot better than others. Creating a bit more competition among universities to attract more first-in-family students would be one way we could tackle this. Then, of course, thinking about the equality across schools and ensuring that whatever school a child goes to, it's a great school.

WALKER: But how would you take Sandel's criticism on board? The thing I find difficult about it is that it feels like an argument that's very much at the level of the narrative. As a policymaker, I don't know what you're meant to do with his argument.

LEIGH: Well, I think it is to recognise that a lot of outcomes in the labour market come as a result of luck. If I'd been born a couple of thousand years ago, then my weedy build and poor eyesight would have made me easy prey for animals and a pretty hopeless hunter. It happens that in this era, those two defects don't dramatically shorten my lifetime. Many of the most successful investors in the world—Warren Buffett's a great example of this—talk about the chance of their skills coinciding with opportunities. Buffett says that, you know, even a couple of centuries earlier, there's no way that his investing nous would have been able to earn the outsized returns.

Yes, Leonardo da Vinci is brilliant, but it also helps that he's the illegitimate son in the family, so he doesn't have to become a notary, he can become a painter, and a painter supported by the Medici family and inspired by the Florentine Renaissance. 

So if you think about luck in careers and the way in which each of us is shaped by chance, then I think you're less likely to fall back on that simplistic meritocratic notion which can say that those who are at the top of the heap are there because they deserve it. And those who are unsuccessful deserve their lot too.

WALKER: Right. Maybe we just don't need to worry about the tyranny of merit as much in Australia because our egalitarian culture kind of insulates us from that.

LEIGH: Yeah, I mean, I think we do need to be aware of it, particularly around the debates over education and the potential for sniffiness. One of the points—I think it might be Sandel who makes this—is that there is a series of sitcoms and TV shows that make fun of working-class guys. Think about the way in which Homer Simpson is portrayed as a sort of klutz, a bit of a figure of fun, and that a whole succession of those shows breeds a sense of resentment among working-class blokes who didn't get a lot of education, that society is culturally sneering at them. I think that's really dangerous and damaging to the social fabric if we engage in that. Did Kath and Kim step over that line? Let's leave that as a question for afterwards.

WALKER: So a question about market concentration and inequality. I guess there are a couple of basic mechanisms through which market concentration would drive inequality. One is through monopolies, which can raise prices and transfer income from poor consumers to rich shareholders. Another is monopsonies in labour markets who can, I guess, pay people a lower wage than they would receive in a more competitive market. But empirically, what's the actual effect in Australia? How much has market concentration been driving inequality?

LEIGH: So, Joe, the thing I love about having a conversation with you is you not only ask great questions, you also supply a brilliant answer and then ask me if I can do any better. 

The effect of transfer from consumers to shareholders is one that I hadn't fully appreciated until I got into this. In fact, that's the biggest change between the 2013 and the 2024 editions of Battlers and Billionaires. I was forced by reading a terrific book by Tony Atkinson to think hard about how a lack of competition can drive inequality. 

The biggest factor is that consumption is fairly evenly distributed across a population, but shareholding is very concentrated. What a monopoly does is it gouges consumers and gives that money back to its owners, which is to gouge the many and give to the few. So I think that is the biggest factor. 

But then, as you say, also if monopsonies are gouging their workers, that can also worsen inequality. All of this means that uncompetitive markets aren't just bad for growth, they're bad for fairness as well.

WALKER: But empirically, how important has this been in driving inequality in Australia?

LEIGH: Yeah, I couldn't work out a good way of getting at it. It is on my to-do list to find a good collaborator and actually try and crunch some data across countries. Our metrics for market concentration across countries are nowhere near as good as our metrics for inequality. So in some sense we can measure the left side of the equation better than the right side of the equation. But that and figuring out the relationship between egalitarian norms and egalitarian outcomes are on my research to-do list if I get a moment.

WALKER: Very cool. So, I mean, for the market concentration stuff, what's your hunch or hypothesis?

LEIGH: I think it matters, but it's hard for me to imagine that it matters as much as, say, de-unionisation. Unions are playing a massive role in the labour market and an equalising one, certainly in the 1970s. Take away the role that unions are playing, particularly in fighting for better pay and conditions at the bottom, and you've got a significant factor, I think, in increasing inequality.

WALKER: So another empirical question. What effect do you think the massive bull market, to put it mildly, in Australian housing over the last few decades—what effect has that had on wealth inequality? Because I could tell a story where housing is traditionally the democratic asset—even though housing affordability is a real problem in Australia at the moment, we still have a homeownership rate of about 65%. You could tell a story where, because of that increase in equity values, wealth for the middle class who disproportionately own housing, rather than shares (which is more a phenomenon of the upper class, so to speak), you could tell a story where that increases the wealth of the middle class relative to the top. So do you know which way so far it's broken in terms of housing's impact on the distribution?

