The poor pay again for the crisis

Economic inequality is endemic to the social condition of man and therefore a perpetual threat to liberal democracies.

24 November 2022 Thursday 23:30
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The poor pay again for the crisis

Economic inequality is endemic to the social condition of man and therefore a perpetual threat to liberal democracies. Progress does not reduce the gap between rich and poor, but widens it. Although governments have various tools to reduce it, for years they have been behind crises that surpass them. The gap is so big today that democracy and security are in danger. It happens in Spain and in many other OECD countries, which face 2023 with the risk of falling into recession.

"Next year's crisis will be paid for by the poor again," anticipates Javier Ruiz, an economic journalist for the SER network, who has won the Espasa 2022 essay prize with the book Edificio España. The danger of inequality. "Inflation will make it even more difficult for millions of Spaniards to make ends meet," he says. It is they, with these additional costs, who assume the greatest weight of the crisis.

The rise in prices punishes those who have less more. The rise in the cost of electricity, gas, gasoline and food means that the most vulnerable Spanish families now allocate 35% of their income to pay these bills, according to a calculation by the Bank of Spain.

Between this rise in prices, the escalation of mortgages and what had already stopped coming in during the pandemic, it is very difficult for families of the middle and lower classes to make ends meet without two salaries at home. For the upper classes, the rise in energy and food supposes an extra cost between 7% and 10%.

Next year it is also very likely that unemployment will increase. With energy at record prices and no foreseeable end to the Ukraine war, a third of Europe's big corporations anticipate cutting production or halting it altogether.

The biannual survey of the Round Table for Industry, a lobby of the main European companies, could not be more pessimistic. Most anticipate a strong recession over the next 12-18 months. Inequality will be even more acute.

It is not necessary to be behind the GINI index that measures inequality to notice its effects. The most unequal countries are African, located south of the equator. South Africa is the most unequal in the world, a legacy of apartheid that the innate corruption of the African National Congress, the ruling party since 1994, has not corrected.

Inheritance is so important that the greatest equality in the European Union occurs in Slovakia, Slovenia and the Czech Republic, three ex-communist countries that have managed to mitigate the excesses of the market economy with social benefits.

Spain, although it is located in the temperate zone of the GINI classification, is in danger of being dragged down by the discontent accumulated by the middle classes and the most disadvantaged. When they have not yet recovered from the crisis caused by the pandemic, they are the ones that suffer the most from the rise in prices.

Oxfan has calculated that the poor in Spain lost 35% of their income during the pandemic. The rich, on the other hand, only 15%. However, the richest of all, the 23 Spaniards who have an income of more than one billion euros, saw their wealth increase by 29%.

Since the bursting of the real estate bubble in 2008, 99% of Spaniards have seen their income drop and today there are 616,000 households (close to 4% of the total) that have no income.

"The state of health in Spain is bad," says Javier Ruiz. As the gap between rich and poor widens, the result is "an extreme polarization" of politics, which leads the lower classes "to drop out of the system, stop voting and stop being important."

This “political precariat”, as he calls it, hangs like a sword of Damocles over democracy because, in addition to encouraging abstention, it feeds the most radical parties, those that win votes by appealing to the resentment generated by inequality.

Pankaj Mishra recalls in the essay The Age of Wrath how the Enlightenment, Voltaire's philosophy, linked triumph with limitless personal enrichment, an approach to life that prevailed and continues to prevail over Rousseau's proto-communism, the utopia of an egalitarian society .

Javier Ruiz's España building has a ground floor and four floors. The problem is not that 20% of Spaniards live in the attic or that the distance to the ground floor, where another 20% lives, is getting bigger and bigger, but that this ground floor is in very poor condition and the people who live in she cannot go to the first floor.

"If you are born poor, it is very likely that you will die poor, in the same way that if you are born rich, it is very likely that you will die rich," explains Ruiz.

The OECD estimates that 55% of the children of workers will be workers all their lives. Precariousness will accompany them to the grave, while the children of the rich may make mistakes many times because they have an economic and social mattress that will sustain them.

