New Zealand’s greatest reality show doesn’t only offer a window into the lives of the rich and shameless, says Max Rashbrooke. It’s also a perfect distillation of how the country’s wealth is increasingly being concentrated at the top.
In the first episode of Real Housewives of Auckland, Louise Wallace introduces herself with the immortal line, “I made my money the old-fashioned way – I inherited it.” It’s meant as a joke, but like many things said in jest, it contains more truth than she knows. For the show is a frightening glimpse into a future in which choosing the right parents becomes a key life move, and the disparities between those with wealth and those without are ever more entrenched.
Working with Professor Tim Hazledine from Auckland University’s economics department, I’ve been analysing the NBR‘s annual Rich List to see how many of its fortunes are either inherited or being passed down to the next generation. The Rich List is directly connected to Real Housewives through the person of Gilda Kirkpatrick, the ex-wife of Rich Lister James Kirkpatrick, whose property investment fortune currently sits at $170 million.
And it is more generally in that world – of property tycoons, financiers, and fortunes old and new – that the show takes place. Julia Sloane’s former partner, for instance, is the auctioneer Dunbar Sloane; her new husband is a wealthy investment banker, Michael Lorimer, who works in the same industry as Anne Batley-Burton’s husband, Richard. The housewives’ wealth seems to be largely, though not solely, the result of marrying well.
This high-end world, as measured by the Rich List, has grown enormously over the last 30 years. The List was worth $60 billion this year, up from just $5 billion (in today’s money) when it started in the mid-1980s, even though you now need far more wealth – $50 million as opposed to $10 million – just to get on it.
This is one part of what looks like a trend towards a growing concentration of wealth in New Zealand. The proportion of the country’s assets owned by the wealthiest tenth increased from 55% in the mid-2000s to 60% today. There isn’t much data before that; but a lot of wealth is saved out of people’s annual income, and New Zealand had the developed world’s biggest increase in income inequality in the two decades from 1985, so it’s a fair bet that wealth is much less evenly distributed now than it was 30 years ago.
There are many reasons to be concerned about this in its own right, but even more if you think about what it suggests for the next generation. The children of wealthy parents will get a much better start in life than their poorer counterparts, especially if that wealth sticks around in the family for long periods.
And that’s what our research seems to suggest. Of the 184 Rich List fortunes last year, 40 involved businesses that had been inherited from previous generations, about 20 were already being run by the next generation, and a further 20 had both those characteristics. And this approach will vastly understate the true scale of inheritance, because we can only measure those who are actively involved in running a family business, as opposed to the much larger number of progeny who will simply inherit some of its proceeds.
That’s not to say that people don’t get rich in New Zealand by working hard: of course they do. But their stories sit alongside those of dynastic wealth accumulation and inheritance.
Thomas Piketty, the French economist whose book Capital in the Twenty-First Century was a surprise bestseller in 2014, would say there is nothing surprising in any of this. The normal order of things, he argues, is that the return from investing wealth is typically much greater than the growth rate of the economy, meaning that inherited fortunes accumulate faster than those generated through work. Even those who make money in their own lifetimes – like Michelle Blanchard’s entrepreneur husband, David – almost always end up living off the accumulated interest, collecting what economists call unearned ‘rents’. As Piketty puts it, “The entrepreneur inevitably becomes a rentier.”
Looking back in time, these processes helped generate the extraordinary inequalities of the Victorian era that we see in Charles Dickens’ novels; and while the 20th century was an exception to that general rule, Piketty’s prediction is that the 21st century will, at least in its wealth distribution, strongly resemble the 19th.
It seems a reasonable bet that the Real Housewives have not read Capital in the Twenty-First Century. (Indeed one can easily imagine an encounter between Kirkpatrick and the French economist that begins with her saying, “You know what I’ve heard about you? Not a fucking thing.”) But, like it or not, they are living in a Pikettian world, one where concentrations of wealth – and the inheritances they engender – have significant impacts.
We can see these inheritance effects in the rich kids’ social clubs that have recently sprung up in Auckland, catering to young people whose parents’ generosity appears to know no bounds. (One told the Sunday Star-Times last year that his parents had recently bought him an Audi, but he had swapped it for a Volkswagen because he preferred “the old school cool”.) New Zealand is particularly prone to this, as we – uniquely among developed nations – have no taxes on wealth, other than the government’s very minimal new ‘brightline’ test for house sales.
Most societies recognise that people’s wealth is generated by a combination of individual effort, communal resources – anyone who’s made money has driven on government roads, used public schools, and so on – and plain old-fashioned luck. For that reason governments don’t confiscate wealth, but they do tax it to ensure that the communal pool of resources gets replenished, and that those who are lucky enough to inherit money compensate those who aren’t.
But in New Zealand we don’t do that. We don’t tax wealth, we don’t tax capital gains, we don’t tax estates and we don’t tax gifts. So there’s very little to stop certain inequalities being passed down through the generations.
The result is an increasingly segregated society, with wealth concentrating and becoming isolated from the rest of the country. This is not without consequence. Research last year showed that well-off Aucklanders don’t support wealth redistribution – a finding that might appear blindingly obvious, but for the reason behind it.
People in wealthy neighbourhoods, the researchers found, are surrounded by equally affluent people – and so they think that the whole country is doing as well as their neighbours are. Hence no redistribution is necessary. The consequences this has for democracy are clear: how can people sensibly vote on laws affecting the whole country, or even just the city of Auckland, when they understand so little about how the other half lives and how such laws might affect them?
In their apparent obliviousness to social problems, Kirkpatrick and her co-stars exemplify this trend. So while we might question just how ‘real’ the housewives are, given the inherent fakeness of reality TV, we know that the wealth dynamics underlying their lives are all too believable. In the end, there’s a strange irony to Louise Wallace’s self-introduction – for the evidence suggests that there is, in fact, nothing old-fashioned about inheriting your wealth.