The authors believe that capitalism and democracy operate according to competing distributional principles: ‘Democracy entails a system of equal rights in the political sphere, arming citizens with votes, various entitlements and, for many, a source of rent or income. By contrast, capitalist markets are based on a system of unequal property rights that endow capitalists and the propertied with substantial economic and political resources.’ However, each needs the other; in the words of the former governor of the Central Bank of India, Raghuram Rajan, when they work well ‘each of these systems softens the deficiencies of the other’.

During the 1950s and 1960s – the so-called Golden Age – Australia experienced strong economic growth. Electoral contentment was created by the fact that those on middle incomes shared in this prosperity and their expectations were not high; they feared a return to the privations of the Great Depression and the war years. But in the 1970s everything changed. Being economists, Bell and Keating ignore the important social changes at that time and diagnose that demand was exceeding economic capacity; the Oil Shock of 1973 created a global redistribution between oil producers and oil importers. A more militant work force was prepared to stand its ground, even in the midst of a recession. Ultimately, both Ronald Reagan and Margaret Thatcher discovered that they could win elections by persuading voters that the only way to fight inflation was to weaken the power of the working class. This was what John Kenneth Galbraith called a ‘revolt of the rich’, and their victory has continued down to the present day. In the words of Bell and Keating:

Under profit, cost and competitiveness pressures since the 1970s, business interests have fought for lower taxes, a realignment of regulation and wage restraint. ‘Wage flexibility’ and ‘competitiveness’ have become the new business mantras. At the same time, inequality has risen in many developed countries, as powerful market actors at the top of income distribution, and especially in English-speaking countries, have cast aside any sense of restraint themselves and have dramatically increased their share of income and wealth, none more so than in the financial sector.

Of course, the new ingredient in the struggle between competing claims has been the rapid development of new technology during the last twenty years. By producing a dramatic decline in middle-level jobs, this has increased inequality. The authors pay little attention to the fact that it has also created new global behemoths that act as though they are a law unto themselves.

The principle thesis of this book is that diminishing inequality is not merely a moral imperative, but economically beneficial. Very simply, where the majority of people have little disposable income, there is a weak demand for goods and services. In the words of the authors: ‘reducing inequality can assist economic growth and economic growth can help resolve the competing claims that arise from increasing inequality ... In our view, increased government intervention in favour of a more equitable distribution of income will not risk damaging the economy – rather it is likely to be a pre-condition of future economic growth.’

In their account of all these developments, Bell and Keating are very focused on the business and political environment in Australia. While they regard the extent of inequality in Australia as being broadly comparable to that of many other advanced countries, the overall increase in income inequality here during the last decades has been less than elsewhere. Nonetheless, lessening inequality has to become an urgent objective.

In pioneer countries like Australia (and the United States), we have traditionally prided ourselves on equality of opportunity. But housing unaffordability, a disproportionate loss of jobs in outer suburbs, and poorer educational provision are exacerbating inequality. The most passionate advocacy by Bell and Keating is for the provision of a sound education for all. They regard the reduction in spending on education during the last decade as alarming. They believe that vocational education and training is under-funded and poorly conceived: it is ‘currently too focused on training for today’s jobs, and trainees are not learning the adaptability skills that will enable them to compete for tomorrow’s jobs’. More money needs to be spent on retraining those thrown out of work, and they are particularly impressed by the results obtained by the Danes in a system dubbed ‘flexisecurity’.

The authors are scathing about the clamour for company tax reduction. They say that the evidence suggests that Australia has never experienced difficulty in attracting investment (including from our near neighbours, who have always had lower company taxes) and that this will continue, with or without a reduction in our company tax rates.

They want to persuade us that both our current business and personal tax rates are reasonable. Their conclusion is adamant:

Our examination of the evidence shows that Australia is an exceptionally low-taxed country compared with similar advanced economies, and having regard to the standards of public services and welfare that Australians expect. This and other evidence also strongly suggest that Australia could afford to raise a little more revenue by increasing taxation without risking future economic growth. Assuming that some of the extra revenue were to be spent on improving education and training, promoting innovation and on properly evaluated infrastructure projects, this would most probably lead to an increase in economic growth.

This is a complex book, bursting with insights and ideas that will stimulate debate. It is impossible in a review of this length to do justice to the facts and the arguments it has mustered. For the non-economist, it is a challenging read; but well worth the effort.