Change of the negative situation: most urgent but not probable in the years to come

Posted by economia 10/07/2017 0 Comment(s) Business File,

Business File, January-February-March 2017, No. 109

Politics

Tassos Giannitsis and Stavros Zografakis focus on inequalities, poverty, economic disarray in the years of crisis and keep low expectations for the reversal of the present situation in the near future.

Our analysis allowed us to obtain an extensive view on the ways through which the crisis affected the economic, social and political structures in Greece, at both macro- and micro-level. Many of our findings are at odds with many conventional stereotypes, which are used in the political and public discourse on the Greek crisis. We would like to emphasise the following findings:

 

During the period 2008 to 2012 in- come from wages and salaries experienced the biggest decrease (12 billion euros or 27.4% down from their level of 2008). However, incomes from other sources experienced even higher losses in relative terms.

Although labour- and capital-related income declined respectively by 27.4% and 37.7%, income transfers to pensions increased as an aggregate by 3.3 billion euros (+13%) during the same period. As a result, the relation between total pension expenditure and total labour-related income increased from 49.3% (2008) to 76.7% (2012).

Such a collapse of the income of the majority of the population implies a deep pauperisation of the whole society. “Relative poverty”, in the technical sense of the term, increased as well (by about 3 percentage points), but less than expected, because the line of poverty itself declined significantly as a result of the depression. However, the “intensity of poverty” as measured by the distance between the median income of the population in poverty and the poverty line increased significantly. In 2008, the average income of poor households was 44.6% below the poverty line, while in 2012 the same relation increased to 53.6%.

Poverty changed location. Instead of the elder ages and pensioners, poverty in the crisis years hit younger generations, unemployed persons and households with one or more unemployed members, and mostly men, while it decreased in older people and pensioners. Anti-poverty policies continue however to be oriented to pre-crisis patterns, with the consequence that instead of strengthening solidarity they led to reversed solidarity and to an aggravation of inequalities. 

Overall, the crisis in Greece did not lead to increase inequalities, but, as mentioned before, to a general pauperisation. A similar trend characterises also other European crisis-hit countries. Under such a significant economic depression, even a stable inequality rate over more years implies a real worsening of the top-down position. However, inequality indices represent average figures, which hide very different evolutions in inequality within particular social groups.

◆  A different kind of inequality appeared as a result of the increased diversion between Greece and other European (or non-European) countries with positive growth rates during the same period. This increasing gap has deeper implications on the position of Greece in the world system and on its possibility to deal efficiently with the implications of the world structural transformations and the increasing importance of the current key factors of growth (knowledge, technology, competitiveness, entrepreneurship, new forms of State organisation).

◆  During the crisis the gender gap regarding salaries within the same households declined. The decrease was bigger in households with lower incomes, mainly because of the decline in men’s salaries. In contrast, when the household’s in- come shrank or was at risk, women supported it, either through enter- ing the labour market or through accepting cuts on their wages and avoiding unemployment. In fact, the poorer the household, the larger was the percentage of women entering the labour market in com- parison to those of the men.

The distribution of immovable property in Greece shows the dilemmas and the contradictions which characterised the policy of increased property taxation during the crisis. The lower 50% of the population in terms of total income possesses a disproportionate share in immovable property (31.9% of total) as compared to income (18.3% of total). This discrepancy implies that the burden of the immovable property tax is affecting disproportionally the income and/ or the savings of the weaker income groups, which often are not able to pay their tax obligation. In addition, our analysis shows the problematic pre-crisis bank practices regarding first-time home buyer’s loans, which created a massive amount of non- performing loans during the crisis. 

The “downs”, the “middles” and the “top”

The most unconventional finding was that the cost of the crisis has been paid by everyone, the “downs”, the “middles” and the “top”, although not always in similar ways. The large majority experienced a severe and abrupt cut of their income levels while experiencing also a significant deterioration of their previous economic and social position. As a result, the economic and social structure of the Greek society underwent a deep transformation over time. During the crisis new dividing lines have been established. The poor, the rich and the very rich of 2012 are very di er- ent from those before the crisis.

As a result of many different changes, significant parts of the society had to take into account heavy adjustment efforts. Even more, for important parts the crisis meant an economic and social collapse linked also to a collapse of their attitudes, expectations and value system. Stereotypes were bro- ken down, especially because despite sacrifices during more than six years no positive perspectives can be seen. Within this new social and political landscape and the new dividing lines, a very dangerous risk is the emergence of the syndrome of a failed society, which feels that it is trapped in a continuous downward spiral. 

After six years in crisis, the outcome of the anti-crisis policies is highly questionable. Our view is that the most crucial issue concerns the focus of adjustment itself. Although all statements acknowledge that adjustment means an improvement in both fiscal consolidation and GDP growth, in fact efforts have been concentrated asymmetrically on fiscal consolidation, while growth had a very minor weight in the whole policy mix.

Many intertwined severe problems

Overall, the impact of the crisis and crisis-related policies on growth, in- comes and income distribution, tax policy and scal performance, investment, poverty, inequality and many other economic and social figures imply that we are not faced with one, but with many intertwined severe problems. Each one of them affects broader and not particular social groups, has different features and implications, and sets different policy priorities. Even more, a successful policy needs to address many of these priorities simultaneously and not in consecutive steps, making thus the policy approach and the appropriate policy mix particularly complex.

Our findings show also that what re- ally changed in Greece during the crisis cannot be judged simply by the numbers presented or any other quantitative figures. It has to be complemented by the severe gap on the one hand in the perception of a large part of the society still considering crisis as an annoying factor, believing that nothing needs to be changed and that the pre- crisis status quo can be re-established and, on the other, in the reality of these years which show how illusive this perception is. Furthermore, most analyses consider the crisis solely in macroeconomic, fiscal or financial, terms, as if it has had no connection to the real economy and its productive base. In fact, the broad set of weaknesses regarding governance capabilities and institutional settings, the capabilities to widen and transform the productive base, create competitive employment structures, develop efficient growth policies, foster the knowledge and education base and/or research, technology and innovation, are key factors to understand how the crisis erupted, why the country and the society are still at a very fragile position and why our near future perspectives are highly uncertain and gloomy. 

The crucial question is why this poor outcome, why this inaction and low performance, and whether the political and public sector could overcome corruption, established interests, dead ideologies, deep ignorance, inefficiencies and political myopia and implement policies targeting to collective interests and overcoming the disastrous situation in which the country has been trapped into. The second question is how public sector, political forces, employees of public sector, while being themselves a central part of the problem and having big interests and benefits from the actual situation, could overcome their legacy and address such a structural problem efficiently. The world history of development has very few examples of societies which could achieve a real transcend and change their negative course while be- ing under a harsh threat. It is di cult to assess whether a reversal of the present reality proves to be a real option for the next years in Greece. Besides what has been mentioned, there exist forces in the country that understand the present world and European challenges, the national problems, the disastrous implications of the policy choices of all these years, and that a trajectory change is desperately needed.

How this could be achieved is the question to be answered. 

 

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