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POVERTY AND WEALTH

Wealth concentration and increasing poverty: current trends, root causes and strategies to address them

Thesis papers of the seminar in Athens, 18 – 21 April 2013

Organized by: Rosa Luxemburg Stiftung Brussels Rosa Luxemburg Liaison Office Athens, in Cooperation with the European Attac Network

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Content

Thesis papers:

Matyas Benyik: Hungary ............................................................................................ 3

Luis Bernardo: Portugal .............................................................................................. 7

Carlos Custra: Spain ................................................................................................. 13

Lars Gunnesdal: Norway .......................................................................................... 17

Roberto Spini: Italy ................................................................................................... 21

Marie Moran: Ireland ................................................................................................ 27

Long papers:

Maciej Gdula: Poland ............................................................................................... 33

Primož Krašovec : Slovenia ...................................................................................... 47

Zdravko Saveski, Kire Vasilev & Artan Sadiku: Macedonia ...................................... 63

Tomas Tomilinas, Jolanta Bielskienė, Linas Eriksonas: Lithuania ............................ 89

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Matyas Benyik: Hungary Matyas Benyik, Chairman of ATTAC Hungary http://attac.hu , benyikmatyas@gmail.com, Skype id.: mbenyik

After the capitalist transition of 1989, 1.5 million Hungarian jobs (out of 4.8 million) disappeared, and only 0.4 million have been recreated. In April 2010, there were 3.7 million jobs. The activity rate of the population is very low, only about 55% of the people aged between 18 and 62 are working. Unemployment is the main reason for the impoverishment of a considerable proportion of the population. The average real income per capita regained its pre-transition level only in the early 2000s. Income differences and social inequalities have increased, and a large proportion of Hungar-ian society lives in poverty. With the long dragging economic crisis, the situation in Hungary has deteriorated further.

Most of the poor in Hungary belong to one of the following groups:

Permanently unemployed (48% of those permanently unemployed are poor) Roma population (about 700,000 people) Families with children (41% of families with children, 60% of families with

three or more children and 45% of single parent families are poor) Pensioners (50% of pensioners are poor); in the future, the aging population –

without or with low pensions (as a result of having been unemployed and forced into illegal employment) – will grow

People with disabilities and those suffering from permanent illness Homeless people (about 30 - 40,000)

These groups are joined by the impoverished ‘lower middle class’, the members of which do their best to avoid poverty, but who, as a result of their low incomes, are increasingly vulnerable.

There are enormous regional differences in unemployment and poverty in Hungary. The poorest regions are located in Eastern Hungary, North-Eastern Hungary and Southern Transdanubia, which experienced the collapse of their former industry. Urban and rural slums have arisen in these regions, from which it is extremely diffi-cult to escape. Most of the Roma population also live in these regions.

In Hungary about 1.5 million people live permanently in extreme poverty (i.e. below the poverty line) so due to their education, family and other circumstances there is almost no chance to break out of this situation. 22 percent of the children growing up in a hopeless situation, and the poverty rate in households with children is 2.5 times higher than in the childless ones. Currently, 75 percent of Hungarian house-holds are not able to save enough money each month, which could cover unex-pected expenses.

According to the standard of living indicators, the situation has worsened since 2010 in Hungary, especially children under 17 years of age. Nearly three-quarters of the Hungarians could not cover unforeseen expenses exceeding 50 thousand

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Forints (HUF). Two-thirds of the population could not afford a one-week holiday. In addition to that nearly 3 million people do not eat meat due to financial reasons.

Material deprivation affected 4 million 160 thousand people. The poverty rate and the risk of poverty decreases with age: the most vulnerable are under the age of 17 (in 2011 23 per cent were poor). Young adults (18-24 year-old) face above-average risk of poverty. In 2011 more than 400 thousand children, 880 thousand adults (18-64 year old) and almost 70 thousand people over the age of 65 lived below the pov-erty line (net HUF 62 thousand per month). In terms of poverty risk for the elderly, men over 65 years of age are in the best position.

According to Zsuzsa FERGE, a well-known Hungarian sociologist nearly four million people living below the poverty line in Hungary, among those 600 thousand inhabi-tants are obliged to make their living from an amount twenty thousand HUF per month (i.e. EUR 80).

According to Hungarian Central Statistical Office (HCSO) data a single adult would need at least 84 thousand, a pensioner 75.5 thousand, two adults and two children in a household 60 thousand HUF per month to maintain to live on a very modest level.

The number of poor people in a country and the average quality of life depend on how equally or unequally income is distributed across the population. In Hungary the richest 20% of the population receives about four times more income than the poorest 20%.

Long run evolution of inequality of per capita household income in Hungary

Source: http://www.inequalitywatch.eu/spip.php?article91

More than 2.3 million of our compatriots living in households where small and large debts piled up towards public utility service providers, one and a half million people

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live in poorly heated apartment, about three million cannot think of eating meat. More than 6.5 million people are unable to afford to go on vacation for a week at least yearly. The majority of the population is expecting worsening of the situation.

Over 665 thousand households repaid home loan, almost a quarter of them failed to pay the monthly instalment. In case of households with three or more children, the rate exceeded 35 percent, which represents more than 19 thousands of families.

Over the past two years and since the new government came to power, the risk of impoverishment has increased and more brutal forms of poverty have emerged. The introduction of the flat tax system, the continuous reduction of social benefits, the stopping of the modernization of the educational system, the limited penal policy hitting primarily the poor have all brought a sad expected result. While members of the government are making mockery of the elementary rules of logic, they talk non-sense about the state of the economy; a large stratum of the society is losing their present and future possibilities. 472 thousand people were made unemployed in the second quarter of 2012 and 300 thousand receive no benefits at all. It is terribly dif-ficult to figure out what they are doing for a living, because the black economy op-tions have also narrowed

Latest HCSO data shows that „in December 2012 and February 2013, the number of unemployed people was 502 thousand; the unemployment rate was 11.6%. The unemployment of men and women changed differently: the unemployment rate of men increased by 0.3 percentage point to 12.1%, while that of women decreased by 0.3 percentage point to 11.0% over one year‛.

According to the latest figures from the HCSO 42.2% of the Hungarian society is characterized by material deprivation and 23.1% by severe material deprivation. This means that almost two-thirds of Hungarian society cannot go on vacation, 24.7% struggle with arrears, 2,860 thousand cannot eat meat dishes every other day, and 1,154 thousand cannot afford heating.

It is also clear from the HCSO analysis that the poverty rate and the risk decreases with age. 17 years of age are the most vulnerable. In 2010 only 20.3%, one year later already 23% were poor. Young adults also face above average risk of poverty.

It may seem surprising that the risk of poverty for elderly people is in the best situa-tion. The relative position of the elderly is better because pension benefits are regu-lar and predictable. During the socialist era, all the already retired people had a job. Many pensioners, however, do feel poverty as the average monthly net pension in 2012 is HUF 93,615 (about EUR 320).

Proposals

The global economic crisis has proved that the current (neo-liberal) capitalist model is unsustainable as it reduces the welfare system, increases social dif-ferences and destroys the natural environment. The economy must serve the people. The role of the State is to support the livelihoods of the great major-ity, not just to serve corporate interests. Alternative labour markets, social cooperation, community production and marketing, and opportunities for reasonable public employment must be supported. All of these can increase

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budget funds and market demand, and decrease social and other budget ex-penditure.

The economic and social rights of all Hungarians should be raised to a Euro-pean level. Hungarian civil society organisations demand European level common social policies and a European social minimum (including the right to adequate food, housing, public utility services, free education, healthcare and an old-age pension). The deprived should be entitled to receive greater support by subjective right.

There must be an end to social and local segregation, which is particularly strong in Eastern Europe and within the ghettos. The formation of production cooperatives based on social solidarity and built on local resources is neces-sary to work for job creation and spur regional and local development, as well as reduce inequalities and segregation in education.

All tools must be used to fight populist and anti-Roma racist trends and apa-thy, and the lack of solidarity with the poor.

Main antipoverty protagonists in Hungary:

Hungarian Anti-poverty Network, Hungarian Social Forum Network, Alliance of So-cial Professionals, Hungarian Malthese Charity Service

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Luis Bernardo: Portugal Luís Bernardo (contact: luispaisbernardo@gmail.com), Attac Portugal

Poverty and employment facts

Eurostat reports that 24.4% in 2011 of the total population or some 2.4 million peo-ple, 28.6% for ages below 18, 23.2% for ages between 18 and 64, and 24.5% for ages above 64 are at risk of poverty and social exclusion in Portugal. An important fact to take into account is that poverty risk before social benefit transfers (cash benefits or in-kind benefits) stood at 42,5% in 2010, according to the national statis-tical body (INE). Moreover, jobless individuals are at a much higher poverty and so-cial exclusion risk – 24,3% - than employed persons – 10,3% - after social benefit transfers. This is linked to the emerging workfare system in Portugal. It is thus im-portant to look at employment data.

As of February 2013, U3 unemployment in Portugal stood at 17,5% of the active population. U6 measures are known to be difficult to achieve within the reporting system currently in place, which do not allow for a composite measure. However, there is data on long-term unemployment, which stood in 2011 at 6,2% of the ac-tive population, and data on youth unemployment, which stood at an all-time high in August 2012 (39,6% of persons under 25 years of age) before falling to the Feb-ruary 2013 rate of 38,2%. The prevalence of part-time work was 13,3% of total em-ployment in 2011 and 22,2% of all employees were in temporary/fixed-term posi-tions. Regarding the prevalence of part-time work and the number of workers with temporary contracts, the Portuguese situation should be addressed with at least two caveats. While numbers are not strikingly high compared to EU averages, sta-tistical data do not capture the full extent of labour reforms enforced during the last decade, which indicate, according to IEFP (the national employment body) and ex-ternal calculations, that, among other contextual factors:

Half of the working force is now employed under non-stable contracts;

Unemployment-related transfers cover less than a third of all unemployed persons and the trend is accelerating on account of the rise of long-term unemployment and the strictures of unemployment-related benefit eligibility:

Minimum, median and average wages are among the lowest in pre-2007 EU mem-bers.

Wealth and income distribution

Wealth distribution is scarcely researched and debated in Portugal. As such, wealth inequality is also a poorly-known phenomenon. There is, however, a number of sources allowing for two preliminary conclusions. First, wealth inequality is very high; second, current reporting systems will prevent fine-grained analysis and must be targeted as politicized issues. In this report, we utilize the Global Wealth Report

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2012 by Allianz and the Survey on Households’ Financial Condition by the Bank of Portugal. Both of these surveys indicate that the distribution of financial assets (and liabilities) observe a very steep upward trend. The GWR2012 shows that, against commonly-held knowledge within the country and abroad, there is no shortage of financial wealth within Portuguese borders; indeed, it ranks 19th in overall financial wealth and net financial assets per capita almost double GDP per capita. The Survey on Households’ Financial Condition shows that the richest 10% hold 7 times more wealth than the lowest quintile (20%); it also holds a significant amount of overall debt (62,5% total). This survey notes that real assets as opposed to financial assets (e.g. securities or stocks) make up 88% of total household assets. Financial assets are thus located elsewhere – in the financial system at large and select companies in specific industries.

Income inequality is better understood and a number of landmark studies show that Portugal is highly unequal (highest level of inequality in EU15, 4th in OECD). The Gini coefficient stands now at 0.344 and, after a number of years where a downward trend was observed (towards higher equality), the indicator now seems to suggest a climb in inequality. Taking a cue from studies by Piketty and Sáez, as well as a landmark study by Alvaredo and ongoing reports by Farinha Rodrigues and Carmo, Portugal emerges from the picture as a case of inequality and high-inequality out-comes, as suggested by Pickett and Wilkinson (2009), Hall and Lamont (2010) or Sennett (2012). It is also important to note that Portugal, as per an ISER (Institute for Social and Economic Research at Essex University) study using microeconomic modelling, was the only country amongst six included in the study where austerity measures impacted lower-income individuals the most (all remaining cases targeted cutbacks at higher-income individuals).

Economic power and policy influence

High inequality is politically relevant because it entails both concentration of political influence in capitalist political economies and desensitization in policy circles to-wards the needs of society as a whole. That being said, measuring concentration of political influence is difficult; quantifying it is nigh impossible. However, qualitative research does reveal patterns in political collusion, the so-called ‚revolving door‛ and elite reproduction. The concentration of political influence, if not sheer political power, among a limited number of actors, is only indirectly inferred, but patterns in political collusion – for example in the number of procurement tenders awarded to very few companies or in the sources of political recruitment to State-owned enter-prises – show a mounting disfunctionality in the Portuguese political system. Since the Portuguese polity holds relatively few opportunities for citizen influence over the political process and those opportunities have historically been defused by majority parties – e.g. citizen petitions to the Parliament are rarely debated, there are no re-call procedures and referenda may not be called upon citizen request.

Although popular pressure is known to have worked before, in recent years a weak-ening of the social contract has led to the opening of opportunities to holders of political influence (by way of their economic position). Privatization procedures show this; a recent study on State enterprise vacancies shows that those vacancies are likeliest to be filled just before or just after elections. This is clear evidence of

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catering to political interests. Clear evidence of regulatory capture is hard to estab-lish, but not impossibly so: the ‚revolving door‛, or elite reproduction along the economic and political fields, works rather well and its mechanisms are becoming clearer: this is especially clear as regards the finance, healthcare and specific indus-tries dealing in non-tradeables, like construction or retail.

This is especially problematic because, as stated below, intergenerational social mobility seems to be remarkably low and change is seen mostly at lower income levels – the middling middle class phenomenon and the new working poor. In other words, the rich tend to remain stable and wealth creates better life chances to chil-dren born in wealthy households; the poor lead unstable lives and run a permanent risk of falling into deprivation, which also means that children born in poor house-holds will suffer from degraded life chances and outcomes.

Needs and capabilities: how wealth and poverty are measured

The European indicator AROPE (Risk of Poverty or Social Exclusion) applies to Por-tugal and is defined as the share of population in at least one of these three condi-tions:

(a) At risk of poverty, meaning below the poverty threshold. This is defined as 60% of the national median disposable income;

(b) At risk of or in severe material deprivation. This is defined as the percentage of the population with an enforced lack of at least four out of nine material deprivation items in the ‘economic strain and durables’ dimension. The nine material depriva-tion items are: (1) arrears on mortgage or rent payments, utility bills, hire purchase instalments or other loan payments; (2) capacity to afford paying for one week’s annual holiday away from home; (3) capacity to afford a meal with meat, chicken, fish (or vegetarian equivalent) every second day; (4) capacity to face unexpected financial expenses [set amount corresponding to the monthly national at-risk-of-poverty threshold of the previous year]; (5) household cannot afford a telephone (including mobile phone); (6) household cannot afford a colour TV; (7) household cannot afford a washing machine; (8) household cannot afford a car and (9) ability of the household to pay for keeping its home adequately warm.

(c) Living in a household with a very low work intensity. The work intensity for each household is calculated by dividing the sum of all the months actually worked by the working age members of the household by the sum of the workable months in the household — i.e., the number of months spent in any activity status by the working age members of the household. A working age person is defined as a per-son aged 18-59 years, who is not a dependent child. Work intensity equal or inferior to 0.20 is considered as very low.

In advanced societies, ‚absolute‛ poverty holds little meaning because poverty in those societies (above a certain GDP threshold and public health levels) is better understood as a social relation. That is also the case in Portugal.

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One way of ascertaining relative wealth levels is to look at income tax brackets. Re-cently, these brackets have changed, leading to further the embedded non-progressive character of the Portuguese tax system. Taking that cue, upper middle-class is comprised, according to this, by individuals with an annual income between 40 and 80 thousand Euros; high-income individuals are those with an annual in-come above 80 thousand Euros. There is a severe limitation in this proxy: the Portu-guese tax authority does not provide data on the number of people within each bracket.

But the Survey on Household Finance mentioned before provides further informa-tion on wealth. The average net worth of the highest 10th percentile is 805 thousand Euros, while the median is 482 thousand Euros. As a comparison, the lowest 20th percentile’s net worth is respectively 3,3 thousand (average) and 2,3 thousand (me-dian).

The daily consequences of inequality and austerity in Portugal

Daily consequences of inequality and austerity are manifold. As Portugal is currently under strict conditionality, it is important to note that structural inequality is cur-rently being fed by austerity – accumulation by expropriation, as it were, supports a feedback loop which increases inequality, reduces welfare efficiency and thus turns austerity into a self-fulfilling prophecy. These obvious considerations need to be stated because they are generally regarded as unimportant in Portugal: inequality is hardly spoken of; the world of work is in turmoil because the fragile labor-capital balance needed for capitalist reproduction is under duress; public and common goods’ provision is no longer warranted. Daily consequences thus stem from these structural issues.

Public health levels are in some regards falling to 2002 levels. Mental health in par-ticular is of concern: the consumption of anti-anxiety and anti-depressant medica-tion is one of the highest in Western Europe at the same time that public provision of healthcare, which never rose to decent levels as regards mental health, is under duress. Another issue pertains to child health, which improved dramatically as the Portuguese National Health Service was shown to be among the best in Europe in facing infants’ health and improving their health outcomes. Child poverty is on the rise and the intergenerational reproduction of social status is the status quo itself: expectations are low, interest in collective life is low and life chances/outcomes are increasingly strained, as shown by longitudinal studies.

As is also known to students of welfare systems and social trust, Portugal as polity and society presents the lowest levels of interpersonal and institutional trust in Western Europe, in tandem with Greece. Civil society and liberal democratic politics suffer as a result; protest is on the rise not solely because social movements seek to express discontent and make discontent present in the public sphere, but also be-cause a lack of perceived alternatives in opposition channels, namely political par-ties and the labour union movement, is leading people to either new forms of politi-cal engagement or disengagement; a worrisome trend is that of disengagement, which tends to remain a non-issue in the face of emerging social movements or

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social experiments, even if in Portugal these social movements and experiments remain limited in scope and ironically enforce an urban-rural cleavage which re-mains perhaps the hardest challenge to progressive change.

Alternatives

There is scarce discussion on redistributive policy at the moment. It is the conse-quence of non-recognition of inequality as a social ill. If anything, policy is a tool of inequality enhancement: the abovementioned tax policy change, which clearly puts a burden on lower-income individuals, as well as an abrupt abandonment of univer-salist social policy in favour of targeted and means-tested policy measures which are at most intended for poverty relief, in tune with neoliberal ideas such as work-fare and reducing labour market distortions or unwarranted regulation, and never for inequality reduction or poverty eradication. Also as a consequence, the extreme concentration of wealth – although the word ‚extreme‛ in continental European contexts such as Portugal is excessive and should be used very carefully – is also a non-issue in policy-making. Curbing tax evasion and avoidance is seen as a prob-lem, but not as a class-related one. In other words, wealthy tax cheats are not seen as a larger problem than lower-income social security fraud. If anything, the latter is perceived as a deeper problem.

Left and right alternatives are nevertheless debated. The three most important de-bates currently raging on the left regard European politics (especially the common currency and the perceived struggle around remaining in the Eurozone or leaving it), how to stand for the welfare State and whether to fight for a united front against austerity. The right is currently divided along the traditional lines of Christian democ-racy and market conservatism, which in Portugal takes a peculiar ordoliberal line (for historical reasons pertaining to post-revolutionary politics, hardline free-market evangelists are scarce in Portugal) and each field stands for a different version of austerity: the more socially-minded Christian democrats call for a slowing-down of memorandum measures and the ordoliberals seem to be standing behind the troika in order to put forward a social engineering experiment. These debates are embed-ded in customary media-driven politics.

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Carlos Custra: Spain carloscuestagr@gmail.com

Spain at a glance

The two main parties as well as the main unions are losing their political and socio-logical credit very fast. Interestingly, this situation is not happening in the case of major financial companies or corporate oligarchy.

Four main problems that the citizens see in Spain

The unemployment: 79,0% Corruption and fraud: 40,0% Economical issues: 35,4% Political class and political parties: 29,7%

(Source: National Sociological Institute, cis.es)

The control of the mass media by a financial oligarchy is huge, and is not easy for most of the population, to obtain truthful information. Spain is the 36th of 179 coun-tries analyzed in the Reporters-Without-Borders List 2013.