LEIGH: Yeah, I'm pretty confident that the run-up in house prices has increased inequality. We know that wealth is more unequally distributed than income. Housing wealth is not as unequally distributed as the share market wealth that we talked about before, but it's still pretty unequal. You have some people with a lot of houses, some people with no houses, and then a distribution of housing values, which is probably more skewed now than it was. So an increase in the amount of time it takes to buy a house is, I think, one of the main drivers in wealth inequality, and that number has gone up substantially.

So I was able, with the help of a researcher called Nigel Stapledon, to go not only back to the beginning of the 20th century, but actually back into the 19th century and get a long-run series on house prices and then meld that with the long-run series on wages and answer the simple question, how many years does the typical Australian worker have to work in order to buy the typical house? 

If you go back to the period after World War II, that hits a low of 4 years. Then you see over time it's steadily ticking up till it gets to something around 8 years, I think it is, at the turn of the century. And now it's gone up to 11 years. 

So housing affordability is just slipping out of reach for an increasing share of Australians, and I think that's driving inequality.

WALKER: Have you seen this paper by Matt Rognlie, which is a critique of Piketty? He makes the argument that what's been increasing the capital share more or less boils down to housing. So if you buy the Matt Rognlie analysis, it seems like egalitarians today should just be laser-focused on the housing market, right?

LEIGH: Housing's huge, absolutely. 

But it's also worth saying that if you look at the story of the inequality run-up in Australia through the 80s and 90s, it's not largely capital versus labour, it's largely differences in earnings growth across different groups. So you see earnings fanning out there, earnings at the bottom 10% growing much more slowly than earnings at the top 10%. 

Part of this is that superstar effect I talked about before. When I started as a junior lawyer at the Parramatta firm of Coleman Greig—this is the early 1990s—I was just a clerk there. At that time, the best Sydney lawyers were serving the best Sydney clients. 

By the time I was at a city firm, Minter Ellison, in the late 1990s, the best Sydney lawyers were serving the best Australian clients and therefore earning a little more because they were matching up with the best firms. 

But by the 2000s, the best Sydney lawyers were serving the best Asia-Pacific clients and earning even more. 

So you saw the steady increase in partner law, partner remuneration through that kind of globalisation and technological change. 

But that was doing nothing for the people who were cleaning those offices. There's no superstar effect among janitors. And so that explained the widening of the gap between the pay of lawyers and the pay of cleaners.

WALKER: Peter Tulip, can you do a better job than me of explaining the Rognlie paper? 

PETER TULIP: Rognlie mainly looks at the distribution of income between capital and labour—as does Piketty, of course—and says that of the big driving forces behind why capital income has been increasing relative to labour income, is overwhelmingly that capital income is income from housing. So it's not the entrepreneurial businesses that leftists have traditionally opposed, it's the suburban homeowners that are driving this huge difference in the functional distribution of income. Does that answer your question, Joe? And that big shift from labour income to capital income is much more of a phenomenon in the United States and in Europe than in Australia. We haven't seen it for a mix of different reasons.

LEIGH: Thanks, Peter. That makes total sense. I'm glad I didn't put all my eggs in the monopoly basket before.

WALKER: Thanks, Peter. So, Andrew, as an egalitarian, it must be a pretty exciting time to be alive, right? Global inequality has been falling over the last few decades, driven largely by economic growth in China and India. So if we take a more global perspective, there's no better time to be an egalitarian.

LEIGH: So, Joe, you're of course being very naughty on this one, and it is worth unpacking the really important point you make, which is that inequality within countries has, on average, been growing, inequality between countries has, on average, been growing. Put those two together, and global inequality has been falling. 

Wait, what's going on? 

Well, the answer is that two extremely big countries, India and China, have been rampaging up the global income distribution. The result of the rapid growth in the world's two most populous countries is that global inequality—that is, the inequality you'd get if you lined up all the citizens in the world—is actually lower in the 2010s than it was in the 1980s. 

But the question is: how do you think about inequality? How many people think about inequality as compared to someone in Nigeria and Norway? 

My sense is that inequality most matters within countries. We're not benchmarking inequality against everyone else in Surry Hills. We're probably not benchmarking against everyone else in New South Wales. But I think we are benchmarking against everyone else in Australia. 

That's why national inequality has been the focus of most inequality researchers. It's the focus of Battlers and Billionaires. That's a story about inequality in Australia. 

But I don't think it's the wrong way to think about it. I do envisage that we view ourselves as citizens of a nation and therefore we compare ourselves to people within that country. We don't get up in the morning and think, well, you know, life is great, I'm earning many multiples of what somebody in Congo earns. Maybe people in Congo should be more front of mind for Australians. But my sense is we're benchmarking against our fellow citizens.

