Let’s take a look at the structural causes of poverty and inequality and analyse the relationship between poverty and class. There are two important issues:
first, how poverty is typically caused by exclusion from the labour market, and inadequate social security payments from the state.
Second, how the structure and processes of a capitalist economic system generate inequality. Poverty isn’t something that exists independently of the broader structure of society. It’s also linked to the same social processes that create wealth. The causes of poverty are many and varied. But most researchers would probably agree with Professor Ronald Henderson’s view that Professor Henderson was the head of a ground-breaking national and independent inquiry into poverty in Australia in the 1970s. That’s a long time ago, but the analysis remains relevant today. His reports revealed ‘a morally indefensible level of poverty in Australia,’ according to the then Prime Minister, Gough Whitlam.
Understanding the organisation of society in relation to poverty means understanding the kind of society we live in, and how it works. Poverty in Australia needs to be seen as part of the larger picture of significant inequalities in wealth and income. For example, in Australia in 2011-12, the top 20% of households received 40% of all income, while the bottom 20% of households received just 7.7%. The average income of the top 20% of households is five times that of the bottom 20% of households.
Key Aspects of the labour market
Key Aspects of the labour market are important in understanding inequality.
The FIRST, is whether people are in strong or weak labour market positions. People in strong labour market positions have higher pay and status, good working conditions, secure employment, control over their own work, and good chances of promotion. They may be in those positions for a number of reasons, including strong trade unions, labour shortages or higher qualifications. By contrast, people in weak labour market positions tend to be subject to the authority of others, have poor pay and conditions, insecure employment, little control over their own work, and lack opportunities for promotion. They may be in those positions due to discrimination against them, weak trade unions, an over-supply of labour, or effective political organisation by their employers.
The SECOND key factor is whether people are inside or outside the labour market. That is, whether they are unemployed, a dependent spouse, or on a pension or part-time wage. The main cause of poverty in Australia today is not having a full-time working income. In short, it means being unemployed, or being on a social security payment, or a part-time wage. It’s the low level of social security payments in Australia that put people into poverty when they have no other source of income. For example, in 2011-12, at least six different types of government social security payments were below the poverty line set at 50% of median household income.
These payments ranged from the age pension, which was $93 a week below the poverty line, to the Newstart Allowance, which was $246 a week below the poverty line. The *second* point I’d like to make is that it’s the same economic system that generates wealth for some people, and poverty for many others. Nobody will disagree that Australia is a society organised around the capitalist mode of production. Now, capitalism is based on private ownership of the means of production, such as land, mines, raw materials, factories and machinery, by a relatively small group of people. the problems with capitalism are not immediately visible, for a number of reasons. The coercion in capitalism is primarily *economic*, and *impersonal*, which makes it harder to see. Despite their technical ‘freedom’, if workers don’t sell their labour power to one capitalist or another, then they may face poverty or starvation.
They have some choice in deciding who will they work for, but it’s is almost impossible to avoid working for a wage or salary. Second, the exploitation of capitalism is hidden because of the appearance of fair exchange in the labour market, between money provided by capitalists and labour provided by workers.
Workers are usually paid a money wage after they have performed a certain amount of labour for the week or fortnight. So, it seems as though workers are being paid fairly for their labour, and that the money they receive is ‘equivalent’ to the labour they’ve provided. However, Marx points out that if all exchanges are between equivalents, there would be no such thing as ‘profit’.
He points out that, in reality, workers produce more value by their labour than they receive in wages. This is where the ‘surplus value’ comes from that is the basis of the capitalist’s profit. For example, in the manufacturing of shoes, Nike shoes which cost $16.75 to make, including labour, sell for about $100 in the US. The $83 difference between the cost of the shoes and what they sell for is the surplus-value appropriated by the company. It comes from the labour of workers in the factories contracted to Nike.
These profits are appropriated by the owners of capital, not only for reinvestment in their businesses but also as personal income which can greatly exceed wage and salary income. Between 2000 and 2015, the asset values of the ten wealthiest people in Australia increased from $22.8 billion to $71.8 billion. Workers on average wages, and even highly paid doctors and lawyers would have little hope of accumulating wealth on this scale. Senior executives, employed by capitalists to run their companies and increase their wealth, are also able to tap into the accumulation of surplus value through their base salaries, bonuses and share incentives.
The average chief executive pay in Australia’s top twenty companies currently stands at 150 times average weekly earnings. Third, exploitation within capitalism is hidden because of the way the surplus is appropriated. Workers don’t usually hand over a surplus product to their employers. In a car company, for example, the owners of the company don’t come into the factory on a Friday afternoon and seize half of the finished cars as their surplus product, leaving the other half of the cars to be sold to pay the workers’ wages. The factory owners don’t need to do that because they already own ALL the cars.
Workers have to give up any claim to the products of their labour – the cars – when they agree to work for wages. While it appears that the owners of the car-yard make their money from clever entrepreneurship, astute marketing, and so on, in reality, it comes from extracting the surplus-value of their workers’ labour. These inequalities in wealth and income affect the access people have to market-based resources necessary for their survival, security, well being, autonomy and social inclusion.
They affect where people can afford to live, whether they can afford to buy a house, what kind of personal property they can own, the kind of health care, education, and legal services they can afford, the kind of recreation and leisure they can have, and so on. This is why the state is often expected to COMPENSATE for market failure.
Where the lower classes are unable to afford the necessities of life, such as housing, health care, transport or education, which are only produced for profit in a private enterprise system, they have historically put pressure on the state to provide public housing, public health care, public transport and public education. This has been changing in recent years, with a turn away from the welfare state, and re renewed expectation that every individual takes care of themselves.