Some experts start talking about the "lost decade" in all areas: social rights, poverty, human rights and many others.

Number of demonstrations in Spain

2004: 10.568 2008: 16.118 2010: 20.000 2012: 32.232

(Source: Spanish Home Office)

The Spanish conservative government applies with a band on the eyes all the aus-terity measures that the troika order with much known consequences.

Even in this situation, the mass media repeat constantly about "the unsustainability of Spanish public debt," silencing that Spain's public debt is less than EU27 coun-tries (61% in 2011).

Figures and facts

Poverty

During the beginning of the crisis, the parental-nets were an important tool to stop the first wave of the crisis. But with the troika orders and, in the middle of the sec-

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ond recession these kind of casual economy is too weak. And now, the poverty is increasing in Spain and faster than 90% of the EU-27 countries.

Eurostat Main Figures

Risk of poverty (2011): 21,8% (4th of EU-27) Increasing of Risk of poverty (2008-2011): 2,2 points (1st of EU-27) Households that are unable to deal unforeseen expenses:

o 2007: 30% o 2012: 44.5%

AROP (at-risk-of-poverty) evolution (%):

Unemployment

The worst unemployment rate of Europe. Of course, the unemployment is a very important factor to increase the risk of poverty, and the rates are reaching new top records every day.

% of Unemployment (2013 Feb.)

Men: 26,0 (less 25: 56.7%) Women: 26,6% (less 25: 54,4%)

% Households where all adults are unemployed (number of)

2007: 2,5% (380.000) 2012: 10,6% (1.800.000)

(Source: National Statistics Institute)

A Conservative oligarchy -and a very weak popular support of the unions-, stops the mandatory changes in the Spanish production model with old-fashioned formulas that make worse the labour conditions of the workers and delays the drop of unem-ployment. Moreover, 25% of contracts in Spain are temporary. People who have had this type of contract are more likely to be in risk of poverty, even when it has been left behind. In addition, delays the possibility of achieving the average wage up to 10 years.

[[[METER EL BITH]]]

Inequality

The differences are weak between Spain, Portugal or Greece, and the wealthiest people of these countries don’t feel the austerity measures with the same intensity than the poorest. From the beginning of the crisis, the Gini index increased 10% and it’s a poor 0,340 (EU: 0,307), meanwhile, the difference between the net in-come from 80th percentile and 20th percentile has increased by almost 30%.

The average income of the richest people is seven times of those with less income. And since the beginning of the crisis, this difference has increased 30%.

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The average income (2008) of 10th percentile of the wealthiest is eleven times the 10th percentile of the people with less income.

Public services (health, education, social services, housing)

Since signing of MoU between Spain and the European Union, the conservative party is applying with the firmest hand.

% Variation National Budget by Sector (2008-2012)

Housing: -40% Education: -24% Health: -10.4% Social services: -7%

Last National Budget (% variation)

Public Services: -20% Health: -23% Children coverage: -54% Women & Equity: -25% Dependence budget: -17% (Source: Eurostat)

The consequences

These figures must not hide the many legislative initiatives that have come from the EU and the Spanish government that excluded a part of the population from Public Health.

"Paying all" or out

The Social Services, that affect to the weakest sectors of the population (e.g.: Women, children and older people) are becoming paid services.

In a historical decision, the "illegal foreigners" had banned from the Public Health coverage.

Old Muscle

The oligarchy that controls the mass media, the financial institutions and the IBEX35 companies many decades ago, cannot or do not want to boost real economy.

The Privatization Process

More and more Spanish regions are developing initiatives to privatize of public ser-vices: water, sanitation, and education, social services ...all sectors are affected.

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Re-actions: permanent social mobilization

Last year ATTAC Spain has called for permanent social mobilization. We must spread the message that there are serious and reliable alternative to the financial disaster we suffered.

Any strategy must include improved coordination of European social movements, because otherwise we will not obtain the effectiveness we need.

Citizen protests are continuous and raise the cases of human rights issues, police violence and freedom of assembly.

The anger of the population is growing and direct actions are often.

The so-called "escraches" that comes from the Argentinean "corralito", takes activ-ists anti-evictions to protest in front the private homes of politicians.

The Spanish government plans to change numerous regulations about: protest rights, freedom to meet and different politicians have called for changes about regu-lation of freedom of speech.

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Lars Gunnesdal: Norway Based on a report by Lars Gunnesdal (board member of Attac Norway) and Magnus Marsdal (former head of Attac Norway) from the think-tank Manifest Analysis (mani-festanalyse.no).

The extreme growth in economic inequality since 1980 is an international phe-nomenon, as is the following financial and welfare crisis. Norway is still not strongly hit by the lasting economic crisis. We have a high degree of employment, low un-employment and an increase in real income.

There are tendencies towards some of the development trends from the US and other crisis ridden countries also in Norway, especially concerning growing inequal-ity in terms of concentration of wealth at the top.

Norway is still more economically egalitarian than societies like Great Britain, and especially the US. At the same time Norway has followed exactly the same path the last decades, towards an increasing concentration of power at the top of the eco-nomic hierarchy. While the inequality amongst ordinary citizens is relatively stable, the gap between ordinary citizens and the top 1% have increased so dramatically after 1990 that we have to go back to the time around the Second World War to find similar inequality.

Income of the richest 1%, relative to the other 99%:

1971 1989 2007 0,01% 33 25 105 The next 0,09% 11 8 25 The next 0,9% 6 4 7

Source : http://www.ssb.no/a/publikasjoner/pdf/DP/dp552.pdf

The growing income inequality results in an increasing concentration of power in terms of wealth. The value of the assets of the, at any time, 400 richest persons in Norway have almost quadrupled from 1997 to 2012, where they accounted for al-most 764 billion NOK. The number of billionaires has also grown in record time in the same period. Between 2000 and 2012 the number more than quadrupled, from 43 to 189.

Number of Norwegian billionaires 2000- 2012:

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

43 67 50 48 62 86 119 159 163 141 168 180 189

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The increasing advantages by the rich on ordinary citizens are visible in the statistics of net fortune. Net fortune in Norwegian households, 2011 (mill. NOK):

Lower 95% Top 5% Top 1% Top 0,1%

1 13 35 169

Net fortune is the total of household real capital (included estimated value of hous-ing) and financial capital (shares, bank deposits, etc), deducted debt. The top 0,1% represent the average for the more than 2200 households with the highest net for-tune in 2011. (SSB)

Regarding the head start of the richest in society there has been an explosion of inequality in Norway. The development started a little later than in the US and Great Britain but has been all the more powerful in the period after 1990. There has been a significant shift from redistribution to increasing concentration of economic power. Professor Ola Grytten at the Norwegian School of Economics has said that the income growth of the richest ‚shows that we’re starting to get prominent eco-nomic classes – with a super class on top – even if this is something we’re not will-ing to admit‛.

Falling wage share, increasing debt

Income growth for ordinary citizens has been far better in Norway than in the US after 1970 or in Germany after 2000. Nevertheless, after 1980 Norway follows the same course as other western countries: Wage share as part of total value is falling and an increasing part goes to profits.

The development of wage share in Norway from 1971 to 2010:

1971- 1980 1981- 1990 1991- 2000 2001. 2010 71% 73% 70% 67%

At the same time as the wage share is falling, Norway has experienced a remark-able growth in household debt burden. Household debts as part of disposable in-come more than doubled increased from 1978 to 2011, to well above 200%.

Along with the extreme rice in housing prices the household debt is now by far ex-ceeding the wage growth. This gives the Norwegian economy a certain character of financialization and ‚a bubble‛: There could exist a significant amount claims with-out coverage in real value. The high household debt burden increases the risk that a downturn in the economy could trigger a more substantial crisis, as we have seen in a range of countries during the financial crisis.

As in other countries, the financial sector of Norway has undoubtedly enriched themselves at the cost of the rest the economy, especially the last decade. In 2012,

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the slightly above 2% that work in the financial sector accounted for 15% of total profits in the mainland economy (excluded offshore oil and gas production and ex-port).

Along with increasing differences, growth in debt burden and the enrichment of the financial elite, it seems the political influence of the financial sector is starting to manifest itself also in Norway. Representatives from the sector are actively oppos-ing all proposals of increased taxation or stronger regulation. Despite stated goals from the governing parties of stronger regulations, there are few signs of that the advice of stronger regulation and taxation from the government commission who looked at the causes of the financial crisis will be followed by the Stoltenberg led government.

The super rich are lobbying through right wing think-tanks and parties to remove the wealth taxation. The 5000 richest persons in Norway pay in average 1 million NOK each in wealth tax every year, the 400 richest pay 7 million each in average. Professor Stein Strøm has stated that ‚The strange thing is that few but articulate and affluent persons get to influence the tax debates and block changes in the tax rules that the country as a whole would have benefitted from‛.

At the same time it’s important to point to compelling circumstances that indicate that the crisis risk is not as big in Norway as it was in countries like Spain, Ireland and the US.

The Norwegian banks seem to be more solid and can better handle losses without failing.

The financial sector is not as ‚inflated‛ and dominating in Norway as in f.ex. the US. We don’t have that dramatic mismatch between financial assets and real value assets.

The trade unions are stronger in Norway and has so far managed to prevent that inequality, especially at the bottom of the labour market, becomes as ex-treme as in many of the countries around us.

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Roberto Spini: Italy Roberto Spini, Attac Italia

1. Development of poverty, wealth and inequality in your country – Key facts and trends, e.g. rate and risk of poverty, unemployment, social exclu-sion, distribution of wealth etc. on the one hand and economic power and possibilities to influence policy etc. on the other hand.

Many commentators argue that inequality is a consequence of the crisis: in reality the inequality in Italy comes from far away. Let's look at the evolution of the Gini index - which measures the overall inequality between the incomes of the people - between 1977 and 2010, taken from Inequality Watch (with Istat data):

If after the crisis of the 70s and the 80s (those of generous public spending, it is said) there were disparities reduced, from 1991 onwards the increase in inequality has been steady. It's true that since 2004 the trend was reversed, but with the worsening of the crisis is restarted. A few days ago Banca d'Italia complained that in 2011 the inequality has increased further, in a process of deterioration began in 1992. The growing inequality is therefore not an effect of the current crisis but it comes from afar.

According to reports by the OECD in its latest report on the distribution of disposal income, the Gini index for Italy in 2011 was 31.9. The Gini coefficient was at 29 per-cent in 1991. Thereafter, there were limited oscillation and a stationary situation of inequality that lasted for about fifteen years, until the crisis of 2008. After that, the situation has continued to deteriorate. So it's not an episodic fact. In 2012 the rich-est 10% of households own 46% of the national wealth (increased compared to 2008). A bad distribution of wealth, an excessive concentration of wealth in fewer hands. For years, those who look at the world knows that this is a trend, that Italy is not a special case.

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In 2008, the average income of the richest 10% of the Italians was € 49,300, ten times the average income of the poorest 10% (€ 4,877), an increase in inequality with respect to the ratio of 8 to 1 in the mid 80s. Not only that, but in Italy there is a considerable disparity between North and South in terms of income and inequality in its distribution is more pronounced in the south, which means that those who have a low income and living in the south have it much lower of who is rich, but also of those who have a low income in the north. Things do not change if we con-sider the wealth. "The income is not enough for two of every three families", "Bank of Italy: in twenty years poverty tripled among young people and doubled between the tenants", the newspaper La Repubblica headlined a few days ago.

Deprivation, poverty and social exclusion are added to the inequality. According to the latest available data of the Institute of Statistics (ISTAT), "more than one in ten lives in relative poverty and one in twenty in conditions of absolute poverty‛: it is 8.2 million of individuals, who live mainly in the south and in the islands. Poverty data calculated on consumer spending are confirmed by those on income: accord-ing to ISTAT, in 2010, half of Italian households have an income of less than € 24,444 (€ 2,037 gross per month). But, the usual adage says, poverty will decrease due to growth: let us work, give us credit, large and small enterprises shout and we'll start to hire. Yet, relocation is not only a "fashion" but a necessity, the de-industrialization is a consolidated reality and we stubbornly continue to assert that the problem in Italy is the cost of employment. The unnecessary controversy on the Monti government reform about a liberal job regulation has not moved the question, on the field. In the words of a joke that has been circulating for some time, "with the reform it will become so easy to dismiss workers that they will hire them for that". The fact is that after years of jobless growth the phase of jobless stagnation has be-gun. The supply of labour has continued to grow without meeting its demand, thus increasing unemployment, ever so high in Italy. In January 2013, according to Istat, the percentage of "no work" has increased to 11.7%. One year ago, the unemploy-ment rate was 9.6%. Also this trend comes from afar. Unemployment rate had fallen to around 4% in the early 60s and had increased to more than 15% after 1995; it was slowly lowered to 8% in the first years of the new century: today it in-volves 3 million people, with a rate of 38.7% among young people (15-24 years). The national income has continued to increase, employment falls, unemployment increases, and the rich are getting richer.

The nations as Italy that have imposed a harsh austerity have undergone profound economic crises, and the hardest was austerity, the deeper was crisis. In fact, this relation was so strong that the International Monetary Fund, with an amazing mea culpa, admitted that it had underestimated the damage that austerity would inflict. According to some analysts, the only too clear objectives are completely to destroy the ‚Italy system‛ that was also made of state-owned enterprises, the welfare state, the rules of employment, social security and public health, State schools and uni-versities and finally to get their hands on the Italian economic asset, colonizing Italy permanently, by the large international financial groups, that are well represented in the last national government and in the ECB. There is also to be considered that for several years private groups and corporations have gained control of organizations or companies, providers of essential services such as water, transport, health, push-ing privatization processes in areas under the complete control before public.

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2. What is (absolute, extreme, relative) poverty and wealth in your country and how is this measured? (Lack of basic necessities: income, education, housing, isolation, deprivation etc. and live in affluence).

An official reference is the report ‚income and living conditions‛ that the National Institute of Statistics publishes each year. The latest report available is that with data collected in 2011. From this report it is noted that in 2011, 28.4% of persons resi-dent in Italy is at risk of poverty or social exclusion, according to the definition adopted under the Europe 2020 strategy. The indicator is derived from the combina-tion of the risk of poverty (calculated by income), the severe material deprivation and low labour intensity and is defined as the proportion of the population experi-encing at least one of these conditions. Compared to 2010, the indicator grew by 3.8 percentage points due to the increase in the proportion of people at risk of pov-erty (from 18.2% to 19.6%) and those who suffer from severe deprivation (from 6.9 to 11.1%). After the increase observed between 2009 and 2010, essentially un-changed (10.5%) is the proportion of people living in households with low work in-tensity. The risk of poverty or social exclusion is higher than the European average (24.2%), especially for the component of severe deprivation (11.1% compared to an average of 8.8%) and the risk of poverty (19.6% against 16.9%). Individuals living in households who claim they cannot afford in the year a week's holiday away from home increase compared to 2010 (from 39.8% to 46.6%), who were unable to ade-quately heat the housing (11, 2% to 17.9%), who are unable to unforeseen ex-penses of 800 € (from 33.3% to 38.5%), or that, if they wanted to, they could not afford a meal protein adjusted every two days (from 6.7% to 12.3%). 19.4% of peo-ple living in the South is severely deprived, more than double compared to the cen-tre (7.5%) and three times higher than in the North (6.4%). In the South, 8.5% of people without any symptoms of deprivation in 2010 become severely deprived in 2011, against just 1.7% in North and 3% in Centre. These trends are confirmed in recent report in early 2013 (Confcommercio, Eurispes). In five years in Italy were produced 615 new poor per day, a number that, according to the analysis of Confcommercio, is expected to grow.

To compare statistical data at European level with the same method, the EU-SILC (Statistics on Income and Living Conditions, Regulation of the European Parliament, no. 1177/2003) is one of the main sources of data for periodic reports on the social situation of the European Union and the spread of poverty in member countries. The core information of EU-SILC is essentially cantered on the issues of income and social exclusion. The project is inspired by a multi-dimensional approach to the problem of poverty, with a particular focus on aspects of material deprivation. The following are some tables to locate the position of Italy in 1) At-risk-of-poverty rate and threshold, 2010 and 2) Inequality of income distribution, 2010:

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3. What are the consequences of the divide between rich and poor in eve-ryday life and in society in your country?

The inequality of wealth means that, in the presence of a welfare system that has always focused mainly on the social security component, the family is forced to act as a social safety net to protect the most vulnerable members (children, young peo-ple and the elderly), sometimes concealing the difficulties access to economic inde-pendence of young people of both sexes and women of all ages. But this protection is no longer enough.

The gradual concentration of wealth, in addition to the increase of individuals and households at risk or in poverty - absolute or relative - is reflected directly on the living conditions of the most vulnerable population. Social safety nets that also re-main (CIG, social allowances, basic levels of care) are a growing source of public spending but at the same time they are not able to cover the needs of individuals and households, especially when the companies which have recognized a state of crisis for which hours of extraordinary layoff are paid, are definitely in crisis and workers are laid off.

The marginality given from exclusion from jobs and income that affords an ade-quate standard of living goes hand in hand to the exclusion from those services which, as a result of progressive cuts in social spending, are no more considered public and whose availability is tied to the possibility of access and payment. Just think to services for children (0 to 6 years) or support services for older people, es-pecially for no self-sufficient. Despite the overall expansion of the public offer, the

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share of demand met is still limited compared to the potential user base. As for the elderly, Italy is the only country in Europe, but not only, in which the need for assis-tance is covered - almost in a 1/1 ratio - from private staff (for the most part made up of immigrant women) directly employed by Elder or from the family they belong. If they cannot pay for access to these modes of service, it immediately becomes social exclusion (and often in conditions of abandonment) of those directly involved or family members, usually women, who withdraw from the labor market by giving up possible sources of income and the investment of skills acquired in training and working often excellent. The decrease in the birth rate, on the one hand, and the progressive aging of the population on the other hand draw heavily depressive out-look on the living conditions of the majority of Italian households. The measures that the Government Monti, appointed in December 2011, established in the law "Salvaitalia" in 2012, had the declared aim of regaining credibility to Italy in Euro-pean and international level, but the price marked by the rigor of measures (cuts budget and increased tax burdens on fixed income taxpayers) is likely to be very high and have a further depression.

4. Which alternatives are discussed and suggested in your country to over-come inequality and eradication of poverty and the extreme concentration of wealth and who are the protagonists of this discussion?

The government proposals put in place in recent years have proved all failed. Saving systemic banks have only bankrolled further speculation, saved bankers' bonuses and removing resources to the real economy (households and small businesses) in recession. At European level, the mechanisms introduced in order to help states in difficulty (EFSF, ESM) are all based on the logic of not disturbing the functioning of financial markets, giving him even more power. Moreover, the resources mobilized by these mechanisms, and found mostly on the same financial markets, are negligi-ble compared to the needs.

The parliamentary elections of February 2013 were concluded with the substantial balance of three political forces. Two of these, the Democratic Party and Berlus-coni’s ‚People of Freedom‛, have submitted programs in substantial continuity with the liberal policies of Monti government. The program of the Movement 5 stars, the real news, although characterized by a large dose of populism, contained measures that affect inequalities as the minimum income of citizenship. The political phase is still confused since a new government has not yet come to light, but there is little hope for a real change of economic and social policy.

Many social movements and NGOs have led proposals in the national debate about the issues of fighting poverty and reduction of social inequalities. Various proposals concern expanding the resources devoted to social assistance, the fight against poverty, services for children and for long-term care, public education, social insur-ance, the interventions for social inclusion of foreign citizens in appropriate extent and manner to bring out the absolute poverty households in Italy are or are likely to be in this condition; the establishment by law of the basic level of social benefits, without which it is put at risk the guarantee of minimum standards of social care across the country; the adoption of public policies in support of employment; a greater equalization in tax such through the introduction, in agreement with other countries, of a tax of 0.05% on financial speculation and a capital tax on large es-

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tates; a threshold to the earnings of managers and to ensure that a larger share of resources will be redistributed in order to increase the salaries (Social Watch Italian coalition, Sbilanciamoci, Campagna 005 and others).