WALKER: Another question about growth. You have this 2011 paper with Andrews and Jencks, which finds that inequality has modestly positive effects for economic growth. Could you just remind me of those results, and then I'll ask you a question?

LEIGH: Yes. We find that there is a tiny trickle-down effect, but it takes an extremely long period of time. 

It was important for me because I went into the inequality literature looking to find problems anywhere I could. 

My two collaborations with the wonderful Christopher Jencks both turned up results which didn't suggest that inequality was damaging things I cared about. It didn't appear that inequality was slowing down growth. It didn't appear that inequality was increasing mortality. 

That then forced me philosophically to think much more about the intrinsic reasons we should care about inequality: that a dollar buys more happiness to somebody who's homeless than it does to a billionaire; that mobility is slower in places with more inequality; that democracy is harmed when the most affluent can have an outsized impact on elections. Those are the reasons that I care about inequality. 

The growth effects, I think, are small and may even go the other way.

WALKER: Great, so I'm curious how you reconcile these effects with your utilitarianism. I'd be correct in thinking of you as broadly a utilitarian, right?

LEIGH: Yes, that's right.

WALKER: And I know from your book What's the Worst That Could Happen?, which takes sort of a long-termist perspective, that you think that the social discount rate should probably be either very low or zero. 

So, as you know, economic growth can compound really impressively over time, even if those trickle-down effects are quite slow. I think in his book Stubborn Attachments, Tyler Cowen has this thought experiment where he says, 'Imagine we rerun American history from about 1870 to 1990, but instead of growing at the 2% per year that US GDP actually grew at, it grows slower, it grows at 1%. Well, in that case, the US of 1990 would be just as rich as the Mexico of 1990.' So growth compounds in really impressive ways. 

Now, if we think about the far future and all of the possible descendants of humanity who will no doubt be countless and numbered greater than us, and who also matter morally, then isn't focusing on inequality today at the expense of increasing the growth rate a bit of a form of presentism? Aren't you kind of discounting all those future people? We could raise their wellbeing by so much more just by worrying about inequality a little less today. 

In other words, if you take a broader view, a longer view, then suddenly anti-egalitarian policies can look very egalitarian, can't they?

LEIGH: I love that question, but I do think that it suggests that we have to be choosing between growth or egalitarianism—that is, that there's always an equity-efficiency trade-off. 

Actually, there's a surprising number of policies where that's just not true. Providing great educational opportunities to people who've grown up in disadvantaged backgrounds is good for growth and good for equality. More competitive markets are good for growth and good for equality. Finding those entrepreneurs with great ideas but no money and no connections and giving them the same opportunities that the most affluent have, that's good for growth and that's good for equity. 

So your question is spot on in encouraging us to think about avoiding that trade-off and looking for sweet spot policies that can both increase the size of the pie and also have it divvied up in a fairer way.

WALKER: So thinking now about the political consequences of inequality, what do you think is the maximum wealth that any one Australian should be able to have? I don't expect you to put a precise number on this, but if you had some kind of reasonable heuristic like maybe ‘you shouldn't be as wealthy as it would take to create a major new city like Sydney or Melbourne’, or what's the right way to think about this?

LEIGH: Yeah, I'm not sure I have a cap for that. You can certainly look at the impact on global health of Bill Gates' philanthropy and tell a story in which many of the disease breakthroughs that we've seen over the last couple of decades have happened in part because of his philanthropy. So it's as much how those resources are deployed than how much any individual has.

WALKER: So a question about AI to finish on, and then we'll take some audience questions. If we think about the impact that AI might have on inequality, I'm curious how you think about that because, if you look at the last couple of hundred years, the labour share of income has been pretty steady, and that's despite all of the automation we've had—from the Industrial Revolution through the second Industrial Revolution, through the 20th century. What do you think is the strongest reason for thinking that AI is going to break this pattern?

LEIGH: I'm a little concerned about what it does to the labour-capital ratio. There's certainly the potential for a whole lot of jobs to be automated and for that to happen faster than the labour market can adjust. 

Now, we've had these fears with past waves of technology, and they haven't eventuated, but we do need to be concerned about that labour-capital effect. 

But there's also potentially, Joe, some reason to be optimistic about what it does to inequality within industries. We've had a couple of nice randomised trials now in which groups of workers are split into two randomly assigned groups. One gets to use AI, one doesn't. Then we look at their performance. When you do that with management consultants, the group with AI performs 20 to 40% better. When you do it with coders, the effect is in the order of 20%. Both studies find that the biggest gains are from the workers who were performing lowest initially, suggesting there's an equalising effect from AI. 

That's super encouraging because that's not the way past technologies have worked. If you look at the impact of computerisation, for example, it increases inequality within the labour market. The returns to having a computer are much bigger for the top-performing workers than for the lower-performing workers. So if AI can have an equalising effect within the labour market, then that gives me a sense of hope that helps counteract some of my unease about the outsized returns that could well go to the owners of the models.

