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Insights 40: 21 October 2016
The Inequality Paradox: Why inequality matters even though it has barely changed
Jenesa Jeram: Goals are easy - reducing hardship is tough part
Dr Bryce Wilkinson: Exposing the inequality scam

Do we need a tertiary transformation?
Roger Partridge | Chairman |
Equipping today’s students with the skills needed for tomorrow’s jobs is perhaps the 21st century’s greatest challenge. But how confident are we that our tertiary education sector can innovate to meet the future needs of students?  

Not very, is the answer given by the Productivity Commission in a draft report released for consultation last month. Titled, New Models of Tertiary Education, the report briefly grabbed the headlines for recommending the government abolish the interest-free component of tertiary student loans. 

In this, the report echoes recommendations in our August publication on the subject: interest-free student loans are inequitable, costly, and have failed to increase tertiary participation. The country would be better off spending the $600 million annual cost on students who need the help.

Coming from a Crown entity, the Commission’s recommendation on interest-free loans may seem radical enough. But the report goes much further. It observes that the tertiary education system is controlled by a series of prescriptive rules that dictate the nature, price, quality, volume and location of tertiary education.  As one submitter said wryly, “the Government only controls the number of students, the amount of funding available, the level of fees and what you can teach. Everything else is up to you.”

With access to education centrally-controlled, and choice highly constrained, the Commission’s conclusion that innovation, responsiveness and flexibility are in short supply hardly comes as a surprise.

The report offers two solutions. One involves a series of reforms within the existing framework. Some of these - like the interest-free student loans recommendation - are significant. But the Commission is not confident they will meet the government’s objective of creating the student-centered education system the country needs. 

As an alternative, the report seeks feedback on a proposal to turn the tertiary sector on its head: creating “student education accounts” for every 16 year-old New Zealander – like KiwiSaver accounts but for kids.

The $2.8 billion the government spends annually on tertiary tuition would fund each account to the tune of $45,000. This could be spent on qualifying courses that students or their advisers judge best suited to their futures. 

By placing purchasing power in the hands of the ultimate consumer, this proposal has the potential to transform the tertiary sector.

As might be expected, most immediate reaction to the proposal was negative. But it deserves careful thought. If the tertiary sector fails to live up to the future, then neither will we.

A forest of inequality
Jenesa Jeram | Policy Analyst |
If income inequality is not rising in New Zealand, but enough voters think it is, do inequality concerns still matter? 

This week The New Zealand Initiative released The Inequality Paradox: Why inequality matters even though it has barely changed. As the name suggests, our report finds that income inequality has remained broadly unchanged for the past 20 years. 

But that doesn’t mean inequality concerns can be dismissed just yet.

Our report finds that while incomes have been increasing for both the rich and poor, not all New Zealanders are equally reaping the benefits. The cost of housing is leaving a serious dent in the wallets of those who can least afford it. The poorest in society spend more of their budget on rents and mortgages, leaving less money to meet other needs. 

If housing is at the root of inequality concerns then we need housing solutions. Giving the poor cash or taxing the rich more will not close the gap if housing costs rise at an even faster rate. 

Income and wealth mobility is another aspect of concern. 

The problem with year-on-year inequality statistics is that they only show a snapshot in time. Mobility measures show how inequalities can smooth out over a lifetime. Engineering students subsisting on toast and pasta could expect a more comfortable lifestyle once they are qualified and experienced. 

The good news is that there is generally good income mobility for a majority of people. According to Treasury analysis, only 22 percent of people remained in the same decile they started in after eight years. Out of that 22 percent, there will be some who are poor and who stay poor, not only in their own lifetime but over generations.

Hardship is a concern regardless of inequality.

Finally, in politics, it is often said that perceptions matter more than reality. Even if income inequality is not rising, there is a political problem if people perceive that the gap is getting worse. Overseas, we’ve seen frustrations about inequality affect political events like Brexit and the rise of populist politicians.

In New Zealand’s case, it is undeniable that there are some who are doing it tough, and there are some who feel like the gap between the have and have-nots is getting worse. But at least some of that frustration is misplaced.

New Zealand might not have an inequality crisis, but the housing crisis sure makes it feel like we do.

The Inequality Paradox, written by Dr Bryce Wilkinson and Jenesa Jeram is available here. To test how much you know (or think you know) about inequality, check out our quiz.

A fishing tale from British Columbia
Dr Randall Bess | Research Fellow |
John Steinbeck once said that any man who pits his intelligence against a fish and loses had it coming.

While a novice fisher might find this saying humorous, a veteran likely won’t, since much can be said about the challenges of fishing for sport.  

First, fish move more than often imagined. The fish in a well-known spot are often gone the next day or next tide. In other words, fish have fins for a reason.

Second, there is the misunderstanding that if fishers are not catching fish, the fish are not there. That is simply not true for some species that have disciplined feeding patterns.

Finally, there are environmental factors that affect fish behaviour. For example, high barometric pressure can put strain on fish and make them finicky about what they eat, if at all.

So, all things considered, a successful fishing trip could be viewed as bordering on unbelievable, especially when fused with tales of the one that got away.

While recently in British Columbia, Canada to research the management of recreational fisheries, I looked forward to fishing for Pacific halibut, which is the world’s largest flatfish. The world’s record is 515 pounds (233 kilograms) and 8.6 feet (2.6 metres) long.

I had not seen a halibut since 1993 when I last commercially fished. For many years, I had fished for halibut throughout the Gulf of Alaska and the Bering Sea. 

Here was my chance to once again catch the behemoth of bottom feeders. So, I lined up a charter boat trip with a very experienced skipper.

However, I knew it was the time of year when halibut were on the move to deeper water. Also, a storm was approaching, with gale force winds forecast later that day.

Surely our combined experience could overcome these challenges. With expectations high, I set up my GoPro camera to capture a large-size halibut flopping around on deck.

But, to our surprise, all we caught was the much despised spiny dogfish, and lots of them!

What came to mind was a defining moment in New Zealand’s rugby history. Everyone can recall when the camera was thrust in front of Graham Henry to comment on the All Blacks’ unexpected loss to France in the 2007 World Cup quarter-final.

Ted simply uttered the now famous phrase, “well, that’s sport.” Ted’s phrase was my only consolation when realising we had been outwitted by a fish. 

On The Record
All Things Considered
  • Graph(s) of the week: Has inequality changed, or are we just reporting on it more?
  • Crash: How computers are setting us up for disaster.
  • The UK: A nation paralysed by protest?
  • Guns don't kill people, toddlers do.
  • Why you shouldn't believe that exciting new medical study.
  • Kanye con: Economics tells us a fair price for a good is whatever people are willing to pay for it.
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