There are many small basic experiences that tackle the problem of social exclusion with a community approach and new ideas of solidarity and sharing. Examples are the MAGs (‚Mutue di autogestione") for the provision of micro credits and devel-opment of social projects; forms of mutual support to exchange material needs with the provision of voluntary services. It’s still missing a collective consciousness that generates a force capable of overthrowing from below the paradigms on which was built the government of speculative finance and the power of big economic inter-ests and this is the most important challenge that social movements are faced now.

Attac Italy currently has some campaigns also aim to combat social inequalities in the country. It has promoted the creation of the Forum for a New Public and Social Finance, to stop this devastating cycle of depressive austerity policies, sale of public assets and placing on the market of the commons for the benefit of a few private interests, to stop bailouts of banks in difficulty, and deceptive policies of economic and social recovery. The aim is to regain new forms and tools of governance of pub-lic finance to exit the crisis by launching another model of economy and society, with a new public and participatory intervention which subordinate the interests of private to public and to enable financing of local services according to a logic of col-lective interest. Another action front is the campaign for public and participatory management of water service that can demonstrate how citizens can regain pos-session of the government of every commons and reduce exclusion from access to basic goods.

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Marie Moran: Ireland

Wealth, poverty and redistribution in Ireland

Background and overview

The popular story of the ‘Celtic Tiger’ charts a period of economic growth, high em-ployment and increasing wealth in Ireland from the late 1980s until approx. 2007, as Ireland was touted to have left behind an earlier era of stagnation, high unemploy-ment and emigration for a brave new world of low corporate tax, high levels of for-eign direct investment, an educated ‘flexible’ workforce, a property and construc-tion boom and the emergence of a sophisticated financial services sector. The story of the Celtic Tiger, however, could be told another way. It was a period of growth with inequality, in which Ireland became the most globalized economy in the world, developed a bloated banking and shadow banking sector, relaxed financial regula-tion and became a hub of global capital, and seriously diminished its tax base. So for example, while unemployment shrunk during this period, from 16% in 1983 to approx. 4% in the years 2000 to 2007, the share of wealth in the country became more unequally divided, with the share of total income earned by the top 10% of income earners increasing from 27% in 1977 to 38% in 2005 (Nolan, 2007; AMECO, 2013). The type of employment created was largely in construction or the construc-tion-related industry and thus very vulnerable to a downturn. Furthermore, while employment increased, the share of income earned shifted significantly from work-ers to business, with the workers’ share falling from 78% of GDP to 56.4% of GDP during the course of the ‘boom’.1 And significantly, the movement of Ireland to-wards a low tax/low spend economy, the opening of its borders to rapidly moving finance, its reliance on cheap credit and a deliberately inflated property boom, and the runaway power and wealth of an unregulated banking system meant that once the global economic crisis hit in 2007, Ireland was disproportionately and rapidly affected. The ‘growth with inequality’ model of the boom years was revealed to have disastrous consequences in the context of the recession. The bank guarantee of 2008, which ultimately transferred responsibility for Ireland’s enormous private banking debts to the sovereign, and the subsequent imposition of an intensive ‘aus-terity’ programme, both by the Irish government and the EU/IMF ‘bail-out’ mecha-nism, have since deeply intensified rates of poverty and extremes of inequality in Ireland.

Key statistics on employment, poverty, wealth and inequality

Unemployment in Ireland has soared in recent years, from a low of 4% in 2007 to the current rate of 14.8%. Youth unemployment has been mitigated by the ex-

1 Kirby & Murphy, 2011

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tremely high levels of youth emigration, a policy which is seen to have been actively encouraged by the Irish government. Public sector pay has been cut across the board by approx. 15%, in a way which does not adequate address inequality of in-come within the public service.

While the 2000s saw a decline in rates of relative and consistent poverty, this trend has been reversed since 2008, with sharp increases across all three key measures as documented in the chart below. In 2011 the single largest demographic group at-risk-of poverty was children, with nearly one in five at risk of poverty (CSO, 2013).2 2011 is the most recent year for which figures are available but evidence emerging from front-line charity services, such as the St. Vincent de Paul charity, indicates a continued and steep increase in the numbers of people availing of their food and clothing provision services.

Poverty and Deprivation Rates, 2008-2011

At risk of poverty rate (%)3

Deprivation rate (%)4

Consistent poverty rate (%)5

2008

14.4

13.8

4.2

2009

14.1

17.1

5.5

2010

14.7

22.6

6.3

2011

16.0

24.5

6.9

It is not simply poverty which has increased since 2007, but also inequality. How-ever, while the increase in poverty represents a reversal of a social trend, the in-crease in inequality represents a continuation, as the ‘boom’ years themselves were characterized by deepening inequality. In the period 2008-09, the poorest tenth of earners in Ireland suffered a drop of 26% in their real disposable earnings, while the richest 10% showed an increase of 8%.6 In 2010, social transfers were significantly

2 http://www.socialjustice.ie/sites/default/files/file/SER/2013--04-02%20-

%20Socio%20Economic%20Review%202013%20-%20FULL%20BOOK%20-%20FINAL.pdf

3 The at risk of poverty measure is also known as relative poverty and shows how an individual’s or household’s

income compares to the average. In Ireland the relative income poverty line is set at 60% of the median income.

4 In Ireland the deprivation index is measured as follows: Without heating at some stage in the last year; Unable

to afford a morning, afternoon or evening out in the last fortnight; Unable to afford two pairs of strong shoes;

Unable to afford a roast once a week; Unable to afford a meal with meat, chicken or fish every second day;

Unable to afford new (not second-hand) clothes; Unable to afford a warm waterproof coat; Unable to afford to

keep the home adequately warm; Unable to afford to replace any worn out furniture; Unable to afford to have

family or friends for a drink or meal once a month; Unable to afford to buy presents for family or friends at least

once a year

5 The consistent poverty rate combines relative income poverty with relative deprivation. People whose income

falls below the relative income poverty line and who also experience relative deprivation are regarded as living in

consistent poverty.

6 http://www.scribd.com/doc/110286798/Thorsdottir-The-Polar-Opposite-Iceland-The-Recession-and-Gender-

Equality

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cut in the national budget, with the effect that the poorest 10% saw a further drop of 18.6% in their overall disposable income, while the richest 10% experienced an increase of 4.1%.7 Data from the Survey of Income and Living conditions in Ireland (SILC)8 shows that income inequality experienced a large rise in 2010, rising from a ratio of 4.3 to 5.5 (the ratio of the income of the top 20 percent to the bottom 20 percent), which was the biggest single year jump in income inequality experienced in any country since the EU started recording this data. In 2010, Ireland ranked 9th in the EU-27 for income inequality.9

Irish society is also characterized by extremes of wealth, with a 2007 study showing that 5% of the population owned two-thirds of Irish wealth. When residential prop-erty is excluded, we find that 1% of the Irish population own 34% of the wealth. While Irish wealth reduced over the crisis, there is evidence that it is recovering, with the Irish wealthy recouping some of their property and stock market losses with gains made from the sale and purchase of government bonds.10 An overarch-ing issue here is that while poverty in Ireland is measured, wealth is not, and most of our measures of inequality depend upon differences in income rather than in ac-cumulated wealth.

The increase in inequality in Ireland is directly related to a larger transfer of wealth from the public to the private banking sector, and particularly to the private bond-holders in the failed banks, as a result of the banking guarantee of 2008. So far, € 64 billion belonging to the people of Ireland has been spent on saving the banks, recapitalising six Irish banks to ensure that they can repay their debts as they come due. €20.7 billion of this sum was taken directly from the National Pension Reserve Fund11, €11.9 from the exchequer, while the remainder is to be raised from interna-tional money markets (and so does not include as yet the cost interest repayments in financing these borrowings). This banking debt forms a significant part of, and is intrinsically related to the deepening of, Irish sovereign debt. Ireland’s total sover-eign debt was € 192 billion in 2012, which is a debt to GDP ratio of 121%, and a debt to GNP ratio of 147%, and includes about two thirds of the € 64 billion bank debt. Money that could have been spent on job creation and public services in Ire-land is now been channelled into the servicing of the debt: not only do these debt repayments represent a direct transfer of wealth from ordinary people living in Ire-land to the anonymous bondholders of private risk-taking financial institutions, the manner in which the money is raised in order to meet these repayments is also it-self, as shown, deeply unequal.

7 http://notesonthefront.typepad.com/politicaleconomy/2012/03/we-are-now-starting-to-get-data-to-assess-just-

who-in-society-is-getting-hit-and-who-is-getting-by-of-course-we-know-about.html

8 http://www.ucd.ie/issda/data/cso/silc/

9 ibid

10 http://www.irishleftreview.org/2010/10/21/irish-wealth-fairer-society/

11 National Pension Reserve Fund (NPRF) can be thought of as the Irish wealth fund, which had been

accumulating since 1999 from a combination of tax receipts and the proceeds of the sale of state assets.

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Responses and alternatives to extremes of poverty and wealth

A very divisive ideological battle has been waged in Ireland, which has successfully pitted private sector against public sector workers, and distracted from the huge inequalities between the wealthy and the poor/working poor, which exists across the public/private sector divide. Media channels are dominated by the pragmatists of neoliberalism (economists and politicians), who insistently and authoritatively tell us that our public and welfare services cost too much, that our pension bill is too high, that our public sector is inefficient, that our taxation is too high and stifling growth, and that we must ‘pay the price for having partied too hard’. They ulti-mately tell us that we must accept the power and authority of the markets – and this claim has been accepted as a basic truth even by trade unions and social justice organisations, who fight for some modicum of social justice or ‘fairness’ within a greater acceptance of an illegitimate debt burden and a society subordinated to market demands. Even Social Justice Ireland, which is one of the more progressive organisations, accepts this frame:

Social Justice Ireland fully acknowledges Ireland’s difficult fiscal position. We also accept that Ireland must pay its way. However, we believe strongly that there are alternatives to the present approach which would protect the vul-nerable while rescuing the economy and doing this in a sustainable manner.

Such is the stronghold of the neoliberal pragmatists in the media that trade unions or social justice organisations are construed as the lunatic fringe unless their claims and demands for egalitarian change contain (and are weakened by) this kind of en-dorsement.

Thus what we have in Ireland has been a weakening of the trade union movement, at least at leadership level, to the point where many of their members feel that the leaders have sold out. They are also widely perceived to be very closely connected to the labour party, which is also widely believed to have sold out or capitulated to more right wing and socially regressive demands as part of the current coalition government. The more radical demands, for economic redistribution, tax justice and repudiation of illegitimate debts have not come from the labour party or the trade unions, but instead from the smaller parties of the far left (The Workers party and People Before Profit), an emergent group of non-party political campaigns (Anglo: Not our Debt, Unlock NAMA and the Campaign against the Household and Water Charges), and the financially besieged Community Sector (Canal communities, The Spectacle of Defiance and Hope). These groups are not yet working together in a cohesive manner, though there have been and continue to be attempts to link the separate struggles each are fighting, as for example, in the event ‘Common Threads’, organised by Debt Justice Action, which attempted to link together groups fighting austerity measures by offering an overarching narrative of resisting the illegitimate debt imposed on the Irish people. These groups are very under-resourced, and continue to be dwarfed by the mobilizing capacity of the Trade Un-ions who, despite membership apathy, continue to be the only collective organisa-tion with the resources and power to literally ‘bring the people onto the streets’.

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The alternatives set forward by these groups include:

Refusal to pay the enormous debt burden which was accrued by the private banking sector, and then socialized with the bank guarantee of 2008, with devastating consequences for the Irish people (massive job losses, imposed sovereign bailout, harsh austerity programmes disproportionately impacting the less well-off and the poor) – Anglo: Not our Debt/Debt Justice Action, PBP, Workers party

Refusal to pay the household and water charges – CAHWC, PBP, Workers party. This popular campaign carries contradictory messages. On the one hand, it has fought successfully against a regressive redistribution of wealth, as monies raised by the water and household charges are not put back into local services but are used to pay down the debt burden or reduce the deficit. On the other hand, the campaign seems to endorse an anti-tax position, most particularly in its opposition to a property tax, which should be viewed as a progressive, redistributive measure.

‘Plan B’ – this proposal was put forward by the Claiming our Future coalition, and proposed a State investment/stimulus programme to create growth, jobs & economic activity, which is in part dependent on raising revenue from taxes on wealth and higher incomes, and from achieving a debt write-down. However, this coalition has also been tainted in the public imagination by its alliance with the Labour party, and has lost momentum.

‘Occupy Dame Street’ served an important symbolic function in Irish society as, like other Occupy movements, it drew attention to the extremes of wealth and inequality in Ireland. However, it did not generate feasible solutions, and quickly dissipated after its forced dismantling by the Irish Police in March 2012.

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Maciej Gdula: Poland

Unpacking the success story: inequalities, wealth and poverty in Poland during the crisis

Poland is often presented as a country that managed to avoid the destructive im-pact of economic crisis. Indeed polish economy as one and only among EU econo-mies hasn’t noted the decline in GDP after 200712. Other indicators such as interest rates of governmental bonds or the level of public debt can also serve as the signs of its strength. Nonetheless the polish lesson is not limited to advices how to navi-gate in dangerous waters of economic crisis. The global condition of polish econ-omy during the crises does not equal that certain categories of polish society re-mained unaffected. Poland is a test case making possible to understand what king of consequences certain policies oriented to fight the crisis have for society and re-lations between the rich and the poor.

The context of the study

Relations between poverty and wealth in Poland during the crisis cannot be ana-lyzed outside the context of economic growth, transfers from EU and dynamics of class structure.

In the last decade polish economy was continuously growing. In comparison to the year 2000 one noted the GDP growth of more than 50%. There were many reasons of this dynamic among others the end of painful transformation of socialist econ-omy, entering the EU, profits related to globalization and harnessing the inherited resources such as road infrastructure or energy plants. The economic growth of last ten years meant reduction of unemployment and augmenting incomes for house-holds. In 2011 a historical voting took place. Poles voted for Civic Platform of Don-ald Tusk who was prime minister for previous four years. It was first time after1989 when voters decided to prolong their support for current government. The stability and positive climate of the last decade (in spite of sometimes intense political con-flict between political parties) is understandable when we compare it to the 90’s.

In the 90’s new phenomena became part of everyday reality in Poland – unem-ployment. It was particularly severe for working class which was a major class force of protest in real socialism. The indicator of unemployment was rising fast and in 2001 it reached 17.5%. Between 1986 and 2002 more than 5 millions of jobs disap-peared from polish economy (reduction from 18 to 12.8 millions). Today unem-ployment in Poland is still high (13.4% for the end of 2012) but in the same moment 1.4 million of jobs were created after 2002. Additionally the possibility to work le-gally in other EU countries appeared in 2004 and according to estimations about 2 millions of Poles choose to emigrate which reduced the pressure on labor market. The difference between 90’s and 00’s are pretty clear where it comes to dynamics 12 Eurostat

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of incomes. The real incomes of Poles had not raised before 1997. After that mo-ment the rise was not substantial and the situation changed only after 2003. In best years of the following decade real incomes raised almost 5%. In 2011 the average gross real wage was 33.2% higher than in 200013.

Entering European Union in 2004 had essential impact on macroeconomic condi-tion of polish economy, level of investment and incomes of households. Poland be-came beneficiary of EU funds especially from Structural Funds, Cohesion Fund and Common Agricultural Policy. In firs 8 years of presence in EU Poland obtained 38.2 billions of Euros net. The stream of money was not constant but growing. In 2007 Poland got 4.5 billion of Euros but in 2011 it was 10.5 billion14. This dynamics of money flow reduced the impact of crisis and stimulated economic growth as EU money is channelled in a great extend to investments such as investments in road infrastructure. The direct payments for farmers which are a part of Common Agri-cultural Policy had a huge impact on the level of inequalities. After 2004 direct pay-ments has changed the economic condition of polish country and reduced heavy burden of transformation era. Average polish farm which acreage is 10.3 hectare got in 2012 9.7 thousand zlotys (ca 2.5 thousand Euro) of direct payments which is considerable additional income15.

In spite of abstinence in using the term of class in making account of developments after 1989 one cannot understand transformation unless refers to changes of class structure. Three processes here are of particular importance: decline of the working class, rise of the middle class and consolidation of capitalist class. In 1992 the share of skilled workers in working force was 34.5%. In 2005 it dropped to 28%. It seems not to be considerable shift but if one reflects diminishing number of jobs in econ-omy we get the picture of the class which was swiftly shrinking. The incomes were clear expression of the weakening position of the workers. In industry workers used to earn 92% of the non-workers salary in industry. In 2007 they earned only 52% of non-workers salary. When we add to this the falling rate of unionization we got the full picture of the working class: shrinking in numbers, weakening economically and losing its organizational power.

The decline of one class was accompanied by the rise of another. Between 1992 and 2005 the share of the middle class representatives among employees grew from 11.5% to 23.6%. The rise of the middle class was not in the first place the out-come of going from central planning to market rule and establishment of new en-terprises. Main animating force behind that process was the state. After 1989 the rather high quality of public services was maintained and considerable rise of public administration occurred. This branches of economy were producing demand for educated employees offering them decent incomes and stable conditions of em-ployment which happened to be very important element of labour relation when labour market become highly flexible in the first decade of 21st century. After 1989 Poland followed more or less the same way west European countries went in the

13 GUS (Main Statistical Office)

14 Ministry of Finance of Republic of Poland.

15 Self-calculation, data source Ministry of Agriculture of Republic of Poland.

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70’: deindustrialization and weakening power of working class was accompanied by rise of the middle class related to public services and the states16.

Third important process of class structure evolution after 1989 was the consolida-tion of capitalist class. Spontaneous outburst of entrepreneurship started in the second half of the 80’s forerunning the political change. It lasted few years in the beginning of the 90’s but fast enough the process of consolidation started which was the natural consequence of capitalist competition. On the list of 100 richest polish entrepreneurs the share of debutants between 1992 and 1994 exceeded 30%. Ten years later the share of debutants dropped by a half. Additionally the dis-tance between newcomers and established in the size of fortunes has grown big-ger17. The changes occurred also below the top of economic pyramid. In the begin-ning of the 90’s entrepreneurs were social strata with the highest incomes. The situation changed after 1993 when their incomes were surpassed by incomes of managers and specialist which was explicit sign of declining economic position of small entrepreneurs suffering from the exigencies of capitalist competition.

Income inequalities

One of the main tools for revealing the distance between the rich and the poor is measuring income inequalities. Inequalities are usually presented in the form of syn-thetic indicators which helps to analyze the changes in time and compare inequali-ties internationally. Two most popular indicators are Income Quintile Share Ratio18 and Gini Coefficient.

Income Quintile Share Ratio represents the inequalities as the ratio of income con-trolled by 20% of the richest to the income won by 20% of the poorest in popula-tion. The higher the value of the indicator is the bigger are the inequalities. The table below presents the data from Poland and selected countries of EU which enables to truck down the impact of the crises on income inequalities.

Income quintile share ratio in Poland and selected EU countries19

2005 2006 2007 2008 2009 2010 2011 Poland 6.6 5.6 5.3 5.1 5.0 5.0 5.0 Germany 3.8 4.1 4.9 4.8 4.5 4.5 4.5 Spain 5.5 5.3 5.3 5.4 6.0 6.9 6.8 Sweden 3.3 3.6 3.3 3.5 3.7 3.5 3.6 Mean (UE 27)

5.0 4.9 5.0 5.0 4.9 5.0 5.1

16 M. Koch The Roads to Post-fordism, Athlone, Hampshire 2006.

17 J. Kastory, K. Lipiński Drogi do overclass (Roads to Overclass) w M. Gdula, P. Sadura Style życia i porządek klasowy w Polsce (Life-style and Class Order In Poland), Wydawnictwo Naukowe Scholar, Warszawa 2012.

18 Sometimes quartiles or deciles are used instead of quintiles.

19 Eurostat

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Gini coefficient in measuring incomes represents the dispersion of incomes in whole population. When Gini coefficient is zero it means that we are investigating a group which is completely egalitarian. When coefficient is 100 we are witnessing the situation of one person (or family) controls whole income. In reality Gini coeffi-cient scores few points above twenty in most egalitarian countries like Slovenia or Finland and reaches above forty in countries with vast income inequalities like Tur-key.