WALKER: Great. Well, let's take some audience questions. We're going to bring a microphone around, so please just wait. We may as well start with Peter Tulip because you're right beside the mic.

TULIP: Thanks, Andrew. A natural instrument for dealing with inequality is an inheritance tax, which other countries have, but Australia does not. When you look at inheritance taxes around the world, what lessons do you draw? In particular, what works and what doesn't, and what are the pitfalls that we should avoid if we were to implement an inheritance tax in Australia?

LEIGH: Peter, I can pretty confidently say there won't ever be an inheritance tax in Australia. In other countries, these taxes raise relatively little revenue. But certainly, in Australia, it's just impossible for me to imagine that one would be established, and I honestly haven't spent very much time thinking about design considerations given that it is simply impossible.

WALKER: David Osmond.

DAVID ORSMOND: Yeah, like others, thanks very much, Andrew. I want to challenge you on the idea that you expressed at the beginning that looking at the pre-tax income of the 1%, the top 1%, is a good way of looking at the current issues, which is the wording that you used. 

The standard way of looking at this is the Gini coefficient for the entire population. The Productivity Commission of Australia has put out two reports now showing that the Gini coefficient in Australia is flat as a tack for 35 years, hasn't moved for 35 years except for two years in 2005-2007 when they added on bonuses. So there's a kind of statistical break there. 

The HILDA shows exactly the same thing, that inequality hasn't moved in Australia since 2000. 

If you think about it, that's pretty understandable. Those measures are disposable income, so it indicates the measure of income distribution across the whole population after the government has done its bit. 

Coming back to what you were talking about initially, when you were saying, Joe, about the egalitarianism of Australia, if it were true that we are pretty egalitarian, that's what you'd expect to see: that the government's taxes and transfer system would keep inequality pretty stable, at least to the extent that the data go back 35 years. 

So I want to know why you're focusing on a measure that shows a different story as you've interpreted it, and you've mentioned inequality worsening in Australia, when the standard one shows that actually it's just not true?

LEIGH: Thank you, David. Wonderfully provocative question. My first foray into analysing inequality in Australia was using the Gini coefficient, using tax data for a Gini of male earnings. 

That showed the Gini increasing quite markedly from the 1940s through to the 1970s, an increase as big as the egalitarian gap between Australia and Scandinavia today. 

My recollection is that while income inequality hasn't moved a great deal in the last couple of decades, the Gini did rise during the 1980s and 1990s. There's certainly a fair literature around this, and the Productivity Commission's point was it didn't increase by as much as the United States. 

Certainly we know that wealth inequality over that period has increased

But it's what you might call a pastiche of evidence. We're bringing lots of sources of data to bear on this. I think the earnings data show an increase in inequality, and certainly, the top incomes data do as well.

One final point. You talked about the Australian social safety net, and you're absolutely right that it is the most redistributive social safety net in the world. The typical advanced country, if you look at how much more someone in the bottom fifth of the distribution gets in welfare compared to someone in the top fifth, the typical advanced country gives twice as much to the bottom fifth as the top fifth. Australia gives 12 times as much welfare to someone in the bottom fifth as the top fifth. 

So our system is the most efficient redistributive social safety net in the world. The Scandinavian systems do more overall redistribution, but that's just because they're bigger—they're throwing a slightly less efficient machine, but it's a much bigger machine. 

That's something to be really proud of. Keeping that redistributive social safety net, I think, is something we should strive for.

WALKER: Do you have any follow-up questions, David?

ORSMOND: No. I think that's a great response. There are obviously many measures to look at this sort of thing. The wealth one is obviously something different. Of course, the wealth distribution looks so different because we don't tax wealth in anything like the degree that we tax income. So it's not surprising that you could end up as a market measure as opposed to the disposable income measure, which comes after taxes.

LEIGH: Yeah, that's a really good point.

WALKER: Okay, let's go to Jax in the front row, and then we'll go back.

AUDIENCE MEMBER #3: Hi. Slightly related to Peter's question before, we have this kind of macro situation where we want to reduce inequality, and everyone wants that. Then you have this micro thing of no one individually wants to pay more tax, so they don't want to get rid of negative gearing, they don't want an inheritance tax. You kind of shut down the inheritance tax question there pretty squarely. But I guess what is the role of policymakers in moving the Overton window so that you can kind of get there over time?

LEIGH: So I'm a utilitarian, which means that in any exercise of policy reform, I'll be thinking about the costs and the benefits of investing time. I don't think there's any value in investing time in things that have a 0% chance of getting up. 

Instead, I think it's really worth thinking hard about how we would boost innovation in disadvantaged communities. I think it's really important to think about the social fabric and about the strength of community. Robert Putnam has a lovely book in which he brings together the story about American inequality and the story about community and shows that the "bowling alone" phenomenon, in which people dropped out of volunteering and other community engagement, tracks incredibly closely the divide between rich and poor. 

