The Bank of Mum and Dad lets New Zealand’s wealthy become ‘opportunity hoarders’ | Max Rashbrooke

lIn recent decades, an apparently ordinary financial institution has taken on a stake that could hardly be foreseen. It is not a finance company, a lender or even a cryptocurrency. Rather, it’s Mom and Dad’s couch. Hardly a day goes by without a media story about young people’s struggles to afford a first home, and their experience is rarely free from parental influence of any kind. Even the young scammers who have allegedly flouted home ownership often turn out to have lived rent-free with their parents or received some other form of family support. Even more often, of course, they have simply relied on a large deposit from Mom and Dad.

In a sense, that’s harmless: Parents want to support their offspring financially and have been doing so for as long as there is money. But it’s also insidious, because it gives some young people a significant – and completely unfair – advantage over others. And because those who can help their children own their own homes are more likely to be homeowners themselves, this ensures that advantages and disadvantages are passed on from generation to generation. The economist Shamubeel Eaqub calls this, with his eye for a twisted expression, “the return of the landed gentry”.

This is just one of many signs that, contrary to the idea of ​​a classless New Zealand, we live in a country with deep-rooted social differences. It also calls for us to take a closer look at our history, for despite all the traditional talk of justice, a host of other forces have been at work.

During the post-war period, the landowner Charles Prendergast Knight, faced with a Labor government that raised taxes, strengthened the welfare state and attacked inherited wealth, wrote defiantly to his friend Maurice Le Cren: “Well, dear fellow, we still have our cultivation! ”

This scene, which could have come straight from snobbish Britain, strangely fits the… New Zealand myth that has always stated that this is an egalitarian country. At certain times, for certain groups, and viewed under certain lights, it was that country. But it was and is also deeply unequal. The word “breeding” brings this to us: a signifier of superior bloodlines or upbringing, it shows hierarchy. And while Knight may have believed in it extremely, it wasn’t unique.

While New Zealand is finally coming to grips with the legacy of colonization, it has slowed down to recognize a deep seam of intense economic and social differences – including between Pākehā (European New Zealanders) – that runs right through its history. In the 1890s, for example, the richest 1 percent completely owned two-thirds of the country’s assets. Today things are more even, yet that share of wealth is still roughly controlled by the richest tenth. The pursuit of economic wealth is not surprising in itself. People crave the security it offers: the stability, the reserves to withdraw, the stakes in the future. But it becomes destructive when the imbalance of wealth goes far beyond what is fair or healthy. Right now, someone in the richest 1 percent of adults – a club of 40,000 men – has a net worth sixty-eight times that of the typical (median) New Zealander. Can we really say that someone, no matter how talented or hardworking, is worth nearly seventy times the typical Kiwi?

For New Zealanders it can often be uncomfortable to dwell on higher privileges. Raised on a diet of egalitarian ideas, many feel uncomfortable talking about wealth; such discussion is often dismissed as the politics of envy. Poverty, while still controversial, is a safer topic. But we cannot understand hardship unless we understand wealth. Everyone is connected on the wealth spectrum; everyone’s actions affect everyone. The more profits go to business owners, the less is left for frontline workers. A surplus on the one hand makes a deficit on the other. While we can try to raise living standards for all – while respecting environmental constraints – we can never generate so much wealth that we can forget about distributing it.

Also consider what accumulates around wealth. An unequal distribution of wealth creates and is created by inequalities in many of the other “goods” that make lives satisfying: health, housing, education, income and political power, to name a few. Wealth offers opportunities to live in certain areas, to get children to a certain kind of school, to establish certain kinds of social contacts, to exercise certain kinds of power. Those things, in turn, make it easier to accumulate wealth. And wealth itself generates wealth, through interest, rent and dividends. It is as if people have stepped on an escalator and, whatever their initial earnings, are carried up by a mechanism that relies little on their own effort. By contrast, those of minimal wealth are kept on a downward escalator by factors – forced dependence on loan sharks, lack of decent jobs or the skills to fill them, damp and moldy homes, discrimination – which are also largely beyond their control.

These disadvantages and advantages are passed on from generation to generation. The most prestigious colleges disproportionately recruit from the wealthiest schools, whose entry is in turn dependent on purchasing the most expensive “in-zone” properties. Students with a university education are generally people with highly educated parents. In short, people of serious wealth can concentrate opportunities and goods around them and pass them on to their children. They can do this using mechanisms that are not available to other families – mechanisms that basically exclude the children of other families.

New Zealand isn’t the US yet, with its extraordinary wealth inequalities and pipeline of opportunities that run from high-stakes preschool access through exclusive preparatory schools to elite, outrageously expensive Ivy League universities. But there are signs — especially in the growing segregation of high schools — that we’ve been moving in that direction for some time now. Since the 1980s, New Zealand’s economic inequality has increased dramatically, exacerbating other inequalities and concentrating opportunities at the top. Our wealthy families may have become, as the Americans say, “opportunity hoarders.”

  • Max Rashbrooke is a senior associate at the New Zealand Institute of Public Administration and Policy Studies. This is an edited excerpt from his new book Too Much Money: How Wealth Disparities Are Unbalancing Aotearoa New Zealand (Bridget Williams Books, $39)

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