Gini coefficient for Poland and selected EU countries20

2005 2006 2007 2008 2009 2010 2011 Poland 35.6 33.3 32.2 32.0 31.4 31.1 31.1 Germany 26.1 26.8 30.4 30.2 29.1 29.3 29.0 Spain 31.8 31.2 31.3 31.3 32.3 33.9 34.0 Sweden 23.4 24.0 23.4 24.0 24.8 24.1 24.4 Mean (UE 27)

30.6 30.2 30.6 30.8 30.4 30.5 30.7

In spite of the crisis the inequalities in whole European Union measured either by quintile ratio or Gini coefficient remains stable. Nonetheless mean is not able to re-flect the diverse processes going on in EU. There are countries like Sweden that managed to keep the distance between rich and poor despite the crisis. In other countries like Germany which introduced regulations admitting more flexibility on labour market and handled economic growth the distance between rich and poor grew bigger and stabilized on a new level. In the third group of countries – here Spain serves as an example – crisis brought fast increase of inequalities due to a huge unemployment.

In Poland we can find fourth separate model. In the second half of decade the dis-tance between rich and poor was decreasing and remained stable during the crisis. Lasting economic growth, the increase of real incomes and relatively small unem-ployment were factors responsible for that dynamics. When it comes to reduction of inequalities one cannot ignore the transfers of money to the farmers within the framework of Common Agricultural Policy. In the 90’s the incomes of farmers dropped dramatically in relation to other socio-economic groups. In 1988 the in-come of farmers was 88% of the mean income. Ten years later farmers got only 68% of the mean. Direct payments substantially improved the economic condition of farmer households especially in case of small and medium farms.

The comparison of inequality dynamics in selected European Union countries can be treated as another indicator of unequal distribution of the crisis in UE among the societies within the nation states. Apart from diversified burdens for certain socie-ties it is the mechanism that undermines the effort to search for common solutions to the crisis and strengthen the tendencies to search for national way out of it.

20 Eurostat

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Poverty

The changes in the levels of poverty in Poland during the crisis prove that it is a phenomenon on its own requesting particular treatment and analysis. Poverty levels are related with overall economic situation and condition of the labour market but especially in case of extreme poverty there is an important link with state and its redistributive policy.

In research on poverty different ways of measuring it coexist. They are not compet-ing and exclusionary but enable to grasp the complexity of this phenomenon. Three most popular measures in Poland are: relative poverty line, extreme poverty line and administrative poverty line. People considered to be relatively poor live in house-holds where expenditures per capita are below the line of 50% of mean expendi-tures per capita. Poverty here is not defined in relation to unfulfilled needs but con-nected with level of spending in all households. Relative poverty rate presents the share of poor in population.

Relative poverty rate in Poland 2005-2011

2005 2006 2007 2008 2009 2010 2011 Relative poverty

18.1% 17.7% 17.3% 17.6% 17.3% 17.1% 16.7%

In recent years the relative poverty rate downsized but the drop was very moderate: only by 1.4 percentage point. Relative poverty should rather be considered stable. It was due to good condition on labor market and relatively small unemployment therefore the same factors which affected reduction of inequalities. Stable level of relative poverty is the evidence that economic growth itself does not result in reduc-tion of poverty unless it is supplemented by active redistributive policy.

More changes occurred in case of extreme poverty. It is defined by taking into ac-count consumption that could not be postponed and unsatisfied needs that threaten biological condition of organism.

Extreme poverty rate in Poland 2005-2011

2005 2006 2007 2008 2009 2010 2011 Extreme poverty

12.3% 7.8% 6.6% 5.6% 5.7% 5.7% 6.7%

The dynamics of extreme poverty up to 2010 reflects the global relative prosperity of polish economy in the last decade but one factor should be particularly empha-sized. The expansion of extreme poverty in Poland started in the middle of the 90. In 1996 the rate of extreme poverty was 6.4% and it started to grow rapidly. In 2005 it reached its peak with 12.3%. The reverse of this tendency was a result of entering

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the UE and participation in policies of direct payments to agriculture. This munifi-cent redistributive policy helped to reduce poverty by a half.

The situation cannot be regarded as stable. In 2011 the tendency has reverted once again. The rate of extreme poverty grew by 1 percentage point. It could be the ef-fect of economic slowdown and worsening situation on labor market but one should not forget the role of anti-crisis policies introduced by polish government. Their impact will be visible when we investigate administrative poverty.

Administrative poverty rate in Poland 2005-2011

2005 2006 2007 2008 2009 2010 2011 administrative poverty

18.1% 15.1% 14.6% 10.6% 8.3% 7,3% 6.5%

Administrative poverty line is defined as certain level of income per capita in house-hold which gives citizens the right to apply for money benefits from social security. The rate of administrative poverty is a measure of poverty recognized by a state and reflects its redistributive policy.

Radical drop in administrative poverty rate by 11.5 percentage point cannot be therefore considered as a success in reducing the number of the poor. In fact it is an expression of very restrictive social policy. From 2006 to 2012 the amount of in-come presumed as an administrative threshold of poverty remained frozen. For one-person household it was 477 zlotys (ca 115 euro) and 351 zlotys (ca 85 euro) per capita in multi-person household. Keeping administrative poverty line frozen en-abled limitation of entailed for benefits and was an overt policy of social spending reduction. Expenditures on social security were cut from 18.3% of GDP in 2002 to 16.7% in 2010. The cuts were presented by government as necessary instrument in the reduction of public deficit during the crisis. The aim of the reduction was to hold down the risk of losing ‚trust of the markets‛ in polish economy. In fact budget deficit dropped from 7.4 in 2009 to 3.5 in 201221. The byproduct of that policy was the situation in which the people living in extreme poverty outnumbered those enti-tled to profit out of social security. People with unsatisfied needs and threatened by biological degradation of organism lost the access to benefits.

If administrative poverty line was corrected by price developments administrative poverty rate should arise to 11.4%22. In October 2012 only the revalorization of threshold income was introduced. The thresholds were raised to 542 and 456 zlotys respectively. This change compensates price developments only in case of lower value ascribed to multi-person households. If the thresholds were supposed to be

21 OECD, the level of deficit was considerably high partly due to the public investment within the framework of structural funds.

22 GUS

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corrected exclusively by inflation the threshold for single-person household should be 585 zlotys and for multi-person household 430 zlotys23.

The overview of social categories afflicted by poverty enables both to identify basic mechanisms causing poverty and to show who takes the burden of the crisis.

Among the people particularly threatened by crossing poverty line are unemployed and their families. In 2011 in households with one unemployed extreme poverty rate was 12.5% (6.7% in whole population). In households where two people were un-employed the rate of extreme poverty rises to 34.5%. The importance of the unem-ployment as a factor increasing the risk of poverty becomes clear when we com-pare the situation of households with unemployed and those which are not facing this challenge. The rate of poverty in case of the latter is only 5%. The risk of pov-erty among the people deprived of the incomes stemming from commodified work shows that social protection for unemployed is not sufficient to bring them out of the state of vulnerability.

Nonetheless work is not an universal remedy for poverty. If one is working in low paid job the threat of poverty remains high. In 2011 in the households where in-comes came from working-class jobs24 the rate of extreme poverty reached 9%. In households of non-working class employees, where the level of education is con-siderably higher, extreme poverty afflicted only 1.5% of inhabitants. Therefore in Poland one can recognize the existence of phenomena of working poor: people who participate in labour market but are unable to earn enough money to satisfy their basic needs.

Considerably higher risk of poverty occurs in case of farmers’ households. Extreme poverty in that group considers almost 13% of inhabitants. The farms with acreage below 2 hectares are most exposed to the risk of poverty. Here the rate of extreme poverty doubles. In the first place this situation is the result of inability of small farms to sustain level of incomes enabling the coverage of basic needs by selling goods on the market. Another reason is the level of direct payments from UE. What helps to resolve the problem of poverty on bigger farms in not enough in case of small ones where payments cannot compensate for the lack of incomes.

Fourth group suffering from poverty are children and youth. Among all people be-low extreme poverty line the share of this category is 30% while their share in total population is only 20%. Particularly dolorous is the situation of the children coming from multi-child households which are in high risk of extreme poverty. In the fami-lies of four children and more extreme poverty reaches 24%. The social and eco-nomical condition of children and youth is different to condition of pensioners who are supposed to be the most deprived group according to common sense knowl-edge. In the category of pensioners only 4% of the people lived below extreme poverty line. Vast differences in generational distribution of poverty reflect the con-struction of polish social protection system. Pensioners benefit out of the old pen-sion system which was founded on principles of solidarity and still delivers decent

23 GUS, self-calculation

24 Category used by GUS. Other categories of households distinguished are: non-working class, farmers, pen-sioners, entrepreneurs and non-comodified incomes households.

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benefits. Poverty afflicting children proves that the costs of bringing up are trans-ferred on families and remain a heavy burden for them. Therefore low fertility rate in Poland is not astonishing. With fertility ratio 1.31 in 2012 Poland is holding 209 po-sition in fertility on the world scale25.

Wealth

In analysis of wealth I propose to focus on two categories of wealthy people. First is the wealthiest category of employees composed out of managers of enterprises and higher officers of administration. The wealthiest capitalists constitute the second group.

I will compare the incomes of the wealthiest among employees to mean incomes in polish economy and incomes of selected groups of employees. In 2006 before the crisis started the incomes of managers exceeded mean incomes in economy by 122%. The incomes of managers were much higher than incomes of representa-tives of the middle class like experts or teachers. The incomes of the former ex-ceeded the mean by 25% and incomes of the latter only by 8.5%. Salesmen and workers in simple works earned substantially less than average. Salesmen’s in-comes were just 56% of the mean and workers in simple works earned 57.5% of the mean. Four years later in 2010 situation has not changed entirely. The incomes of middle class were rather stable in relation to mean. Specialist got 22% and teachers got 9% more than average. The incomes of salesmen and workers in sim-ple works grew a bit to 59.5% and 58.5% of the mean income respectively. The biggest changed occurred in case of managers incomes. In 2010 they earned 107% more than average in economy26.

For sure the decline in managers’ incomes was not related with austerity measures introduced in the enterprises during the crises. The change was rather the result of uneven distribution of wealth during the period of economical growth. The dynam-ics of real incomes reveals that middle and working class were among the benefici-aries. Between 2006 and 2010 the incomes of managers corrected by prices devel-opment (22.5%) grew only by 1.5%. In the same period the real income growth of teachers’ incomes was 10.5% and in case of workers in simple works 13.6%. Man-agers didn’t lose during last few years but employees from middle and working class profited more than them.

Another dynamics we can trace when looking on the wealth of the biggest capital-ists. I will refer to the list of 100 wealthiest Poles presented by polish edition of Forbes Magazine. This type of data are basic source of information about fortunes of most successful entrepreneurs even thou they have certain limitations. The size of fortunes is estimated and lists are not complete as some individuals can remain outside of the study if his/her enterprise is not present on stock market. Nonethe-less lists of the wealthiest are indispensible source of information about the top of the capitalist ladder.

25 The World Factbook CIA.

26 GUS, self-calculation.

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According to the list elaborated by Forbes Magazine in 2010 the total wealth of 100 wealthiest Poles was 81.4 mld. zlotys (ca 19 bln. Euro). The next year they increased their wealth only by 0.4% to 81.8 mld. The latest ranking brought information on considerable growth of fortunes. The cumulated wealth of entrepreneurs included on the list was bigger in comparison to previous year by 15.5% and reached 94.5 mld. zlotys (ca. 22.5 bln. Euro). The fortunes of the two leading capitalists Jan Kulczyk (breweries, roads, energy) and Zygmunt Solorz (television, cell phone net-work) overstepped 10 mld zlotys (ca. 2.3 bln. Euro) – a barrier that wasn’t crossed ever before. Crisis wasn’t very challenging to capitalist class but served as an occa-sion to magnify their fortunes.

The balance of class forces

Earlier I indentified the rise of the middle class as one of the most important phe-nomena changing the class structure in Poland. The position of the middle class reflected by its size and bargaining power makes it the crucial class actor of con-temporary conflicts and social processes. Understanding its culture, dispositions and aspirations enables to sketch different scenarios of crisis dynamics not only in Poland but also in a whole European Union.

The most characteristic of all middle class dispositions is an inclination to appreciate order27. It is present in different practices and diversified realms of reality. One can find it in ways of engaging in sport, manners of treating animals or attitudes to-wards objects of everyday life like bicycles. Representatives of the middle class prize the punctuality, fitness and training of animals. Order should be introduced to social world as well as to individuals self-governance.

Although middle class culture remains partly autonomous one cannot analyze it apart from relations with other classes and specific aspirations of the middle class to move higher in social hierarchy. The aspiration to climb up the social ladder re-sults in certain strategies and specific contradictions. In consumption we can wit-ness the tendency to buy products that representatives of the middle class can hardly afford to. That kind of goods are becoming the object of adoration both as solid things and the symbols of status. Buying expensive goods becomes a curse as the pride of owning good bicycle or a car is accompanied by the fear they will be stolen.

Middle class aspirations result in strategies of self-investments, acquiring new competences, certificates and diplomas, which are supposed to help in career. As employees middle class representatives appreciate the shift of workplace as new job is an occasion for professional development. Investing in upward mobility leads to dilemmas how to allocate scarce resources for example in whom one should in-vest in oneself or in children. The culture of sacrifice in the name of future awards doesn’t make those dilemmas less dramatic.

27 M. Gdula, P. Sadura Style życia jako rywalizujące uniwersalności (Life-styles as Competing Universalities) w: M. Gdula, P. Sadura Style życia i porządek klasowy w Polsce (Life-style and Class Order In Poland), Wydawnict-wo Naukowe Scholar, Warszawa 2012.

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High self-expectations and tensions characteristic for middle class sometimes result in aversion towards the poor, homeless or alcoholics. If the critique of such people appears it exceeds simple aversion. Representatives of the middle class see their behaviour as a threat for order and kind of scandal. The poor for example are per-ceived as lazy, deprived of any aspiration and depending on social security28. One of my respondents – young paramedic – interrogated during my research on flexible labour conditions formulated demands to restore proper order: We are taking the patient who is our constant client and he is alcoholic and he is dirty. To say dirty is not enough. All his body liquids, his excrements are on him and beside him. And of course we are taking him because this is what constitution says we have to do. In my opinion this is wrong. In this country nothing should be on default. Now it is enough that someone is Polish citizen and constitution guarantees him the access to medical services. Constitution is not differentiate between people (…) Situation in our country is not good for us as we pay for the medical system and those kind of people are the burden for it. Eliminatory sentiments are the reverse side of apprecia-tion of order. Nonetheless authoritarianism cannot be considered as an essence of middle class culture but it is still one of the possible modes of its articulation which results for example in a critique of social parasites.

Middle class culture is full of contradictions. On the one side it prizes expensive consumption on the other promotes discipline and sacrifice. Self-investment con-tradicts investment in children. It is not surprising that contradictions are also pre-sent in middle class attitudes towards the state. Middle class representatives when asked about care of the old people took unequivocal positions mixing anti-statist perspectives with demands of taking responsibility about the old by the state in or-der to give relief to families. Przemysław Sadura who analyzed surveys devoted t the problem of citizenship and the state noticed that middle class is even more anti-social than managers in non-acceptance of public support to unemployed, active state policy in housing or public care system but were more inclined than managers and entrepreneurs to value functioning of the state institutions, competences of the state bureaucracy and its attitude towards citizens29.

This tension reflects two possible ways of articulation for middle class dispositions. They can serve either as a ground for affirmation of high standard, solid public ser-vices and transparent rules promoting universal access to it or as the foundation for repressive and eliminatory solutions. Middle class representative are eager to ac-cept egalitarianism only under specific conditions. They accept egalitarian system only when it bounds up all interests as a matter of solid rules. When system starts to deliver selective support for people who cannot make it on their own middle class representatives turn anti-social.

New militant class

Up to 60’s it was obvious that the main militant class and organized actor of social conflicts are workers. They were unionized, had strong bargaining power and

28 P. Sadura Państwo, rynek i klasy średnie w Polsce (State, Market and Middle Classes In Poland) w: J. Raci-borski (Ed.) Praktyki obywatelskie Polaków (Citizenship Practices in Poland), IFiS PAN, Warszawa 2010, s. 97-98.

29 Ibidem, s. 85-96.

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shared long tradition of successful protests that led to transformation of political and social systems. In the west the situation started to change in the 70’s and over decade later changes arrived also to central and eastern Europe. The drive to mag-nify accumulation process by reducing the cost of labour in addition to transforma-tion in means of transport and abolishment of legal barriers in circulation of goods and capital led in a relatively short period of time to relocation of industrial produc-tion from central to developing countries30. It resulted in undermining the position and bargaining power of the working class. In Poland only in 1989 for total 894 strikes 358 took place in industry. In 2008 in the great wave of strikes, I will return to later, only 4 were organized in factories.

Of course weakening position of the working class resulted in general decrease of strikes but we can observe the emergence of new militant class which is middle class of public sector. The structural position of this class is related both with re-stricted possibility to relocate its work-places and its unionization.

The rise of new militant class can be traced very well on Polish example. There were two waves of strikes in Poland after 1989. In 1993 for total 7443 number of strikes 4208 took place in education. In the next 2008 wave for total 12765 of strikes 12609 were organized at schools. Apart from strikes middle class of public sector organ-izes successful social protests. In 2007 nurses founded ‚The White City‛ – the camp of tents in front of prime ministers’ office. The protest lasted for almost a month and was a great achievement in matter of winning public sympathy and es-tablishing alliances with institutional actors. Strikes and protests are coordinated by well organized labour unions. When in other sectors of economy labour unions had to face decreasing numbers of supporters and members in public sector one wit-nessed development of new dynamic labour unions like unions of nurses or police-men. The role of the middle class as militant actor is not a polish specificity. In UK the share of the strikes in public sector raised from 4.2% in 1977 to 52% in 2008. The same tendencies one can observe in Spain or in Lithuania.

There is one more feature that makes middle class protest resemble working class struggle. In both cases particular interests interconnect to broader demands and ideas how make social reality more inclusive. The demands of nurses during ‚The White City‛ protest were not restricted to question of wages but considered also the increase of public spending on health care system, allocation of the money within the system and conditions of work which affect the quality of services and security of the patients31. Another example of such universalization of demands was a campaign organized by unions of teachers. The unions demanded to introduce state guaranteed subsidy to kindergartens which would boost their economic condi-tion deteriorating under the governance by local authorities. State subsidy – teach-ers were saying – would help to improve the rate of children in preschool education which is particularly weak in Poland. Middle class of public sector articulates its in-

30 B. Silver Forces of Labor Cambridge University Press, Cambridge MA 2003; , E. Hobsbawm Age of Extremes Vintage Books, New York 1994.

31 J. Kubisa Związki Zawodowe Pielęgniarek i Położnych: w obronie jakości usług zdrowotnych (Unions of Nurses and Midwifes: In Defense of Quality of Public Services) w: W. Kozek Gra o jutro usług publicznych w Polsce (The Struggle Over Future of Public Services In Poland), Wydawnictwo Uniwersytetu Warszawskiego, Warszawa 2011.

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terests together with demands of other groups (patients, parents) which serves both to better legitimize it and to construct political alliances in order to defend it.

The importance of the middle class was recognized in the politics of Donald Tusk. To reduce the possibility of protest he decided on raising the wages of the teachers in spite of the crisis. Middle class unions are actors one has to take into account if he/she wants to keep oneself in power.

Contemporary crisis in Europe and middle class position

When we look on contemporary capitalism from the perspective founded by Karl Polanyi32 and later developed by Gosta Esping-Andersen33 the importance of the middle class is striking. According to Polanyi capitalism is a system based on the logics of endless accumulation which is flourished by process of commodification: the transformation of diversified goods into commodities. This process gives enor-mous dynamics to capitalist system but in the same moment it has destructive po-tential. Commodification undermines the mere substance of collective life (fertility, community ties, non-instumental human bonds) which is a foundation for reproduc-tion of social order. Esping-Andersen introducing the notion of decommodification managed to show how modern welfare states put limits on this destructive potential of capitalism by delivering benefits and public services which help to secure and reproduce the substance of collective life. Education, administration and health care indispensible for contemporary societies necessitate the rise of the strong middle class.