He argues that equality and community are two sides of the same coin. So I'm really excited about thinking about how we rebuild community, thinking about how we expand educational opportunities, thinking about how we get more entrepreneurs from disadvantaged backgrounds, because I think they are policies that have a real tractable possibility of getting going. 

I'll leave it to others to speculate on policies that, in my view, just have zero chance of ever being implemented.

WALKER: Can I ask one follow-up on the Putnam thing? What's the actual mechanism there? Is it that as inequality increases, people feel like they're being had, so to speak, and so trust and cooperation break down? What's the story between inequality and community?

LEIGH: So he has a number of different causal pathways. He talks about both equality and community as "we versus me" issues and tells the story through the lens of Port Lincoln, the town in which he grew up. 

He argues that when he was growing up, people in the town saw it as their responsibility to look after anyone who was struggling a bit. A kid who didn't have parents keeping an eye on them would immediately see another family in the street or a teacher stepping in to look after them. 

He said he went back to the town in the 2000s, and it had been ravaged by the opioid epidemic, and there were kids sleeping in their cars outside the school because they didn't have anywhere to go, and no one stepped in. 

So—I think—partially the mechanism is the idea of community as a social safety net and the decline in religiosity as taking away, you know, that's one channel through which communities stepped in to look after vulnerable people.

WALKER: Did you have a question?

AUDIENCE MEMBER #4: Yes. I think there are a few folks in this audience who are investors or spend time in the innovation ecosystem. I'm interested—if you held the pen, separately from the context in which you're operating, but purely from an egalitarian perspective—if you held the pen on policies, principles, or projects that you would put in place that would increase the equality in Australia, what would be the top five, ideally seven, on your list?

LEIGH: So the first is the egalitarian ethos. We've talked a lot about it, but I think it's really important to keep it alive. It's why I'm so excited that so many of you have turned out to have a conversation about equality tonight. I love the Eureka legend, a story of Australians banding together, either if you're of a free-market persuasion to stand up against oppressive taxation, or if you're of an egalitarian persuasion to fight for a more multicultural democracy and a better deal for the little guy. 

I think it's really important that we maintain that redistributive social safety net. That we continue to maintain means testing and, in the case of the pension, assets testing, which has meant that our social safety net is an efficient engine for redistribution. 

I think it's vital that we get more disadvantaged kids access to great teachers, that we attract and retain the very best teachers in schools, and that the pathway to vocational training and to education is as good as it can be. 

You've probably got better ideas than me about how to attract innovators from unconventional backgrounds, and I'd love to hear those. I think that's an area in which we can do an awful lot more. 

Then I think, finally, making sure that we test our policies is absolutely critical. One phrase which I try and put into every public remark, which I haven't had the chance to do this evening, is "randomised trials". Randomised trials are a great way of evaluating medicines. It also turns out they're a really good way of evaluating policies. It's not enough to have good intentions, we also have to have policies that work. Rigorously testing those policies is one of the best ways of advancing an egalitarian agenda.

WALKER: How's the Australian Centre for Evaluation going? Can you give us a 30-second update?

LEIGH: It's great. It's got partnership agreements with a bunch of different government departments, trials underway in several different areas, and is also looking to uplift the evaluation capacity across the public service to make sure that evaluation isn't just a box-ticking exercise, but you've actually got a credible counterfactual. 

You see the transformation in medicine, the move away from medicine being what the grey-haired doctor said would work to being what is actually empirically shown to work—out with bloodletting and tonsillectomies, in with effective vaccines. 

That transition is what we're trying to put in place in social policy, working in concert with some of the really exciting enterprises around the world, such as the Arnold Foundation's work in the US and the What Works Centres in the UK.

WALKER: Fantastic. Next question. 

AUDIENCE MEMBER #5: We talked earlier about the cultural impact of the gold rush on Australia. Australia is a country with some of the highest rates of gambling losses in the world. Do you think the way in which the gold rush obviously has a lot of luck in whether you become rich or not might have impacted that cultural obsession with gambling?

LEIGH: Oh, how fascinating. I've mostly thought about our rates of gambling as being a question of supply rather than demand. 

I haven't seen any good evidence on this, but yeah, we've always had a bit of a culture of gambling. 

There's a lovely story of Malcolm Fraser facing an interviewer just before the 1983 election, where he says, 'Australians will take a gamble on two flies crawling up a wall, take a gamble on the long-shot horse, but they won't take a gamble on the Hawke government.' 

His interviewer just turns to him and smiles and says, 'Want to take a bet on that?' 

The conversation about gambling isn't held back by social norms in the way it has traditionally been in the United States, which banned a lot of gambling outside American Indian reservations. Maybe that's played a bit of a part. 

