Europe's poverty time bomb

MADRID – The poor don’t often decide elections in the advanced world, and yet they are being wooed heavily in Italy’s current electoral campaign. Former Prime Minister Silvio Berlusconi, the leader of Forza Italia, has proposed a “dignity income,” while Beppe Grillo, the comedian and shadow leader of the Five Star Movement, has likewise called for a “citizenship income.” Both of these proposals – which would entail generous monthly payments to the disadvantaged – are questionable in terms of their design. But they do at least shed light on the rapidly worsening problem of widespread poverty across Europe. Poverty represents an extreme form of income polarization, but it is not the same thing as inequality. Even in a deeply unequal society, those who have less do not necessarily lack the means to live a decent and fulfilling life. But those who live in poverty do, because they suffer from complete social exclusion, if not outright homelessness. Even in advanced economies, the poor often lack access to the financial system, struggle to pay for food or utilities, and die prematurely. Of course, not all of the poor live so miserably. But many do, and in Italy their electoral weight has become undeniable. Almost five million Italians, or roughly 8% of the population, struggle to afford basic goods and services. And in just a decade, this cohort has almost tripled in size, becoming particularly concentrated in the country’s south. At the same time, another 6% live in relative poverty, meaning they do not have enough disposable income to benefit from the country’s average standard of living. The situation is equally worrisome at a continental level. In the European Union in 2016, 117.5 million people, or roughly one-fourth of the population, were at risk of falling into poverty or a state of social exclusion. Since 2008, Italy, Spain, and Greece have added almost six million people to that total, while in France and Germany the proportion of the population that is poor has remained stable, at around 20%. In the aftermath of the 2008 financial crisis, the probability of falling into poverty increased overall, but particularly for the young, owing to cuts in non-pension social benefits and a tendency in European labor markets to preserve insiders’ jobs. From 2007 to 2015, the proportion of Europeans aged 18-29 at risk of falling into poverty increased from 19% to 24%; for those 65 and older, it fell from 19% to 14%. The share of young people now experiencing severe material deprivation, at 12% of the total population, is almost twice that of the elderly. As Christine Lagarde, the International Monetary Fund’s managing director, noted at the World Economic Forum’s meeting in Davos this year, young Europeans “are putting their dreams on hold.” Although the current economic upswing could partly reverse the trend in youth poverty, the structural factors underlying the problem will remain. Workers’ skills can deteriorate irreparably during stints of long-term unemployment, or can suddenly be rendered obsolete by rapid advances in technology. For many poor people, re-joining the workforce will either be impossible, or it will require them to settle for precarious, low-paid jobs that leave them vulnerable to the next downturn. According to the OECD, 14% of the working-age population in Spain and Greece in recent years was employed but still in poverty. In unequal societies, resources can be redistributed from the very rich to the rest through progressive taxation, monetary transfers, and salary caps. But eliminating poverty requires more than merely reapportioning the economic pie. The poor also must be re-empowered and reintegrated into societies that have pushed them to the margins. Ultimately, it is not just a matter of political stability and economic fairness, but of human dignity. Looking ahead, Europe’s welfare states will need to be reformed to address current realities. The elderly are no longer the most economically vulnerable members of European society, but they still receive the largest slice of the pie. Governments should reduce pension benefits in favor of the poor, the unemployed, and the young. These three groups, which often overlap, are in desperate need of financial assistance, skills training, and family-friendly policies. European governments should also overhaul their tax systems to make older workers contribute more, offer fiscal incentives to companies that hire disadvantaged workers, and move toward establishing an EU-wide poverty-insurance scheme. And entrepreneurs and private firms should invest more in social programs in the communities where they are active. While Berlusconi (who is barred from running for office) and Grillo have homed in on the problem of poverty, their proposed solutions are nothing more than short-term fixes. A basic-income scheme might provide some immediate financial relief to the poor, but it would not address the structural causes of poverty. Even worse, because neither proposal seriously encourages the unemployed to seek work or training programs, the poor could end up reliant on state assistance forever. And it is not as if such policies would be budget-neutral. Rather, they would have to be funded by politically unpopular tax increases or spending cuts. Still, as Berlusconi and Grillo have made clear, Europe’s leaders can no longer afford to ignore the poverty problem. They will have to offer real solutions, not simplistic schemes. As oblivious elites often learn the hard way, the poor will endure their lot only for so long. Edoardo Campanella is a Future of the World Fellow at the Center for the Governance of Change of IE University in Madrid. Copyright: Project Syndicate.

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Europe's poverty time bomb