Today throughout Europe we experience crisis related to expansion of capitalism. One of the main political responses to it relies on assumption that level of deco-modified services should be reduced. Austerity programs introduced from UK to Greece assume cuts on social spending and public services. The restrictions on public spending are supplemented by commercialization of certain public services and turning it into commodities which become part of market offer. The costs of the crisis are transferred on structures of collective life which should embrace side ef-fects of capitalist expansion. In this situation the role of the middle class seems to be quite obvious. Its representatives are interested in defense of their workplaces and keeping the level of public spending which would reduce the tendency to trans-fer the cost of crisis to structures of collective life.

This answer is still only one possible scenario. If we place class relations just like other social ties not entirely inside labor relations we have to assume that classes are autonomous to some extent and diverse configurations between them are pos-sible. We have to sketch different attitudes that middle class can develop in reaction to crises.

First scenario was presented above. Middle class decides to involve in a struggle to defend social services and universal access to it. This attitude can be founded in middle class appreciation of order. This general attitude would articulate as a de-

32 K. Polanyi The Great Transformation Beacon Press, Boston 2001.

33 G. Esping-Andersen The Three Worlds of Welfare Capitalism, Polity Press, Cambridge 1990.

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mand to secure solid standard for all and keep high quality of services in education, administration or health care.

Nonetheless middle class can also support the tendency to commercialization. Its representatives can expect that privatizing public services is a way to fulfil their aspi-rations to get closer to entrepreneurs and managers for example in matter of in-comes or prestige. This kind of alliance with upper class apart from dreams of lever-ing one’s status may be founded on widening the gap between middle class and workers. The elements of such alliance we can observe in Poland where the domi-nant language of labour relations – with strong demand on self-development, com-petition and flexibility – is closest to middle class culture, accepted by upper classes and delegitimizes all the dispositions and strategies of the working class: demand on stability, security and collectivism.

Strengthening the authoritarian tendencies among the middle class is the third pos-sible scenario. The appreciation of order would articulate here as demands to make policies of the state more restrictive towards minorities, immigrants, drug-addicted or unemployed. This scenario is possible in case of economic slowdown. It can re-produce the alliance between middle and upper classes in situation of uncertainty and prolonging crisis.

The rise of the middle class as a main militant class is not determining the direction of political and social dynamics. Its potential can be turned against commercializa-tion and capital-oriented solutions but also can realize as authoritarian sentiment and threat to democratic values.

Conclusions

Polish economic and social condition during the crisis should not be interpreted as example of economic prosperity but rather as complex situation where different tendencies meet. Poland benefited from what can be called free-ride Keynsism i.e. stimulating package coming from EU funds. This fund did not augmented public deficit what combined with restrictive social policy and rising retirement age helped to retain stability in polish economy.

Declining inequalities and poverty in Poland during the crisis cannot be related only to growth of GDP. Huge public investments and redistributive policy within the ag-ricultural policies of EU had crucial impact on boosting egalitarian tendencies. In spheres left to restrictive policies of the polish state or to the market one could ob-serve stable precariousness like in case of children poverty or working poor. The rise of extreme poverty in 2011 which was affected by freezing of money limits giv-ing the right to social benefits reflects the unequal redistribution of the costs of macroeconomic stability.

One can observe the rise of the middle class in last two decades in Poland. It has become the main force of social protest. The economic growth of the last few years helped to keep the intensity of social conflicts low but slowdown or recession can change the situation. In this case middle class can turn towards the defense of the welfare state and public services or choose different path of authoritarianism and repression of the vulnerable social groups.

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Bibliography

Esping-Andersen G. The Three Worlds of Welfare Capitalism, Polity Press, Cam-bridge 1990

Gdula M., P. Sadura Style życia jako rywalizujące uniwersalności (Life-styles as Competing Universalities) w: M. Gdula, P. Sadura Style życia i porządek klasowy w Polsce (Life-style and Class Order In Poland), Wydawnictwo Naukowe Scholar, Warszawa 2012.

Hobsbawm E. Age of Extremes Vintage Books, New York 1994

Kastory J., K. Lipiński Drogi do overclass (Roads to Overclass) w M. Gdula, P. Sadura Style życia i porządek klasowy w Polsce (Life-style and Class Order In Po-land), Wydawnictwo Naukowe Scholar, Warszawa 2012

Koch M. Roads to Post-fordism, Athlone, Hampshire 2006

Kubisa J. Związki Zawodowe Pielęgniarek i Położnych: w obronie jakości usług zdrowotnych (Unions of Nurses and Midwifes: In Defense of Quality of Public Ser-vices) w: W. Kozek Gra o jutro usług publicznych w Polsce (The Struggle Over Fu-ture of Public Services In Poland), Wydawnictwo Uniwersytetu Warszawskiego, Warszawa 2011.

Polanyi K. The Great Transformation Beacon Press, Boston 2001.

Sadura P. Państwo, rynek i klasy średnie w Polsce (State, Market and Middle Classes In Poland) w: J. Raciborski (Ed.) Praktyki obywatelskie Polaków (Citizenship Practices in Poland), IFiS PAN, Warszawa 2010, s. 97-98.

Silver B. Forces of Labor Cambridge University Press, Cambridge MA 2003

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Primož Krašovec : Slovenia

Poverty and inequality in Slovenia, 2005 – 2011: from transition »success story« to long term recession

Poverty as Marxism’s blind spot and Marxism as poverty studies' blind spot (introduction)

When asked about the value of different theories of poverty, a foremost researcher on poverty and a prominent Slovenian sociologist Srečo Dragoš replied that they are mostly worthless (Dragoš, 2013). After a thorough and, in our opinion, well de-served critique of both conservative theories of poverty, which tend to »blame the victims« and explain poverty as being caused by endogenous failings of poor people themselves (such as lack of ambition, ability, unwillingness to work, low intelligence etc.) and more contemporary »culture of poverty« theories, he turned his guns to-wards a Marxist theory of poverty.

He (ibid.) made three points on inadequacy of Marxist theory of poverty: Marx sees the poor as the underclass, as corrupt and potentially politically dangerous mob be-yond salvation (allegedly as opposed to noble, disciplined and politically literate working class); Marxists see poverty as an inevitable outcome of capitalist class dy-namics and thus unsolvable within the confines of this mode of production; Marxist interpretations of capitalist poverty thus lead to »zero sum« political fanaticism which, since redistributionist policies of the classical welfare state are seen as only strengthening capitalist system, makes Marxism similar (if not equal) to die-hard neoliberalism regarding political one-sidedness, ideological overzealousness and adamant opposition to any »third way« or class compromistic approach.

We can probably dismiss the first point on Marx's (undeserving) contempt for the lumpenproletarian mob rather quickly and easily – quotes in its support can only come from hastily and passionately written political texts such as Communist Mani-festo and 18th Brumaire, which not only means that they are hard to use as an illus-tration of Marx's theoretical position on poverty and social exclusion proper, but they were also, at the time of writing, quite empirically accurate – »lumpenprole-tarian mob« did, for example, back up Ludvik Bonaparte. We must also take into account that discussion between relying on workers' revolutionary organisation or spontaneous uprising of the class, formerly known as the lumpenproletariat, com-posed of the poor, socially excluded, unemployed and criminals, was in the 19th century one of the main points of contestation between Marxist and anarchist vi-sions of revolutionary strategy (Marx and Engels, 1975), so some of the Marx's hasty judgements on the lumpenproletariat in his political writings can deviate from his more stringent and accurate discussions of social exclusion serving as a »re-serve army of labour« in his theoretical writings (Marx, 2013, 517-531).

Second two points are more serious and worthy of consideration: does Marxism really stand in opposition, or present and obstacle to, a realistic and politically feasi-

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ble struggles for more just and equal social redistribution within capitalism, which could alleviate poverty in times when genuine communist revolution is not only no-where in sight but has also been in good measure discredited by the historical ex-periences of »actually existing« socialisms? Is Marxism really an unknowing ally of neoliberalism in the dismantling of what little remains from the gains of the social struggles of the 19th and 20th century?

Regarding Marxism’s alleged alliance with neoliberalism, such accusation would be hard to substantiate with quotes and evidence and Dragoš indeed does nothing of a sort except for claiming that »there are no bigger opponents of gradualism than Marxists and neoliberals« (Dragoš, 2013), on which we have to take his word. How-ever, question remains whether marxism really gets in wrong regarding poverty and whether political stances informed by Marxism actually harm struggles for allevia-tion of poverty within actually existing capitalism?

Perhaps one of the key reasons that Marxist social theory is struggling with the question of poverty so much is that the problem itself is ill-posed. The main problem with the problem of poverty is that the very concept (and reality of) poverty is in no way contested politically in a sense that one cannot be »for poverty« like you can be for (or against) austerity measures, fiscal tightening, state interference with the economy or capitalism in general.

Poverty is similar to corruption in a way in which it presupposes an unreflexively critical attitude towards itself. When, for example, we, in conditions of late capital-ism, talk about poverty (or corruption) we can only condemn it and/or search for ways of fighting it. Discourse of poverty (or struggles against it) by its very structure precludes any kind of political judgment or antagonism – one is always against pov-erty as a matter of course. And when a discussion is structured in a way that auto-matically excludes political antagonism it is usually a clear sign that we are not deal-ing with a theoretical, but an ideological question.

Unlike discussions of, for example, wealth/income inequality, which can be inter-preted either as growth and entrepreneurship inducing or as unjust and harmful to social development, or on wage increases, which can be either seen as harmful to a general level of employment (since they, in the opinion of neoclassical economists, raise the costs of labour to the point where the incentive of employers to employ is reduced) or as contributing to general social welfare by raising aggregate effective demand and purchasing power, discussions of poverty are a matter of ideological consensus. Perhaps it is no wonder then that both Marxist and sociological theo-ries, as Dragoš claims, are inadequate – if the problem is posed in an ideological way it is hard, if not impossible, to produce an adequate theory of it. So in order to allow for an adequate Marxist theory of poverty we must first reformulate the prob-lem.

One way to do it is to pose the question as not why is there still poverty in the 21st century and what can we do to prevent it, but as why are most discussions on so-cial inequality and injustice in media, civil society and academia framed in the terms of poverty? The answer would be twofold: because framing the discussion in terms of poverty neutralizes its critical potential and, subsequently, present solutions to the problems as entirely consistent with capitalism itself. Poverty is, in a sense, a

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»scapegoat concept« - it serves to focus the critique of capitalism in a way that does not threaten the system itself. It is no wonder then that even the high priest of shock doctrine, Jeffrey Sachs, has recently took it upon himself to end poverty (Sachs, 2006). Being against poverty in no way excludes being for capitalism, while on the other hand and from a Marxist perspective it takes some effort to turn a cri-tique of poverty into a critique of capitalism itself.

However, the real social problems that the concept of poverty represents in an ideo-logically distorted way - which is of little value for critical theory but evidently has a lot of use for apologists of capitalism - the problems of homelessness, unemploy-ment, material and social deprivation, lack of income and means of subsistence, inadequate housing and lack of access to public services and social infrastructure, are no less real because of that. Thus the real challenge for marxist social theory is not only to show that the problem of poverty is ill posed or politically counterpro-ductive, but to pose it anew in an unequivocally critical way, and also to expand its coverage from social processes, characteristic for capitalist production and distribu-tion, to those of social reproduction and redistribution.

Poverty and misery

A productive, if not entirely unproblematic, way to draw the question of poverty into Marxist theoretical terrain is through the immiseration thesis. Marx himself and many subsequent Marxists noted that the conditions of the working class tend to worsen with the development of capitalism, making the working class ever more miserable and destitute with the passing of time. Immiseration of the proletariat was, in early Marxist vulgate, taken quite literally, in terms of what sociologists call absolute poverty. While such understanding might have been in accordance with the reality of the working class life in the 19th century, the development of capital-ism in the 20th century put a lot of stress on such vulgar version the immiseration thesis and subjected it to much criticism.

20th century, especially its second half after the Second World War, saw the devel-opment of strong welfare state institutions, the growth of living standard of the workers and the rise of consumerism, as rising productivity and general economic growth also meant wage increases and cheapening of basic consumption goods. In the conditions of socialised or welfare state capitalism of the 20th century the im-miseration thesis could hardly be substantiated in terms of absolute poverty or ma-terial deprivation of not only employed workers, but also those without employment who could count on state welfare provisions and entitlements.

The period of neoliberal restructuring of capitalist economies beginning in the 80s and the recent crisis, which might turn out to be the new great depression (Roberts, 2009), could once again provide some empirical grounds for the vulgar version of the immiseration thesis, with millions losing their homes due to foreclosures in the USA, unemployment rate nearing or reaching 20% in many European countries and poverty on the increase everywhere. However, if we defend the immiseration thesis purely on the grounds of the increase of absolute poverty, we have to concede that it relies on the phases of the capitalist business cycle since in period of growth there seems to be little absolute poverty, at least in the developed core of the capitalist world economy.

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But that does not take us very far away from mainstream economics – it is no mys-tery for the neoclassical economists that downturns in business cycles increase ab-solute poverty by throwing people out of jobs and with austerity measures cutting into welfare provisions. Even conceding that, capitalism can still be defended by pointing out that even after taking periodic crises into account, material standard of the working class still rises over time and is in capitalism, even in times of reces-sion, still incomparably higher than in any pre-capitalist social form. To put it simply: in basic material terms, even in times of capitalist crises it is still better to have ac-cess to light bulbs, washing machines, public transportation and central heating than to live even in the peak times of the development of, say, feudalism. Although developing in fits and starts and prone to periodic breakdowns, in historical average capitalism still tends to increase material living standards and decrease absolute poverty.

The immiseration thesis, baring its more vulgar interpretations, was, however, never about absolute poverty. In Marx, the ability of capitalism to dramatically increase the material living standards was never questioned, nor was its incredible technological dynamism, bringing forth previously unimaginable productivity leaps and ever cheapening goods. Taking this into account it is rather hard to argue for immisera-tion thesis in terms of absolute poverty apart for occasional historical periods of economic depression and social destitution. The basis of Marx's critique of capital-ism and its political economy lay somewhere else: in a careful exposition of two ambivalent trends in capitalist development that originate precisely in its unques-tionable technological dynamism and its ability to (in a long run or in an ideal his-torical average) raise consumption standards.

As numerous later commentators, from Rosa Luxemburg (quoted in Bellofiore, 2011, 86) to Michael Lebowitz (2003, 32-43), pointed out, the core of the tendential increase in the immiseration of the working class in capitalism is not so much (or at all) an increase in absolute poverty, but an increase in divergence between the ac-tual and potentially possible consumption of the working class. Although the actual consumption might be growing in absolute terms - the workers can afford more ever cheaper goods for their wages -, productivity and maximum potential standard of consumption rises even more so. Capitalist class is the one that sets the stan-dards for consumption and although purchasing power and consumption of both working and the capitalist class tend to increase over time, the latter increases faster and widens the gap between what is and what could be consumed. Also, productivity advances can cause nominal wages and the degree of exploitation to rise at the same time, so workers can keep earning more and be more exploited, that is, deprived of even higher wages and purchasing power for which the produc-tivity advances allow.

Furthermore, as Lebowitz (ibid.) shows in his groundbreaking re-reading of the im-miseration thesis, huge qualitative leaps in technological development and produc-tivity advances, characteristic for capitalism, also lead to a subsequent development of human needs beyond what can be satisfied by the rather clumsy and archaic commodity form. Since in capitalism producers are separated from one another and, on the whole, from the consumers, and since capitalist production's prime mo-tive is not to satisfy human needs but to maximise profit, there is always something

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left desired in capitalist consumption, no matter the increasing quality or falling prices of the commodities or the speed with which they can be churned out.

Lebowitz (ibid.) calls this ever widening gap between the development of human needs and means of satisfying them within the confines of the capitalist mode of production misery. Misery should be distinguished from relative poverty of socio-logical theories. While relative poverty measures the disposable income of a indi-vidual or a household against median income of society, misery is not (just) about the (relative) lack of purchasing power but (also), more importantly, about the diver-gence between the development and humans needs and the impossibility of fully satisfying them under conditions of capitalist commodity production. In this sense, in capitalism even the rich are miserable and are exposed to the same consumerist alienation, although of course to a significantly lesser degree than the poor.

Misery also eludes the distinction between subjective and objective poverty, known from standardized empirical research on poverty. While objective poverty means material social deprivation (manifested in bad housing conditions, lack of means to purchase basic consumption goods, low or no income etc.), and subjective poverty its accompanying but not always correlating subjective perception (how do those who are objectively poor feel about and perceive their poverty), misery is at the same objective, that is, produced by the very structure of capitalist society, and immaterial, meaning it cannot be fully quantified or translated into exact empirical data because the development of human needs, as opposed to easily quantifiable markers of material welfare such as monthly income, eludes measure and quantifi-cation or at least cannot be measured on the same scale as are processes of pro-duction and consumption, which are in capitalism structurally out of synch with human needs. When the main motivation for production is profit, actual human needs are backgrounded and are perceived not as a goal in itself but as a necessary evil (since nothing can be sold if it is not of some use to someone – but the priority is to get it sold). Additionally, structural separation of producers from consumers means that even if there would be an honest desire to adjust production to human needs, that would still be hard to achieve due to distance between both – this is the cause of consumer(ist) alienation, one of the more characteristic features of capital-ism.

However, Marxist theory of poverty/misery remains very abstract and methodology for empirical research still has to be developed. Its previous introduction can thus only serve to add the proverbial grain of salt to the subsequent discussion of pov-erty in Slovenia, which is based on more common-place sociological methodology.

Poverty in post-socialist period in Slovenia in numbers

For a long time Slovenia was seen as a post-socialist success story, especially in the years of robust growth immediately before the current economic crisis. Level of employment, average wage and welfare coverage were all on a higher level than in most comparable states, especially the other post-Yugoslav countries (Krašovec, 2013).

Although relatively successful, Slovenia's transition was not without its difficulties. Main causes contributing to the aggravation of the problem of poverty since the 90s

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and especially in the recent years were changes in social policy (its neoliberal turn) and economic restructuring, including the flexibilisation of the labour market. But before we proceed with the more detailed examination of mentioned socio-economic processes, let's take a look at general statistics regarding poverty in Slo-venia.

Usual statistical measure of poverty is the degree of the risk of poverty, defined as having access to 60% or less of median household income. In the period 2005 – 2011 the risk of poverty in Slovenia moved around 11 and 12% and reached its peak in 2001 with 13.6%.

Table 1: Risk of poverty in Slovenia 2005 – 2011

2005 2006 2007 2008 2009 2010 2011 Risk of poverty

12.2% 11.6% 11.5% 12.3% 11.3% 12.7% 13.6%

(source: UMAR, 2012)

Numbers for specific social groups most vulnerable to poverty slightly vary from year to year but in general the elderly, people with low education, unemployed, sin-gle mothers and one member households are the most exposed to poverty. Poverty is also more widespread in rural compared to urban areas and affects more women than men.

Quintil classes (the relation between income of the richest 20% vs the poorest 20% - the number represents by how many times the first are higher than the latter) in the same period were as follows:

Table 2: Quintil classes in Slovenia 2005 – 2011

2005 2006 2007 2008 2009 2010 2011 Qunitil classes

3.4 3.4 3.3 3.4 3.2 3.4 3.5

(source: UMAR, 2012)

Again, we can see a slight increase in income inequality in 2011 after a previously stable period.

Another important measure of poverty is the relative gap, measuring »the depth« of poverty expressed in % below the poverty line income that the average poor person has access to.

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Table 3: Relative poverty gap in Slovenia 2005 – 2001

2005 2006 2007 2008 2009 2010 2011 Relative gap

19.1% 18.6% 19.4% 19.3% 20.2% 20.2% 19.9%

(source: UMAR, 2012)

The numbers show that poverty in Slovenia was the deepest in 2009-2010 and be-came slightly shallower in 2011.