But I also think the availability, particularly of poker machines, has been a big factor driving high gambling rates.

AUDIENCE MEMBER #6: Hello. Thank you. With our topic of AI tonight and also automation in the workforce, my question is around the other end of the spectrum. You mentioned management consultants and lawyers trials and seemed less concerned about that end and the impact on their field. But on the low-income, and low-skilled workers—you know, I'm experiencing going into shops and getting things and putting them in my bag and leaving without speaking to a single person, without having any human interaction, and thinking about that en masse in our shopping, in our daily lives, and the type of people that is going to impact most, in terms of inequality. 

What is the plan in terms of how we can reskill and start moving them in directions of other areas that you would ordinarily first take up as a low-skilled worker? 

From what you mentioned before, it sounded as if the plan was, 'let's look back at what we've done before and how we survived that, and we made it through okay, and we're here now, so we'll probably be fine.' But what we have now is we have perspective, and we are able to plan because we can see it coming, we know the impacts that this is having, and we're seeing it in microcosms, and we can plan for how that will, at scale, affect people in the workforce at the lowest levels. That's the question.

LEIGH: I love the question. One of the reassuring facts we have is that despite the onward march of technology, we're currently enjoying a lower level of unemployment than I thought (when I first started studying labour economics) we would ever experience in Australia. 

A sustained run of unemployment around 4% is a remarkable result in terms of opportunity for people struggling to get into work. When unemployment goes to 8%, the people that get locked out are those with disabilities, minorities, people with lower skills. There's a direct impact on equality when unemployment goes high, and we've managed to keep it low, which is great. 

How do we do that? Well, the challenge is it's really tricky to work out which jobs are going to go. Occupational forecasting is something that makes astrology look respectable.

Even exercises that are highly reputable, like the Frey and Osborne study of 2013, which predicted which occupations would be most affected by technology over that following decade, turned out not to track very closely with the actual occupational shifts from 2013 through to 2023. 

So I think the best thing we can do is to provide general skills. We know that the jobs of the future will require higher levels of education and generalist education at that, which allows you to change course as the labour market shifts over your career, and then also ensuring that where we're building AI models, they're as accessible as possible, which is one of the issues that was raised before. 

One economist described occupational change in the labour market as like running across ice floes, which is as terrifying as it sounds for us as a whole. But yet successive waves of technological disruption have seen advanced economies maintain high levels of employment. If we boost education, I'm optimistic that we can stay there. 

AUDIENCE MEMBER #7: Do you see us heading down towards the universal basic income road? 

LEIGH: Look, I don't think we will. One of the things about a universal basic income is that it would be more different for Australia than for any country in the world given that our social safety net has been highly redistributive. 

My basic answer on the universal basic income question is, 'Don't give me welfare, I don't need welfare.' I would like it to be targeted at the most vulnerable. 

There's also a simple question about the fiscal sustainability of it. Do you go to levels of taxation that are above Scandinavia, or else do you demolish the entire welfare state to pay for it? I don't think either of those are tenable. The experiments around universal basic income—some of the best of them have just come out in the United States—are suggesting more modest impacts than the advocates have argued: more modest impacts on things like employment, health and other outcomes. So I don't think it is the panacea that it's been suggested to be. There is a sense in which the Australian unemployment benefit looks more like a universal basic income than in other countries. Many other countries have an unemployment benefit that is proportional to wages and runs out. Ours is flat-rate and endures. In that sense, that part of the social safety net looks more universal basic income-y than it does in other countries.

AUDIENCE MEMBER #8: You talked earlier about how the massive gender gap up until the 1970s gave us this unintended gift of funnelling heaps of really smart women into teaching. I'm interested to ask you—you spoke a lot about education being the solution to promoting a more egalitarian society—but what could we possibly do to recreate those conditions within fiscal constraints at the moment?

LEIGH: Yeah, I mean, I think part of it is around ensuring that teaching is appropriately remunerated, and there's certainly been a big push towards that. 

Part of it is also thinking about the work of the typical teacher and ensuring that they can focus on being an educator. 

We know that paperwork burdens are increasing, and that is a source of frustration for many teachers, so envisaging ways of addressing that is important. 

Ensuring that the curriculum is appropriate, so it provides the flexibility but also doesn't require inordinate amounts of preparation, really matters as well. 

It's about ensuring that the job of teaching is a job that allows someone to support a family and pay a mortgage and also provides as much joy in the lives of teachers and as much impact on students as is possible.

One study of the impact of great teachers was done by Raj Chetty and co-authors using data from Tennessee. They looked at the impact on a student's earnings of having a great teacher compared to a not-so-great teacher. They found that the impact on students was in the hundreds of thousands over the course of a lifetime. 