This is how it has been, at least, until now, although Ruiz is not sure if it will continue to be so in the future because "if you destroy the ground floor, the attic collapses."

The engine of the economy is consumption and this depends on what the middle and lower classes spend. This is why the IMF and the OECD have long insisted that inequality hurts growth.

Without growth, even the upper classes miss opportunities to do business and earn money. Former British Prime Minister Liz Truss thought the best way to turn things around was to lower taxes on the richest in the hope that their abundance would spill over from the attic to the ground floor. This ultra-liberal prescription, however, condemns the welfare state, and it cost her her job.

There is no government that today can survive without strong social investment. Indebtedness is secondary because there is no better remedy for political and economic sustainability than income equalization.

The Spain of 1982 is a good example. The country had just overcome a coup and the socialist government of Felipe González completed the transition to democracy laying the foundations of the current welfare state: unemployment benefits, Social Security (pensions) and universal health. These three pillars support Spanish society today, as well as most European societies.

Keeping the building standing, however, is now more complicated. Lacks money.

As Javier Ruiz shows, companies pay less taxes today than before the 2008 crisis.

The case of energy companies is very evident. Despite the increase in its profits thanks to the strong demand and the scarcity of fuels, the state continues to tax them well below what other European countries do.

The government planned to impose an extra tax on them to raise 4,000 million euros in two years. However, pressure from the PNV and the PDCat has cut this amount in half. Repsol, Naturgy, Iberdrola, Endesa and Cepsa breathe easier.

The United Kingdom has imposed a tax on energy companies for which it will collect 15,000 million in fifteen years and, as Javier Ruiz points out, "nobody says that the British government, which is conservative, is going against the market."

Javier Ruiz considers that the Government, instead of lowering the price of fuel for everyone, should do so only for low and medium incomes. "It doesn't make sense for someone who drives a Porche to pay the same for gas as someone who drives a Corsa."

The insufficient collection on the benefits and income of companies and the highest incomes -lower than the European environment- forces the tax burden on the lowest incomes to be higher.

The strategy of the government of Pedro Sánchez so that families can pay their bills is to raise the minimum wage, promote labor hiring and expand subsidies. This extraordinary expense is financed, above all, with a debt that is now around 120% of GDP.

Spain has not yet dared with the Universal Basic Income (UBI), an economic right that has been applied with uneven success, but that is spreading city by city, especially in the United States.

If certain requirements must be met to obtain a subsidy, the UBI is granted without preconditions, sometimes even without taking into account the beneficiary's income.

Where it has been successfully tested, such as Los Angeles, UBI reduces poverty and improves health, both physical and mental. By having a guaranteed subsistence income, people regain their dignity and energy to look for work and participate in social affairs. In Los Angeles, as in most of the fifty US cities that have UBI projects underway, the beneficiaries are people in precarious situations.

Finland was the first EU country to try UBI to reduce inequality. The program started in 2017 and ended in failure the following year. 2,000 jobless people participated, and most were still unable to find a job at the end of the program. Their health also did not improve compared to that of the unemployed who did not receive UBI.

The UBI, like the minimum wage and subsidies, is a tool that the rule of law uses to reduce precariousness and, consequently, resentment, an emotion that tends to lead to violence.

The streets of the center of Paris, occupied by the movement of the yellow vests, is an example that can be repeated in other European cities.

In the countries most affected by inequality, such as Mexico or Colombia, the rich live in residential areas with private surveillance because they are the targets of crime. Those who have less end up taking what they need by force; they have little or nothing to lose.

Nuevo orden, Michel Franco's dystopian film, anticipates it with all its harshness. The homeless impose a new social hierarchy from a revolution as violent as those of the 19th century in Europe.

“Precariousness generates social insecurity –explains the German political scientist Isabell Lorey-, and this is precisely how neoliberalism prevails as the welfare system deteriorates or is destroyed”.

The utopia of a primordial society of equals, as Rousseau envisioned it, will remain unattainable as long as the ambition of limitless personal enrichment is not corrected.



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