The degree of material deprivation, defined by % of population that cannot afford decent housing, holiday, unexpected expenses, has a hard time getting through the month with their disposable income etc., for the same period was as follows:

Table 4: Degree of material deprivation in Slovenia 2005 – 2011

2005 2006 2007 2008 2009 2010 2011 Material deprivation

16.6% 16.4% 15.9% 18.1% 17.2% 17% 17.1%

(source: UMAR, 2012)

The degree of material deprivation first hovered around 16%, increased to 18% in 2008 and later dropped to 17%. In all observed years it was higher than risk of pov-erty. Unlike research of the risk of poverty, which relies on »hard data« of income statistics, research on material deprivation relies on »soft data«, gathered by ques-tionnaires. Still, the gap between subjective assessment of material deprivation and supposedly objective measure of the risk of poverty reveals a somewhat arbitrary character of the very definition of the risk of poverty. The risk of poverty numbers only tell how well off are those with the lowest incomes in relation to the rest of the population of the country in question, but do not reveal their real wages/income or their real purchasing power. To use a hypothetical example: median income in a certain country could be so low that no one could afford decent housing or a week of holidays, but if that country had low level of income inequality most people would still earn 60% or more of median income and the risk of poverty statistics would be low and would not show the actual level of poverty. So material depriva-tion statistics represent a necessary supplement to statistics based solely on income data, since they measure (although in an approximate way) real social deprivation, caused by the lack of purchasing power.

Gini index, the measure of income inequality (the higher the number, the higher the income inequality), did not show significant changes in the observed period and remained around 23-24%, the lowest in the EU. According to Office for macroeco-nomic research (UMAR) a slight rise in income inequality in 2010 and 2011 com-pared to 2009 was mostly due to an increase in unemployment.

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Table 5: GINI index

2005 2006 2007 2008 2009 2010 2011 GINI index

23.8% 23.7% 23.2% 23.4% 22.7% 23.8% 23.8%

(source: UMAR, 2012)

Here are also unemployment % for the same period:

Table 6: Rate of registered unemployment in Slovenia 2005 – 2011:

2005 2006 2007 2008 2009 2010 2011 Registered unemployment

10.2% 9.4% 7.7% 6.7% 9.1% 10.7% 11.8%

(source: SURS)

Sharp rise in unemployment in 2009 and later was due to a crisis and consequent drop in economic activity. Unemployment percentage in Slovenia is probably higher than official numbers suggest since not all unemployed are registered and there are actually pretty strict rules on who can remain on unemployment record. Rise of un-employment did not, at least not immediately, translate into a corresponding in-crease in poverty rate - the increase in poverty rate was much milder as can be seen above – mostly due to social safety nets, such as social transfers, real estate owner-ship, help from family and friends and consumption from savings.

The poverty rate in Slovenia compares favorably to that of the EU, since it is below the European average, which was about 15 – 16% in the same years. However, that does not make poverty any less tragic for those who are poor, nor is any kind or rate of poverty tolerable or legitimate.

Poverty in Slovenia beyond numbers 1: New social legislation and austerity measures

Just looking at the numbers does not, however, tell the whole story. As Leskošek (2012) importantly notes, an increase in the risk of poverty figures in 2008 led many commentators to conclude that poverty was on the rise because of the outbreak of the crisis. But if we take into an account the development of the social policies in Slovenia in the 00s and the fact that the risk of poverty calculations were based on data, gathered in 2007, we find out that the increase of poverty actually happened in 2007, the year of high (over 5%) economic growth and cannot be attributed to the crisis. Attributing it to the crisis is not only mistaken in empirical sense, but also downplays the negative impact recent changes in social policies had on the quality of living in Slovenia, especially for the poorer parts of the population.

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Leskošek (ibid.) concludes that it was not the crisis, but neoliberal social policy that caused the rise in the risk of poverty in 2008. Even when the economy was expand-ing, poverty was still increasing (although slightly), which means that said increase in poverty was not caused by objective economic conditions but by a lack of social redistribution. Although Slovenian economy as a whole was doing very well in 2007, created wealth predictably failed to »trickle down«.

Although the risk of poverty dropped slightly in 2009 it began to rise again in 2010 and 2011 and this second rise can be more rightly attributed to the crisis, that is, the shrinking of economic activity and subsequent rise of unemployment. But new un-employment covers only a part of the new poverty, the rest is still due to neoliberal social policy, which became even more aggravated after the outbreak of the crisis, since crisis could be used as an excuse to cut public spending and reduce the ex-tent of social transfers.

What were the main neoliberal trends in social policy in Slovenia's recent history? In 2007, social rights were turned into social transfers and transformed from unalien-able social entitlements, characteristic for so called Nordic welfare state models, into tightly monitored monetary transfers, close to Anglo-Saxon »workfare« social models (ibid.). Some of the social rights were abandoned, while others became conditional and no longer universal. In the years 2011 and 2012, the number of various conditions, upon which social transfers depend, increased threefold from 10 to 30. The amount of monetary social support dropped to only 260€ monthly. State stipends for children up to 18 years and child allowances for youth over 18 were abandoned (ibid.). Corresponding to the introduction of conditionality for social aid were diminishing numbers number of people entitled to it:

2006 2007 2008 2009 Nr. of social aid recipients

52.910 43.179 36.355 41.286

(source: Leskošek, 2010)

The number increased in 2009, but only due to emergency and one-time transfers, while the number of those receiving long-term social aid keeps decreasing (with poverty rate rising at the same time).

In recent years it was especially single women and single mothers that carried the brunt of the assault on universal welfare provisions. They were increasingly placed under suspicion (ie. whether they actually live with a partner, but are hiding it to be able to claim social aid) and the burden of proof that they actually are single was placed on them. Many forms of surveillance were placed on people claiming social support, such as unannounced visits from social workers to make sure that single mothers are really single and that unemployed are not making money in the shadow economy, and surveillance of welfare claimants' bank accounts.

According to Leskošek (2012), such measures do not prevent poverty but rather prevent misuse and false welfare claims. Not only do they not alleviate poverty, they

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also artificially lower the official numbers on poverty by narrowing its definition. The state benefits doubly: the official statistics show poverty declining or at least in-creasing less sharply and at the same time it saves money on social transfers. Tight and strict conditionality of social transfers also serves to discipline the poor and make them dependent on the labour market – even those, who would be deemed too ill, too old or too mentally unstable to work under the more generous Nordic-type welfare systems.

Main institutions of state welfare provision in Slovenia, local social centres, were established in 1955 as community organisations under the jurisdiction of local mu-nicipalities. In 1992 they were taken over by the state, which immediately launched an ambitious plan of their privatisation (a plan that has not – yet – come to pass). During the last two decades social centres were slowly turned into a highly bu-reaucratised – bureaucratisation was mostly caused by introduction of many com-plicated conditionalities, which require a lot of surveillance and paperwork – institu-tions of social control. New social legislative, introduced in the beginning of 2012, written in the »new public management« jargon, hints of future privatisations of so-cial institutions and praises the role competition and market forces in regulation of social matters.

Recent changes in social policy in Slovenia that contributed the most to the in-crease in poverty and material deprivation are the new social legislation (passed un-der pressure and with advice from International monetary fund and World bank) and a pack of laws, aimed at balancing public finances (ZUJF). Regarding the for-mer, researchers and professors from the Faculty of social work in Ljubljana dedi-cated a special issue of Social work journal to its criticism. According to them, main faults of the new social legislation are the decrease of the role of social workers and the increase of the role of managers within social institutions; the introduction of the possibility of private contractors providing social services, previously reserved for public institutions; deprofessionalisation and proletarisation of social work; and, the introduction of market relations and pressures into social work via emphasis on freedom of (consumer's) choice, which in actual fact does not so much increase the freedom of choice but rather bureaucratic and financial stress on the users of social services. (FSD, 2011) Alternative, proposed by the Faculty of social work, is deinsti-tutionalisation of social work coupled with placing the needs of the users - and not market competition or bureaucratic rules - at the centre of social work.

League of free trade unions of Slovenia (ZSSS) also published a harsh critique of both new social legislation and ZUJF with some telling numbers, illustrating their social impact. Number of children, entitled to state child allowance, dropped from 373.744 in 2011 to 281.138 in 2012. The number of state stipends dropped by 13.000, number of people, entitled to monetary social support by 3.000 and number of pensioners, claiming a »safety add-on« by 70% in the same period. In fact, the diminishing number of elderly people claiming »safety add-ons« was the most widely criticised recent change in social policy in Slovenia. »Safety add-ons« mean an addition to pensions for poor pensioners. With the new social legislation, they were turned into a kind of interestless state credit, which the children and grand-children of those receiving them would be obliged to pay off. About 12.000 pen-sioners did not claim their »safety add-ons« in 2012 rather than burdening their chil-

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dren and grandchildren with a debt that would incur and that meant a slide into poverty or deepening of their already existing poverty for most of them.

In the state budget for 2013 the amount of money, envisaged for social transfers, was reduced by more than €150 million compared to 2011. (ZSSS, 2013) While the government claimed that such measures were necessary in face of the crisis, in truth it was precisely the opposite – they increased poverty and social insecurity even before the crisis hit and later, when it did hit, prevented a more humane and responsible approach to new social hardships, caused by the crisis. With ZUJF, un-employment benefits were reduced both monetarily and temporally (their amount and time of receiving them both went down), state child allowances were lowered and pensioners were additionally hit by the abolishment of yearly addition to pen-sions, paid from state budget (ibid.).

Another important, although less sudden, aspect of the neoliberal turn of social pol-icy in Slovenia is the privatisation of previously social housing. During socialism, social (municipal) housing was the most widespread form of working class housing. Social housing was firstly privatised in most part 1992 by allowing inhabitants to buy out their apartments for low prices and become small private house owners, and then completely abolished in 2003 (IRSSV, 2009, 174) and replaced with non-profit housing and rent subsidies. Human development report from 2001 reports that access to housing has been lowered since 1991. Especially in the poorer parts of the population. In the period 1973 – 1985 there were about 1.700 social apart-ments available. In the period 1991 – 1998 this number dropped to 700. (Hanžek and Gregorčič, 2001, 107)

Related to privatisation and minimalisation of housing policy was the rise of home-lessness in Slovenia. In 1995, there were about 500 homeless people in Slovenia, according to official government statistics. (Mandić, 1997, 137) New types of home-lessness - youth, women, single-parent families - began to emerge in the 90s, caused not only by changes in housing policy but also by growing unemployment and the rise of precarious forms of work and employment. (ibid. 149) According to approximate research, done by the Institute for social care, there were about 3.000-6.000 people, living in uncertain housing conditions and around 75.000 living in substandard housing conditions in Slovenia in 2010. (IRSSV, FDV and PF, 2010)

Poverty in Slovenia beyond numbers 2: changes in the economic structure and the flexibilisation of the labour market

In transition from self-managed socialism to privately-managed capitalism we can ascertain two main economic trends that influenced the shape and scope of present day poverty in Slovenia: the rise of unemployment and precarisation. Repetitive waves of lay-offs in late 80s, - when first austerity measures were being adopted even within the socio-economic system that still called itself socialist (Woodward, 1995) - and later in the 90s during mass privatisations, left a lot of people - espe-cially those previously working in the sectors that were in the 90s judged »uncom-petitive« and closed down (mining, textile industry, steel industry etc.) - out of work

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or coerced into early retirement. These processes created the basis of present day poverty. (Kopušar, 2007)

Besides that, we can also notice the development of the »new poverty« since the late 90s with the growing precarisation of working conditions as well as forms of employment and payment. The degree of »atypical work« - meaning contracting and subcontracting, part-time and temporary work, student work and similar – was in Slovenia among the highest in Europe from early 00s up to 2008 (UMAR, 2009, 37). With the coming of the crisis it dropped a bit - mostly due to temporary and part time workers being the first in line to be laid off once the market demand for private companies and available tax-based finance for public institutions employing them both began to shrink in 2008 – but still remains high. (ibid.)

Although a widespread contemporary trend, precarisation in Slovenia is somewhat specific, at least compared to other post-Yugoslav countries. In Slovenia, socialism meant full employment and generous assortment of social and workers' rights, not only paid vacation and sickness leave, but also vacation homes, extensive social infrastructure, stretching from public kindergartens to local social and cultural cen-tres, free education and health care etc. Unlike in Serbia, Croatia and Bosnia and Herzegovina, the war in the 90s only consisted of a few days of armed skirmishes, which could not lead to nationalist frenzy, which was in mentioned countries used as an ideological weapon in assaults on social rights and welfare institutions. Con-sidering this, socialist past was considered a relatively positive historical experience and contemporary welfare state institutions could not be ideologically demonised and practically phased out, at least not with such haste as in other post-Yugoslav countries.

Trade unions also remained strong and labour legislative was relatively worker friendly. Social rights and social institutions could only be dismantled very gradually. Neoliberal »structural reforms« could only take place in Slovenia in a very piece-meal way and have always encountered strong resistance from the trade unions and leftist activist groups. Both public sector workers and workers in many private trades and industries had strong trade union support and almost complete coverage with collective agreements. Repetitive attempts by various governments to intro-duce harsher neoliberal reforms were, at least up to 2007, successively defeated either by strikes and mass demonstrations or by trade unions calling them to refer-endums.

Since head-on assaults on established workers' and social rights were prevented or could only proceed in a very slow and (from the point of view of the bosses and the politicians) unsatisfactory way, the main method of increasing pressure on the working class in Slovenia became precarisation, which presented a way to circum-vent traditional trade union strongholds and to hyper-exploit the most marginal segments of the working class: women, youth and migrants.

Since traditional industries and many parts of the public sector proved too resistant to be easily »flexibilised«, precarisation mostly proceed in commerce, transport, small private services, newly developing cultural and creative industries, and in sec-tors, employing many migrant workers, such as construction. Many public institu-tions, such as public television and radio and universities, quickly picked up on a

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trend as well. Increasing precarisation of the work force lead to the emergence of the »working poor«, a new and previously unknown social phenomenon. (Smolej, 2009) No longer was the lack of income from work the main cause of poverty and the ranks of the poor are becoming filled with people whose income from work is, due to precarisation, too low to lift them above the poverty line.

According to the research, done by the Faculty of social sciences using the data from 2002, the risk of poverty among all employed persons in Slovenia was 4.2%, but 15.2% among self-employed, 10% among those, whose employment contract is set for a definite time, and more than 50% among the part-time workers (with women being the majority of part-time workers). Also, more than one quarter of non-citizens, working in Slovenia, risk poverty, a number illustrating the pressure on the living and working conditions migrant workers in Slovenia are exposed to. The percentage of the working poor is also exceptionally high in the countryside, reach-ing 25% among agricultural workers (FSD, 2008), mostly due to post-socialist ten-dency towards concentration of capital in urban centres and subsequent underde-velopment of the countryside, as opposed to socialist decentralised and even de-velopment policies.

Conclusion

Poverty in Slovenia is below EU average, but has been increasing in the recent years. Main causes for that increase are economic restructuring during the post-socialist transition, flexibilisation of the labour market and recent neoliberal turn in state's social policy.

Poverty began to develop with the disintegration of socialist system in the late 80s and intensified during the 90s, in the period of mass privatisations, followed by mass lay-offs, which caused a lot of poverty especially on the countryside and now abandoned industrial areas. Additionally, new types of poverty began to develop as the flexibilisation of the labour market led to the emergence of the poor precarious workers, especially youth, women and migrants.

In the last decade social housing was abandoned and welfare provisions were re-duced both in their extent and their amount, which further aggravated the living conditions of those on society's fringes. Austerity measures and rising unemploy-ment due to the outbreak of economic crisis also contributed to an increase of pov-erty, although neoliberal social policy, which began well before the crisis, remains the main cause of the recent increase in poverty.

Although many looked upon Slovenia as a role model of a successful transition to capitalism and while it managed, at least for a short while, to square the circle of liberalising its economy and keep high levels of employment and social security at the same time, a combination of pressure from the EU towards further liberalisa-tions, privatisations and neoliberal »structural reforms«, economic crisis and a lack of a positive development programme on the part of the state (which seeks to re-solve each and any economic or social problem by further budget cuts and austerity measures, regardless of the political colour of the coalition in power) has brought its »success story« to a halt, with poverty, unemployment and social exclusion increas-ing in recent years.

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Mandić, Srna (1997) »Stanovanjska kariera, socialna izključenost in brezdomstvo.« Družboslovne razprave 13 (1997), 133-151.

Marx, Karl and Engels, Friedrich (1975), »Komplot proti mednarodnemu delavskemu združenju.« In: MEID V., Cankarjeva založba, Ljubljana, 5-73.

Marx, Karl (2013) Kapital I., Sophia/Naprej!, Ljubljana.

Roberts, Michael (2009) The Great Reccesion. Lulu.com, Raleigh.

Sachs, Jeffrey (2006) The End of Poverty. Penguin books, London.

Smolej, Simona (2009) »Negativne plati fleksibilizacije zaposlovanja.« Socialno delo 4 (2009), 199-208.

Woodward, Susan (1995) Socialist Unemployment. Princeton University Press, Princeton.

Sources

FSD (2008) Vzroki in obseg pojava brezposelnih revnih. FSD, Ljubljana.

IRSSV – Inštitut Republike Slovenije za socialno varstvo (2009) Revščina in socialna izključenost med družinami z otroki. IRRSV, Ljubljana.

IRSSV, FDV – Fakulteta za družbene vede and PF – Pedagoška fakulteta (2010) Ocena odkritega in skritega brezdomstva v Sloveniji. IRSSV, Ljubljana.

SURS – Statistični urad Republike Slovenije (online statistics and data).

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UMAR – Urad za makroekonomske raziskave (2009) Poročilo o razvoju. UMAR, Ljubljana.

UMAR (2012) Poročilo o razvoju. UMAR, Ljubljana.

ZSSS – Zveza svobodnih sindikatov Slovenije (2013) Učinki vladnih politik. ZSSS, Ljubljana.

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Zdravko Saveski, Kire Vasilev & Artan Sadiku: Macedonia

Wealth and poverty in Macedonia: the development 2008 to 2012

Introduction

The social circumstances in some of the ex-Yugoslav republics are well known to be the worst in Europe due to the implementation of harsh neoliberal policies after the break-up of the federation. Macedonia, until now has been constantly on the social bottom of Europe. This research aims to provide data and explanation on poverty, unemployment, social assistance and policies, tax policies, income, salaries, ine-quality and other relevant indicators, in order to give insight on the recent develop-ments of the country.

This study analyzes the period between 2008 and 2012, period officially recognized as ‚the world economic crisis‛. The issue who won and who lost in the Macedonian society in these times of crisis is the main topic of the analysis.

According to the data on GDP growth, the world economic crisis has not seriously affected Macedonian economy. As a matter of fact, if we draw conclusions only from the statistical data on GDP, the ‚dossier‛ of Macedonia during the world eco-nomic crisis is not that bad. The real growth rate of GDP in 2008 was one of the highest in the period after independence in 1991 (5.0%), and it was preceded by the year with the record level of real growth rate of GDP since the independence (6.1% in 2007). Things went bad in 2009 when, for the first time since 2001, the year of the interethnic conflict in Macedonia, the real growth rate of GDP was negative (-0.9%). In 2010 and 2011, Macedonia managed to have modest but positive real growth rate of GDP, but according to the estimated data of the State Statistical Of-fice this trend has changed in 2012.

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Table 1 GDP, 2007-201234

Year GDP per capita

in Euros (at current exchange rate)

GDP in million Euros (at current exchange rate)

GDP real growth rates in %

2007 2,919 5,965 6.1 2008 3,283 6,720 5.0 2009 3,269 6,703 -0.9

2010 3,434 7,057 2.9 2011 3,645 7,504 2.8 2012 / / -1.9

However, it should be emphasized that the neoliberal propaganda would make us believe that simply by looking at the data on GDP growth it can be concluded whether the economic situation in a particular country is going well or not. And if there is a positive real growth rate of GDP, then this propaganda implies that the economic wellbeing of the population has also improved. This approach ignores the fact that the aggregate improvement doesn’t immediately relate with improvement for everyone, but rather the growth of GDP can also mean, as a result of the grow-ing inequality in the society, worsening of the economic situation of significant pro-portion of the population, i.e. the most vulnerable members of the society. As the data in this study will show, this has been the case with Macedonia in the given period of analysis (2008-2012).