I did a back-of-the-envelope calculation with Joshua Gans and worked out what that means for the value of an individual teacher. It means that a high-quality teacher is literally worth their weight in gold. So we want to get that right.

AUDIENCE MEMBER #9: Thank you. I've got a couple of questions. The first one's to Joe. I have absolutely no idea what a social discount rate is, so if you'd explain that would be good. 

Secondly, for Andrew. You explained there were three reasons for the growth in inequality since the 1980s. The first one was, I think, technology and globalisation, which I don't think governments realistically can do much about. The second one was de-unionisation, which, again, I think is maybe a function of the first, but certainly, governments around the world have made it more difficult to unionise and run secondary strikes and stuff like that. So governments have some control over that. The third one was the reduction in tax rates, which obviously governments have complete control over. So governments are quite responsible for the increase in inequality. So in the egalitarian Australia, how much is this recognised in Parliament House?

WALKER: You can do the social discount rate as well.

LEIGH: Oh right, so the social discount rate, John, is simply thinking about how much we value future generations. If I gave you the choice between taking $100 now or $100 in 10 years' time, you'd say, 'I'll have the $100 now.' You'd probably want something like $200 in 10 years' time for those two offers to be regarded as equal. But when we're thinking about the worth of people, we don't, in my view, want to regard two people today as the equivalent of one person in 10 years' time. Instead, we want to regard people as being equal across time, and that's an approach that really matters on issues such as climate change and thinking about appropriate levels of climate change mitigation.

In terms of what we do in countering inequality, I was really sketching out a story which you've encapsulated very neatly in terms of what drove it. 

But the other factor, which Joe mentioned, is that you've got the rise in education, the quantity of education, pushing back against that. In the early 1980s, only 3 in 10 Australians were finishing high school. By the early 1990s, that had gone up to 8 in 10. Increasing the numbers of people finishing school, attending vocational training, going to university has been a powerful force for egalitarianism. We need to continue doing that. 

And then alongside that, as we've talked about, we need to think about improving the quality of education, getting those test scores at any given grade up a little bit as well. 

AUDIENCE MEMBER #10: On the topic of intergenerational wealth transfer, thinking about the different mechanisms—tax has obviously been a discussion point so far—I was just thinking about the role that the birth rate could play in that and the distribution of wealth. That's halved since the 1960s and has obviously come down pretty steadily over that period. Have you ever seen data on the role that that plays in wealth transfer and distribution? 

LEIGH: Yes, absolutely. Greg Clark has a lovely book called The Son Also Rises, in which he looks at the number of children that rich and poor families in the UK have from about 1200 to about 1800 and finds that birth rates are much higher in high-income households than in low-income households over that period. 

In Australia, it's sometimes hypothesised that the reverse is true. So I did a myth-busting exercise in Battlers and Billionaires and looked at birth rates across households of different wealth levels, different social backgrounds. There's almost no difference whatsoever. If I told you the number of kids that a family has, your ability to guess their position on the social pecking order would be very limited. There's just not a strong correlation there, which may surprise some people.

AUDIENCE MEMBER #10: So I guess that's the same as a declining birth rate contributing to increased wealth inequality over time? 

LEIGH: No, I don't think so; it's just reducing… Yeah, I think that would matter if there was a change in birth rates among high-wealth households or low-wealth households. But as I read the evidence, birth rates are just coming down across the board.

AUDIENCE MEMBER #11: You've spoken in very positive terms about how aggressively redistributive the welfare system is with things like means testing, assets tests and things like that. Sort of the inevitable flip side of that is high effective tax rates for people on moderate incomes, people coming back into work after having a kid. Why do you think that trade-off is worth it?

LEIGH: So part of the question there is how salient those effective marginal tax rates are. One of the things that behavioural public finance has taught us is that people respond to the tax rates that they see. While economists have drawn these terrifying jagged charts of effective marginal tax rates, when we actually talk to people who are facing those tax rates, they don't seem to be as salient in people's minds as the regular income tax scales are. 

Part of that is that people are moving up and down quite a bit. You see that the highest responses to tax rates, to effective marginal tax rates, are pensioners, who for many years have quite stable incomes and know exactly how many dollars of pension they'll lose for an additional hour of work. You don't see that same responsiveness among people who are re-entering the labour market. 

So yes, we need to think about effective marginal tax rates, but we don't want to have a kind of hyper-rational, perfect-information model about it. In fact, people are more focused on what's going on in their lives than exactly what the benefit withdrawal rate is. Get it right for the ones that are really salient, but otherwise recognise, as you have, the real value of a targeted social safety net in driving equality.

WALKER: Okay, we have time for about one more question, so raise your hand if you think you have an unusually good question. Okay, we'll do David and Ray.