1. Continued impoverishment

Impoverishment of broad categories of population (including the already poor but middle classes too) is a continuous process in Macedonia, starting from the trans-formation of the socio-economic system in the early 1990s. In the following chapter we’ll present the data on poverty rates, as well as the trends concerning the unem-ployment and social assistance and the introduction of legal minimum salary. Un-employment is included because it usually leads to impoverishment of the unem-ployed persons and their families. The issue of social assistance is crucial for the poor families. Whether they will have some relief or not is a question whether their poverty will deepen or it will be made less drastic. Introduction of legal minimum salary and its increase is also relevant topic since it can reduce the percentage of working poor population.

1.1 Poverty rates

State Statistical Office of Republic of Macedonia measures relative poverty rate and subjective poverty. Concerning absolute poverty, there are only some data provided by the World Bank.

34 Preliminary data for 2011 and estimated data for 2012.

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1.1.1 Relative poverty

In a difference with the general European standard in measuring relative poverty rate, which is based on income, in Macedonia the measurement of the relative pov-erty rate is based on expenditures. For the period 1994-1996, according to the test calculations, relative poverty rate was determined at 60% of medial equivalent ex-penditures of the households. After 1997 the poverty rate was determined at 70% of median equivalent expenditures of the households. The methodology based on expenditures was chosen for several reasons including the unreported social trans-fers and unreported private foreign remittances.35 Due to the need to have interna-tionally comparable poverty data, in 2012, the State Statistical Office for the first time calculated and published data on poverty in 2010 based on the Laeken poverty indicators. Different from the methodology used in the previous years, income is now the source for poverty calculation, and the poverty threshold is defined at 60% of median equivalised income.

The poverty rate in Macedonia, defined at 70% of median equivalent expenditures of the households, in the period 2007-2011 is the following:

Table 1.1 Relative poverty rate and poverty gap index, 2007-2011

Year Head Count

Index % Poverty

Gap Index % 2007 29.4 9.7 2008 28.7 9.2 2009 31.1 10.1

2010 30.9 10.9 2011 30.4 9.3

When the poverty threshold of 70% of median equivalent expenditures of the households was introduced in 1997, the poverty rate was 19.0% and the poverty gap index was 4.6. For a single year, between 2001 and 2002, the poverty rate has increased significantly (from 22.7% in 2001 to 30.2% in 2002). According to the 2009 Report on the progress towards the millennium development goals, this sig-nificant increase can be explained primarily with the change of the data collection method – from quarterly calculations using surveys, to annual calculations using 15 day diaries. Also, the sample of households covered in the Household Budget Sur-vey conducted by the State Statistical Office was increased (from 1,000 to 5,040 households). However, as a probable additional reason for the significant increase of the poverty rate between 2001 and 2002 this report mentions the consequences of the 2001 conflict in Macedonia.36 Since then, for a decade, the poverty rate is around the 2002 level. In 2008 the poverty rate was the lowest since 2002 when it reached 28.7%, but the next year it has reached the highest level since 1997 –

35 Blagica Novkovska (2002), ‚Measurement of the welfare in transition countries: conditions and perspectives in the Republic of Macedonia‛, p. 6

36 Report on the progress towards the millennium development goals Republic of Macedonia, United Nations Development Program, Skopje, 2009, p. 18.

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31.1%. In the following two years there was a slight reduction of the poverty rate, but it was still above 30% rate. It should be also noted that the poverty gap index, since 2002 has never fallen below 9%, and reached the highest level in 2010.

According to the methodology based on the Laeken indicators, in 2010 the at-risk-of-poverty-rate in the Macedonia was 27.3%. Since the poverty threshold is defined at 60% of median equivalised income, this percentage is expectedly lower than the poverty rate of 30.9% f Primož Krašovec

or the same year, measured at 70% of median equivalent expenditures. Since there is no available data on poverty rate defined at 60% of median equivalized income for period before 2009, there is no possibility for comparison of income based pov-erty.

The target for Macedonia concerning the first Millennium Development Goal, that of reducing poverty and social exclusion, is to reduce the proportion of the population living below the poverty line to 9.5% by 2015. It was set by halving the poverty rate of 19% measured in 1997. However, since 1997 poverty rate has increased signifi-cantly. It is primarily a consequence of the lack of interest of the establishment in tackling the problem. The measures to fight poverty were always palliative, no mat-ter if the so-called social democrats of SDSM or the conservatives of VMRO-DPMNE were the major governing party. On the other hand, neoliberal policies were so dominant that it is not surprising that the poverty rate today is far above 1997 figure, not to mention the previous years, when relative poverty wasn’t meas-ured.

The 2009 Report on the progress towards the millennium development goals de-scribed the target of reducing the proportion of the population living below the pov-erty line to 9.5% by 2015 as not feasible, and asserted that according to the best case scenario it would be realistic to expect that the poverty rate could drop to 27% by 2015.37 This is the best case scenario and such modest is the prognosis for the poverty reduction in Macedonia because of two reasons: first one, there is no seri-ous political will of the establishment to tackle the problem of poverty, and second one is because of the lack of significant public pressure to the authorities concern-ing this problem.

1.1.2 Subjective poverty

Subjective poverty line is defined by the State Statistical Office as subjective stan-dard of subsistence based on opinion of the whole population for level of income necessary to avoid poverty.

Analyzed data on the subjective opinion of households about the possibility to meet their needs shows that the biggest percentage belongs to the people whose needs are generally unsatisfied. Dissatisfaction has culminated in 2011 when every fourth household (19.6%) perceived its situation as ‘not satisfied at all’.

37 Ibid, p. 23

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Table 1.2 Subjective opinion of households about the ability to make needs met

in percentage

2008 2009 2010 2011 Completely satisfied 6.5 4.5 5.8 5.5

Generally satisfied 37.4 36.1 35 33.3 Generally unsatisfied 41.7 43.5 42.8 41.7 Not satisfied at all 14.5 15.8 16.4 19.6 Total 100 100 100 100

The households’ opinion about the ‘current financial situation compared with the previous year’ is not optimistic either. There is a constant rise of the percent of peo-ple that perceive their situation ‘much worse’ than the previous year. In sum, from 2008 till 2011 this percentage has almost doubled. It is similar with the people that perceive their situation ‘somewhat worse’, where the percentage has increased by 3.6 percentage points. The percent of the households that perceive the situation ‘about the same’ has fallen by 7.5%, while the percentage of the households that perceive the situation as ‘somewhat better than the previous year’ has decreased for 4.3% and the percentage of those that perceive the situation ‘much better’ has remained below 1%. In general, if in 2008 and 2009 half of the households per-ceived their financial situation neither worsened nor improved, in 2011 half of the households perceived their financial situation worsened.

Table 1.3 Subjective opinion about the current financial situation compared with situation from the previous year

in percentage

2008 2009 2010 2011 Much better 0.5 0.6 0.6 0.5 Somewhat better 9.7 6.0 5.8 5.4 About the same 52.0 51.8 45.8 44.5 Somewhat worse 28.5 29.4 32.3 32.1 Much worse 9.4 12.2 15.5 17.6 Total 100 100 100 100

1.1.3 Absolute poverty

Available data on absolute poverty in the country for particular years are presented only by the World Bank. According to a 2012 World Bank study,38 the figures of ab-solute poverty at $2 per day are the following:

38 ‚South east Europe regular economic report‛, June 5, 2012, World Bank, p. 33

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Table 1.4 Absolute poverty rate

% of population

Year People living at $2 a day

2005 7.4 2006 8.6 2008 9 2009 10.9 2010 14.7

Since there is no official data available for the absolute poverty in the country for 2012, we can make a rough calculation using statistical data related to the use of social financial assistance. According to the data of the Ministry of labor and social policy in May 2012 there were 37,312 households that received social financial as-sistance provided for unemployed people who do not have any income, or have income which is lower than social financial assistance (which is deducted from the transfer amount). Means available for people from these households are less the $2 per day (74 Macedonian Denars). According to the last census in the country (2002) there are 564,296 households, which means that the members of 6.6% of the households in the country live at less than $2 per day.

1.2 Unemployment

With the break-up of Yugoslavia and gaining independence of the country in 1991, process of structural transformation in the economic system was undertaken, and privatization was the main drive and logic behind the changes. This process left dozen of factories running into bankruptcy and others working with huge losses. In 1994 the unemployment rate climbed to 30% and ever since it has never gone be-low that figure. The unemployment has become endemic socio-economical prob-lem of the country.

The table below presents the unemployment data from the State Statistical Office for period 2007-2012:

Table 1.5 Unemployment rate in Macedonia

in percentage

Year Unemployment

rate 2007 34.9 2008 33.8 2009 32.2 2010 32.0 2011 31.4 2012 30.6

http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2012/06/06/000333037_20120606021856/Rendered/PDF/695730WP0SEERE00Box369256B00PUBLIC0.pdf

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It is important to note that several public services, as the access to the Fund for health insurance, are guaranteed for unemployed persons through their registration with the Agency for Employment. If unregistered, they cannot receive so called blue coupons,39 and thus cannot use the services of public health institutions in the country. The highly patronized Agency for Employment, implements different strategies for ‘cleaning’ the register of unemployed persons under different grounds which leaves them exposed at high risks of illness and malicious health.

With the amendments to the Law for employment and insurance in case of unem-ployment, in July 2012, the government introduced new criteria for registering the unemployed persons by implementing a distinction between those who actively seek employment, and those who do not. Since it is almost impossible to prove the intention and job seeking activity, the government has reserved its discretional right to bring judgments and remove people from the registers of the Agency for Em-ployment. Another example of discriminatory regulations introduced is that when a person is registered as unemployed for at least two years, the Agency can offer him any kind of employment, in disregard of his education, qualifications and skills, and in distance from his home of maximum two hours travel by public transport. If the person refuses the offered job, he will be erased from the register and will not be able to register again for one year. These new regulations are in direct confrontation with the human right to decent and freely chosen work and the constitutional prin-ciple of social security guaranteed by the state.

Two institutions in Macedonia are responsible for measuring the number of unem-ployed persons: State Statistical Office and the Agency of Employment. Because of different methodologies they use, their numbers on unemployed persons defer, as can be seen from the Table 1.6. In accordance with the ILO and Eurostat standards, the State Statistical Office measures unemployment in more ‘flexible’ way.40 If a person, without permanent employment, during the surveyed period has worked for at least one hour he would be considered as employed by the State Statistical Of-fice. In such case, this person doesn’t work permanently and he can be registered as unemployed by the Agency of Employment. Because of these different criteria it is only logical that the number of unemployed measured by the State Statistical Of-fice should be lower than the number of unemployed registered by the Agency for Employment. This has been true for all the years after the independence, except for the period 1996-1998. The data about the first three quarters of 2012 suggest that in this year, for the first time after 1998 the number of unemployed persons regis-tered by the Agency for Employment will be higher than the number of unemployed measured by the State Statistical Office. According to the data of the Agency for Employment the number of unemployed person has been reduced by 99,304 in the period from 2007 to the third quarter of 2012, or, given in percent’s, the unem-ployment has reduced to 27.2%. On the other hand, the more ‘flexible’ criteria from the State Statistical Office show that unemployment has reduced four times, by 23,662 (7.5%) in the same period. If the reduction of unemployment registered by

39 Blue coupons are coupons that the Fund for Health Insurance issues to unemployed persons who are regis-tered as unemployed in the Agency for Employment, which are used to receive free or cost-reduced services in the public health institutions.

40 Republic of Macedonia State Statistical Office, Methodological explanation for the news release, Last update 29.03.2011, http://www.stat.gov.mk/MetodoloskiObjasSoop_en.aspx?id=98&rbrObl=14

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the Agency for Employment was real, it would have had significant impact on the national income and economic growth. Since it didn’t happened, the only explana-tion is the conscious policy of the government not to ensure employment for the jobless, but to remove as many unemployed from the register as possible and thus to save on social transfers and to build an image of a government that has reduced unemployment.

Table 1.6 The number of unemployed persons in Macedonia

in numbers

Year Agency for

Employment State

Statistical Office Difference

2007 365,402 316,905 48,497 2008 349,608 310,409 39,199 2009 345,621 298,873 46,748 2010 331,259 300,439 30,820 2011 306,102 294,963 11,139 2002 (I-III) 266,098 293,243 -27,145

Even though there is a slight reduction of the unemployment rate from 2007 to 2011, as the data from Eurostat shows, Republic of Macedonia has one of the high-est unemployment rates in the Balkan and therefore in Europe. Among the unem-ployed 31.8% are male and 30.8% are female, which gives an impression that there are more unemployed males then females. Nevertheless, these numbers should not deceive us because if we see the official numbers of employment rates, than we notice that 52.3% of males and 30.3% of women are employed; which opens an-other question of gender inequality.

Table 1.7 Unemployment rates of the Balkan countries41

in percentage

Country 2007 2008 2009 2010 2011 Albania 13.5 13.0 13.8 : : Bosnia and Herzegovina 29.0 23.4 24.1 27.2 28.0 Croatia 9.6 8.4 9.1 11.8 13.5 Kosovo 43.6 47.5 45.4 : : Macedonia 34.9 33.8 32.2 32.0 31.4 Montenegro 19.3 16.8 19.1 19.7 19.7 Serbia 18.1 13.6 16.3 19.2 23.0 Turkey 8.9 9.7 12.7 10.8 8.8

41 Eurostat, Directorate General of the European Commission, Enlargement countries, last update 28.01.2013, http://epp.eurostat.ec.europa.eu/portal/page/portal/enlargement_countries/data/database

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1.2.1 Youth unemployment

Another important issue that should be mentioned is the youth unemployment. Ac-cording to the official data, Republic of Macedonia has one of the highest youth unemployment rates in the broader region. In 2011, the rate of unemployed young people under age of 25 was 55.3%. Furthermore, 24.6% of children, under age of 17, live in jobless households;42 which makes the youth in Republic of Macedonia among the poorest in the world.

Table 1.8 Unemployment rates less than 25 years in the Balkan countries

in percentage

Country 2007 2008 2009 2010 2011 Albania 20.1 27.2 27.2 : : Bosnia and Herzegovina 58.4 47.5 48.7 57.5 57.9 Croatia 24.0 21.9 25.1 32.6 36.1 Kosovo 70.0 73.0 73.0 : : Macedonia 57.7 56.4 55.1 53.7 55.3 Montenegro : : : : : Serbia 43.7 35.2 41.6 46.2 50.9 Turkey 17.3 18.5 23.1 19.9 16.7

1.2.2 Blue coupons

With the new policy regarding the use of blue coupons implemented by the gov-ernment in 2012, the unemployed persons had to re-register in order to provide in-formation on their income for the previous year. With the new regulation, a member of a family which acquired income of at least 130 EUR per month in the previous year, will have to pay 20 EUR for the blue coupons, and if the income of the family is higher, the price of the coupons for the family member increases. If a family is composed of four members and has an income of 130 EUR per month, their mem-bers will have to give away 61.5% of their available means for healthcare insurance. This policy removes the previously guaranteed right to free healthcare for the un-employed persons and implements restrictions and fees to their minimal income, thus materializing the direct attack of the government on the most vulnerable groups of the society.

1.3 Social assistance

Social financial assistance is provided for the households whose members are able to work but are materially unsecured. These are users who generate income from whatever sources, but lower than the social financial assistance which is 35 EUR per month (1 Euro = 61.5 Macedonian Denars). For every next member of the fam-

42 Eurostat, Directorate General of the European Commission, Enlargement countries, last update

28.01.2013, http://epp.eurostat.ec.europa.eu/portal/page/portal/enlargement_countries/data/database

72

ily, the amount of assistance increases by 0.37% up to five members. It is important to note that the provided amount of the financial assistance to these users is their only available income, since the assistance is paid as a difference of any other pos-sible income they generate which is lower than the assistance of 35 EUR, which means that the members of the households receiving this assistance live with the amount of less than $2 per day. The social state of these users deteriorates even more when after three years of receiving this assistance they are eligible only for 50% of the amount, which means that after three years they must live with the amount of less than $1 per day.

The table below presents the number of households receiving the social financial assistance and the total amount of money allocated for this purpose by the state. As it can be seen, the state social assistance for poor households has dropped for 23.7% in the period 2007-2011. If the comparison is with the approximate figure for 2012, then the reduction is almost 40%.

Table 1.9 Social financial assistance

Year Number of households

receiving social financial assistance

Total amount allocated by the state

(in Euros) 2007 64,143 / 2008 57,687 25,859,031 2009 52,882 25,265,307 2010 50,923 24,201,212 2011 48,926 23,740,851 2012 39,000 22,007,804

1.4 Minimal wage

The new methodology to measure relative poverty rate, based on the Laeken indica-tors, has made it possible to calculate the percentage of employed persons living under the poverty line. The percentage of these persons who are poor even though they earn their bread was 9.9% in 2010.43 Introduction of legal minimum salary has a potential to reduce the number of working poor and in January 2012 the Parlia-ment has finally enacted a law on minimal salary. The Republic of Macedonia was the last country on the Balkan that introduced this measure.

The minimal wage is set on 39.6% of the average gross salary in the previous year. That is why the minimum net salary in 2012 was 8,050 Denars or 131 Euros. How-ever, for the most affected industries (the textile manufacturing industry, manufac-turing of cloths, leather and products from leather) the social partners made a deal for the minimum salary to be set at 102 Euros in 2012 and to be harmonized with the minimum salary in the other sectors in 2015. This exception means that the

43 State Statistical Office (2012), Laeken poverty indicators in 2010, http://www.stat.gov.mk/pdf/2012/4.1.12.83.pdf

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minimal wage in Republic of Macedonia for 2012 was set de facto on 6,263 Denars or 102 Euros.

The data shows that from 403.170 fulltime employed, only 28,222 workers or 7% felt the effects of the enacting of the minimal salary in the country.44

2. Benefits for the rich

After being elected in 2006, the present conservative government led by VMRO-DPMNE has implemented several measures which clearly benefit the rich. The rates of personal income tax, corporate tax and social security contributions were re-duced, and even a privileged, legal favouritism for extra rich was introduced, with significant financial repercussions for the state budget.

2.1. Reduction of taxes

Personal income tax was progressive until 2007, when the present conservative government introduced the flat tax. The rates before 2007 were 15, 18 and 24%. In 2007 the rate of the flat tax was 12% and in the next year it was lowered to 10%. Obviously, the highest reduction of the personal income tax rate was for the richest, 58.3%, while for those who were previously paying the lowest personal tax rate the reduction was 33.3%. It should be also emphasized that the reduction of personal income tax rates, as expected, didn’t result in increase of the net salaries of the em-ployees, but in increase of the employers’ profits.

After coming to power, the current conservative government has also reduced the corporate tax rate. Since 2007, instead of 15%, corporate tax rate in Macedonia is 10%. In 2011 there was a further gain for the employers, when the government has abolished the corporate tax for micro and small enterprises whose annual income is below 50,000 Euros.

2.2. Reduction of social security contributions

The reduction of the rates of social security contributions, enacted in 2008, came as a follow-up of the reduction of the rates for personal income and corporate tax.

Pension and disability insurance contribution rate was reduced from 21.2% to 19% in 2009 and it was planned to be further reduced to 15% by 2011. However, the reality has shown that such a reduction would be unsustainable so the rate was re-duced only to 18% in 2010 and for the following years. The government still plans to reduce the rate to 17.6% in 2014 and to 17.5% in 2015. Of course, this will hap-pen only if the present government is still in power for the next years and if this government doesn’t change its mind, as has already happened in the past. No mat-ter the government’s future plans, the fact is that pension and disability insurance contribution rate has been already reduced significantly, by 15.1% compared with its pre-2008 level.

44 Dragan Tevdovski, ‚Monitoring the law on minimal salary in Republic of Macedonia‛, Institute for Social De-mocracy – Progress, 2012, p.1.