AUDIENCE MEMBER #12: Yes. Just picking up on the conversation earlier about how to improve education outcomes in schooling. I personally happen to know the greatest primary school teacher in the world, my mum, Kylie. She taught for a while at Charlestown South up in Newcastle. There's really interesting stuff going on with the curriculum, and I appreciate you're not the Minister for Education, but perhaps you have some insight from discussions in the cabinet or wherever else about explicit instruction. She's shown me videos of the classroom with her kids—I mean, these are primary school kids, and I'm not exaggerating when I see these kids have better spelling, grammar and numeracy skills than I do. It's every single kid in the class. They're all together, they're all supporting each other. It's really amazing, innovative stuff. So I'm wondering if that's a conversation that's being had in the party room.

LEIGH: Ray, I will put your mum, Kylie, up against my mum, Barbara, who's here as well, who started her career as a teacher, and I was a great beneficiary of her skills there. 

The most insightful comments I've seen around explicit instruction came from a piece called Radical Hope that Noel Pearson wrote a couple of years back, in which he noted that it really matters in areas like Cape York, where teacher turnover is so high that the average teacher is staying for only 18 months. 

Noel made the comment that it's been enduringly difficult to attract and retain teachers with the highest academic aptitude in Cape York, and therefore that explicit instruction provides a clear framework in which someone can walk in and be effective from day one. I understand the frustration among some teachers who feel that it curtails their flexibility in the classroom. But the research that I've seen suggests that some of the various models of explicit instruction—and they do vary a lot in terms of how prescriptive they are—can produce good results, particularly in environments where students are more disadvantaged, or teachers are just getting going in the profession.

WALKER: David. 

DAVID ORSMOND: I'm sure all of us feel exactly the same way. This has been an absolutely fascinating conversation. Thanks, Joe, and also to Andrew. Let me try and sum up a whole stack of different questions with all the issues that have been raised, especially in the Q&A, and actually pose it in a question. Andrew, you so eloquently described all the sorts of things we do in Australia to be a successful country, in the sense of the education system, the transfer system, the way that we run our medical system, education system, other aspects from the university system and other aspects. It brings up an obvious question to go all the way back to the inequality question: is it actually just a choice of governments, of whatever inequality a country’s going to have? In other words, if it has so many instruments that it can act upon, is it actually the government that decides what the inequality level is in the country? And then of course obviously governments reflect voters, so is it really just the voters who ultimately decide that?

LEIGH: So, David, the strongest piece of evidence I can offer against that is if you take the top 1% share for five Anglo-Saxon countries—Australia and New Zealand, which Tony Atkinson and I mapped out, the UK, which Tony did, and the United States and Canada, which Emmanuel Saez, Thomas Piketty and co-authors did—and you put all of those lines together on a graph, you'd basically think that someone had tried to draw the same line five times. 

The five lines sit together in a big U shape across the 20th century. 

And as any student of politics knows, the political parties that are running those different countries at those different times differ a lot. You know, you've got JFK in the United States at the same time as you've got Robert Menzies here in Australia. 

Yet the egalitarian experience of those countries in the very big picture over the 20th century looks surprisingly similar. 

That does suggest that there’s a bunch of factors outside the control of governments that are driving things. 

If you think of inequality as a race between education and technology, some of that is in the hands of government, but much of it is also in the hands of the broader community. And the degree to which factors like globalisation and technological shocks come along is, to a large extent, a matter of luck. 

We haven't talked about wars and famines, but of course, they have massive impacts on inequality. One of the reasons for the big reduction in French inequality in the first half of the 20th century is the huge destruction of the capital stock that occurs as a result of those conflicts. 

There are many ways of reducing inequality. That is not one we want to pursue.

Finally, can I just say to Joe and to all of you, thank you for the conversation this evening. Joe, talking with you is like going for a walk down a well-known path with a good friend. 

WALKER: That’s very kind.

LEIGH: It is both a pleasure and an inspiration. Thank you for creating the crucible for tonight's conversation.

WALKER: Thank you so much. 

And that was an excellent question and answer to finish on, so thank you David. 

Just four quick things before we wrap up. Next week, we are back here on Wednesday with the two economists, Richard Holden and Steven Hamilton. We'll be talking about Australia's state capacity: that is, how well our government achieves its policy aims. Internationally, it seems like Australia does have very high state capacity. We have a very effective government. We'll be talking about what explains this and some case studies as well. If you'd like to join us for that, please come. You can use the discount code “SydneyPass” to get a discount on that event. 

Secondly, I bought everyone a copy of Andrew's book, Battlers and Billionaires. They'll be sitting on that table over there beside the food. Please grab one before you go. Just one person, please. 

Thirdly, we've got some more food coming out, so if you can stay around and have a chat, we would love to speak with you. 

Finally, last but not least, as you've all seen tonight, we are very lucky to have someone like Andrew in our parliament and we were also very lucky to have him here with us this evening. 

Please join me in showing Andrew some appreciation.