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Health insurance contribution rate has also been reduced significantly. Before 2008 this rate was 9.2%. The government was planning to reduce this rate to 6.0% by 2011, but soon it became clear that the planned reduction is unsustainable for the system of health insurance. So, the rate was reduced to 7.5% in 2009 and to 7.3% since 2010. Still, the reduction of this rate is also significant, 20.7%, a fifth of the previous level.

The reduction of the unemployment insurance contribution rate may seem the slightest, but the percentage of its reduction is the highest. Before 2008 this rate was 1.6%. The government was planning to reduce it to 1.0% by 2011, but has managed to reduce it only to 1.2% (since 2010). The present plan of the govern-ment is to reduce this rate to 1.1% in 2015. Due to the low percentage of unem-ployment insurance contribution rate, it can easily pass unnoticed that the percent-age of reduction of this rate is 25%, a fourth of its pre-2008 level.

In sum, the rates of social security contributions were lowered from 32.5% in 2008 to 27% in 2010. The initial plan of the conservative government, back in 2008, was to reduce the rates of social security contributions even more, to 22.5% by 2011. As the Vice President of the Government Zoran Stavrevski has explained, the goal of this reform was ‚to reduce the burden to the economy by very high taxes to the state, so that companies can make more profits, which will create conditions for more investments and opening of new jobs‛.45 Even though this reform was only a partial success for the conservative government, overall reduction of the rates of social security contributions is still significant, 16.9%, a sixth of the pre-2008 level. It should be kept in mind also that the government hasn’t abandoned its plans for fur-ther reduction of the rates of social security contributions, even though these plans are more modest than its 2008 plans.

Table 2.1 Social security contribution rates

in percentage

Contribution Before 2008

2009 Since 2010

2015 (planned)

Reduction 2008-2010

Pension and disability insurance 21.2 19.0 18.0 17.5 15.1 Health insurance 9.2 7.5 7.3 7.3 20.7 Additional health insurance in case of accidents at work

0.5 0.5 0.5 0.5 0

Unemployment insurance 1.6 1.4 1.2 1.1 25.0 Total 32.5 28.4 27.0 26.4 16.9

45 Zoran Stavrevski, The Government has Made Decision to Reduce the Contributions for Pension and Health Insurance as well as Unemployment Insurance by 10 Percents (in Macedonian), http://www.vicepremier.gov.mk/?q=node/248

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2.3. Legal privileges for the extra rich

The most drastic aspect of the conservative government’s policy of making changes in the legislation favoring the rich is the provision, enacted in 2008, stipulating that the highest monthly basis for calculating and paying contributions will be four aver-age gross salaries.46 This obscure provision hides important and enormous privilege for the extra rich in Macedonia. The extra rich whose monthly gross salary is higher than four average gross salaries have not only benefited from the reduction of the rates of personal tax and social security contributions, but also have the privilege to pay social security contributions only to a part of their gross salary. And this part can be quite minuscule part. For example, the manager who received the highest monthly gross salary in 2011, of 92,284 Euros, has paid social security contributions as if his monthly gross salary had been only 1,974 Euros.47 In other words, his social security contributions were paid only to 2.1% of his gross salary! On the other hand, the social security contributions of all the employees who received monthly gross salary below four average gross salaries were paid on 100% of their gross salary.

The impact of this provision of the Law on mandatory social security insurance con-tributions to the enrichment of the extra rich, as well as its impact to the state budget, can be seen by comparing the net salaries of the top paid managers with the net salaries they would have received if they weren’t privileged by the law. After paying the social security contributions and personal tax, the most paid manager received net salary of about 82,590 Euros per month in 2011. If he wasn’t privi-leged, his net salary would have been about 60,600 Euros per month. Due to this privilege to only one tax payer the state had reduced income of about 21,990 Euros per month or about 263,880 Euros per year. The total amount of money that the state has lost on account of privileged enrichment through this provision of the top ten managers in 2011 is 1.1 million Euros.48 This is far from being a small amount for Macedonia.

Slight changes of this provision were enacted in December 2011. The highest monthly basis for calculating and paying contributions was raised from four to six average gross salaries. Even though the privilege for the extra rich has remained, at first glance this change can appear as a considerable improvement. However, when the appropriate calculations are made, it becomes clear that the change is far from significant. For example, if this change was implemented in 2011, the top paid manager would have received net salary of about 82,340 Euros instead of receiving about 82,590 Euros per month. The difference is just 250 Euros less per month. And the state would have had reduced income in 2011 of about 260,880 Euros per year instead of about 263,880 Euros by privileging the top paid manager.49

46 Law on mandatory social security insurance contributions, Official Gazette of the Republic of Macedonia, No. 42/08, 64/09, 156/09, 166/10, 53/11, 185/11 and 44/12.

47 Public Revenue Office, Analysis 2011, http://ujp.gov.mk/files/attachment/0000/0493/09_6680_1_Presspaket_Analiza_GDP_2011_16.10.2012.pdf

48 Public Revenue Office, Analysis 2011, own calculations.

49 Own calculations.

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2.4. The highest salaries

The effects of above mentioned governmental policies on the enrichment of the rich are clear when the reports of the Public Revenue Office are analyzed. As it can be seen from Table 2.2., the highest gross salary has increased for more than four times from 2008 to 2011. In 2008 it was 20,305 Euros per month and in 2011 it was 92,284 Euros per month. This increase is even higher if we take into account that the figure for 2008 represents the gross salary, plus with the additional remunera-tions on salary, while the figures for the next years are only for gross salaries. The information available for the years before 2008 shows that the highest salaries be-fore 2008 were significantly lower than those in the recent years. For example, ac-cording to the media reports based on information from the Public Revenue Office, the highest gross salary in 2006 was about 8,000 Euros per month,50 more than eleven times lower than the highest gross salary just five years later.

Table 2.2 The average and the highest gross salaries per month

in Euros

Year Average gross salary Highest gross salary Ratio highest/average sala-

ries 2008 426 20,305 1:48 2009 487 63,741 1:131 2010 491 68,651 1:140 2011 498 92,284 1:185

Table 2.2 also contains comparison between the average and the highest gross salaries. We will deal with this issue in the next section of the study.

2.5. The highest incomes

The Public Revenue Office also publishes information annually on the highest in-comes from all sources. There is no information provided what are the sources for the incomes and, for that reason, there is no sufficient data to calculate the net in-comes.

The Table 2.3 contains data on the highest gross incomes per month in the period 2008-2011. It can be easily noticed that the highest gross income in 2008 is signifi-cantly higher than the ones in the following years. However, more detailed analysis of Public Revenue Office’s data shows that the highest gross income in 2008 is an exception. The second highest gross income in 2008 is already much lower than the highest one in the same year (223,867 Euros per month). Still, the more detailed analysis of Public Revenue Office’s data also shows that the four highest incomes in 2008 are higher than the highest income in the next year. It is possible that the eco-

50 Top Manager of Domestic Freight Forwarder Company Earns 8,000 Euros per Month, ‚Utrinski Vesnik‛, July 29, 2007, (in Macedonian), http://www.utrinski.com.mk/?ItemID=0CEE4CF340357B4BAD26E9620BA8A1A1

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nomic crisis is the reason for this reduction but cannot be said for sure, since the highest salary has not fallen but increased significantly from 2008 to 2009.51

From 2009 to 2011, the highest income has increased from 132,665 Euros to 211,522 Euros per month. Тhеse levels of income are unimaginable for Macedonian circumstances. The highest gross income in 2011 is 425 times higher than the aver-age gross salary!

Table 2.3 The highest income per month

in Euros

Year Average gross salary Highest gross income Ratio highest income/ aver-

age salary 2008 426 1,235,365 1:2,900 2009 487 132,665 1:272 2010 491 201,641 1:411 2011 498 211,522 1:425

3. Inequality in Macedonia

The level of inequality in Macedonia has not been analyzed systematically, although there are sources, national and international, that provide enough statistical data to make such analysis, as well as data provided by the State Statistical Office - its an-nual reports on labor force, the structure of earnings of employees, the poverty and its monthly reports on average monthly wage paid by sectors activity. There are also data provided by Public Revenue Office (its annual analyses on tax reports), by the World Bank (its data on income share indicated by quintiles and deciles and the Gini index) etc. In this study, we present the most relevant methods for analyzing ine-quality: comparison of the highest, average and minimal salaries, categorization of employees by the level of net salary, income share indicated by quintiles and deciles and Gini index.

3.1. Comparison of the highest, average and minimal salaries

As can be seen from Table 2.2., the ratio between the average and the highest gross salaries has increased enormously in the period 2008-2011. In 2008 the high-est gross salary was 48 times higher than the average gross salary, while in 2011 it was 185 times higher! The difference is even bigger with the net salaries. The table below shows the average and the highest net salaries in the period 2009-2011. If in 2011 the ratio between the average and the highest gross salaries was 1:185, the ratio between the average and the highest net salaries in the same year was 1:244.

51 Public Revenue Office, Annual analyses 2008-2011.

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Table 3.1 The average and the highest net salaries per month

in Euros

Year Average

net salary Highest

net salary

Ratio highest/average

salaries 2009 325 56,849 1:175

2010 334 61,319 1:184 2011 338 82,587 1:244

The fact that the highest net salary is 244 times higher than the average net salary in the country means that an employee receiving the average salary needs to work 244 months or 20 years and 4 months to receive only one monthly salary of the top paid manager in 2011. The comparison with the minimum wage is even more as-tonishing. The minimal wage of 131 Euros per month, introduced in most of the sectors in 2012, is 630 times lower than the highest salary in 2011. In other words, the employee who receives minimum wage needs to work 630 months or 52 and half years in order to earn only one monthly salary of the top paid manager in 2011! In Macedonia the right to retire after 40 years of work for males and 35 years of work for females regardless of the age, was abolished in 2005. So now it is possible for males to work for a maximum 48 years and for females for 46 years respectively. Even if they work for the maximum years according to law, if they are paid mini-mum wage, they would not be able to earn even a single monthly salary of the top paid manager in 2011!

3.2. Number of employees by level of net salary

Among the data provided by the annual surveys on labour force by the State Statis-tical Office is the data on the number of employees categorized by the level of their net salaries.52 This data is presented as numbers in these surveys, but in order to have better insight we have calculated the percentage of employees in each cate-gory. In this section, the salaries are presented in Macedonian Denars, not in Euros, since the categories in the table cannot be presented in precise sums of Euros. One final remark, the data for 2008 is not completely relevant since there are a signifi-cant number of employees, 16.5%, that have not provided information about their salaries or have not received their salaries during the analyzed period. This category of employees was significantly more numerous in 2008 than in the following three years and that is the reason why the comparison between 2008 data and 2009-2011 data is not fully comparable.

Below are presented two tables. The first one, Table 3.2., is more detailed, while the other one gives only the percentage of employees below and above the average net salary. In 2008, the average net salary was around 16,000 Denars (around 260 Eu-ros) and from 2009 to 2011 it was around 20,000-21,000 Denars (around 325-340 Euros). If we exclude from the analysis 2008 data, for the reasons stated above, we can notice some improvement in the period 2009-2011. While in 2009, 77.0% of

52 State Statistical Office, Labour Force Survey, 2008, 2009, 2010, 2011.

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employees received salaries below the average salary, and 11.4% above it, in 2011 the percent’s are 72.4 and 16.4 respectively. Still, the ratio of employees below and above the average salary is significant. Also, as it can be seen from Table 3.2, in 2011 3.2% of the employees receive salaries at least four times lower than the aver-age salary, and only 1.2% of the employees receive salaries above the level of two average salaries.

Table 3.2 Employees by level of net salary

in percentage

Net salary (in Denars)

2008 2009 2010 2011

Up to 5,000 3.4 4.1 3.7 3.2 5,001-8,000 19.4 13.6 10.8 9.2 8,001-12,000 26.5 27.6 25.5 28.8 12,001-16,000 12.8 19.1 18.5 16.9 16,001-20,000 7.0 12.6 15.3 14.3 20,001-25,000

3.3 6.3 8.6 9.8

25,001-30,000 2.8 4.0 3.6 30,001-40,000 0.5 1.2 1.7 1.8 40,001 and more 0.4 1.1 0.9 1.2 Unpaid family workers

10.3 10.2 10.1 9.6

Unknown or hasn’t received their pay

16.5 1.3 1.0 1.6

Total 100 100 100 100

Table 3.3 Employees with net salaries below and above average net salary

in percentage

2008 2009 2010 2011 Below average salary 62.1 77.0 73.8 72.4 Above average salary 11.2 11.4 15.2 16.4 Unpaid family workers

10.3 10.2 10.1 9.6

Unknown or hasn’t received their pay

16.5 1.3 1.0 1.6

Total 100 100 100 100

3.3. Income share indicated by quintiles and deciles

These statistical data are highly relevant for the degree of inequality in the society. The World Bank keeps record of this data for many countries, including Macedonia. Concerning the period of interest for our analysis, there is available data only for 2008 and 2009. However, this data is enough to see that income difference be-

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tween the rich and poor is quite large and in comparison with the situation a decade ago, shows that the income difference is growing.

As the table below shows, the lowest 10% were receiving 3.3% of all incomes in 1998 and 2.0% in 2009. Similar reduction has happened to the lowest 20%: its share is reduced from 8.5% to 5.1% in the period 1998-2009. On the other hand, in the same period the share of the wealthiest 20% has grown from 36.7% to 48.9%. The income growth of the wealthiest 10% is from 22.1% to 32.4%. It is also impor-tant to emphasize that the shares of all the quintiles has been reduced in the period 1998-2009, except of the wealthiest 20%, which is a clear indication of the redistri-bution of incomes and wealth from the poor and middle classes to the rich.

Concerning the last two years on which the World Bank has data on income shares in Macedonia, 2008 and 2009, it can be noticed that while the process of reduction of the shares of the poorest 10% and poorest 20% has continued, there is a mild opposite trend concerning the richest 10% and 20%, whose income shares were reduced insignificantly from 2008 to 2009.53 Still, the shares of the richest 10% and 20% are quite high and the income quintile share ratio or the S80/S20 ratio has grown from 9.3 in 2008 to 9.6 in 2009. Overall, from 1998 to 2009 the S80/S20 ratio has grown from 4.3 to 9.6. The calculation of the State Statistical Office for 2010 has shown even bigger S80/S20 ratio – 10.3.54

Table 3.4 Income share by quintiles and deciles

in percentage

Year The

lowest 10%

The lowest 20%

The second

20%

The third 20%

The fourth 20%

The highest

20%

The highest

10% S80/S20

1998 3.3 8.5 13.8 18.0 23.1 36.7 22.1 4.3

2003 2.4 6.1 10.6 15.6 22.5 45.2 29.5 7.4 2006 2.1 5.3 9.7 14.6 21.7 48.6 32.7 9.2 2008 2.2 5.4 9.3 14.0 21.0 50.3 34.5 9.3 2009 2.0 5.1 9.5 14.5 22.0 48.9 32.4 9.6 1998-2009 Change

-1,3 -3,4 -4,3 -3,5 -1,1 +12,2 +10,3

53 World Bank, World Development Indicators, Poverty, FYR Macedonia.

54 State Statistical Office (2012), Laeken poverty indicators in 2010, http://www.stat.gov.mk/pdf/2012/4.1.12.83.pdf

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3.4. Gini index

One of the most relevant indicators of income distribution inequalities in a country is the Gini index. Concerning Macedonia, the Gini index is the best indicator for its inequalities. The World Bank’s data show continuous increase of Macedonia’s Gini index, from 28.1 in 1998 to 43.2 in 2009. The Gini index in 2009 was mildly lower than in 2008, but it is still quite high.55 Last year, the State Statistical Office has cal-culated the Gini index for the first time and according to its calculations it was 40.8 in 2010.56

Table 3.5 The Gini index of Macedonia

Year Gini index 1998 28.1 2003 39.0 2006 42.8 2008 44.2 2009 43.2

If we compare Macedonia’s Gini index and the indexes of the Balkan, European and former socialist countries, we face astonishing results. The Eurostat’s data on Gini index of the EU member countries, Iceland, Norway and Switzerland57 and the World Bank’s data on the Balkan, the other non-EU European countries and former USSR countries shows that, except for Kosovo and Turkmenistan (on which no data is available), Macedonia’s Gini index is the highest among all European and former USSR countries! The table below presents the EU countries with the highest Gini index, the Gini indexes of the Balkan countries, Eastern European non-EU countries and the Asian countries former republics of USSR. For the EU countries there is available data for 2011 too, but in order to make the comparison with Macedonia, only 2010 data are presented. For the rest of the countries, most recent data are presented.

55 World Bank, Working for a world free of poverty, Gini index, 2013, http://data.worldbank.org/indicator/SI.POV.GINI/

56 State Statistical Office (2012), Laeken poverty indicators in 2010.

57 Eurostat, Gini coefficient, Last update: 17.01.2013. http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&language=en&pcode=tessi190

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Table 3.6 The Gini index of EU countries with highest Gini index, non-EU Balkan countries, non-EU Eastern European countries and Asian countries former USSR republics

Country Gini index Year Country Gini index Year Lithuania 36.9 2010 Turkey 39.0 2008

Latvia 36.1 2010 Bosnia and

Herzegovina 36.2 2007

Spain 33.9 2010 Albania 34.5 2008 Portugal 33.7 2010 Croatia 33.7 2008 Romania 33.3 2010 Montenegro 30.0 2008 Bulgaria 33.2 2010 Serbia 27.8 2009 Ireland 33.2 2010 Kosovo / Georgia 41.3 2008 Uzbekistan 36.7 2003 Russia 40.1 2009 Kazakhstan 36.2 2009

Azerbaijan 33.7 2008 Tajikistan 30.8 2009 Moldova 33.0 2010 Kyrgyzstan 29.0 2009 Armenia 30.9 2008 Turkmenistan / Belarus 27.2 2008 Ukraine 26.4 2009

Gini index for Georgia is the closest one to Macedonian, 41.3 in 2008. This figure is higher than the Gini index measured by the Macedonian State Statistical Office for 2010, 40.8. However, in order to avoid possible differences in methodology, the appropriate comparison should be made between data for the same year and from the same source. The comparison of the World Bank’s data on Gini indexes of Ma-cedonia and Georgia in the most recent common year shows that Macedonian in-dex is higher.

4. Effects and consequences of inequality in Macedonian society

Analyzed data in the previous chapters indicate that Macedonia is the leading coun-try in Europe considering social inequality, and therefore it is expected to have high rate of health and social problems. Authors Richard Wilkinson and Kate Pickett58 list the following indexes of categories to explain the effects of inequality: level of trust, mental illness (including drug and alcohol addiction), life expectancy and infant mor-tality, obesity, children's educational performance, teenage births, homicides, im-prisonment rates, social mobility. The available statistical data for Macedonia do not provide complete or relevant insight on the problem of social inequality. The crime rate, homicides and imprisonment rates for Macedonia have not increased in the recent period. For example the imprisonment rate in 2007 was 100 (per 100,000 of national population) and in 2011 was 112 and the homicide rate was also almost stabile, from 2.05 (per 100,000 of national population) in 2007 to 1.90 in 2010. The methodology that uses the figures of these categories is used to compare inequality in different countries and not within the same country in different periods, even if

58 Kate Pickett, Richard Wilkinson, The Spirit Level: Why Greater Equality Makes Societies Stronger, Bloomsbury USA, 2011.

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the inequality rates increase in those periods. It is relevant to address the issue that the health and social problems in Macedonia are quite stabile since the 1990s, when the figures (as those of unemployment and poverty) increased dramatically and have not changed significantly ever since.

The figures related to social problems change within longer periods of time, since they are related to certain local social traditions and beliefs and only upon extended pressure from changing economic factors they increase or decrease. In the same time, significant changes in health indexes provide an indicator for social inequality because they are directly related to the standard of life and access to quality health-care. In lack of sufficient healthcare data on different periods we can use the avail-able data on current situation in order to see the extent of effect of current inequal-ity on health. According to the Ministry of Health of the Republic of Macedonia, in 2012 there have been around 200.000 people suffering from depression, which is around 10% of population. Every fifth women and tenth man on average are diag-nosed with depression in this year. Most of the factors related to this illness are linked to life standard, social stress, financial instability and poor social activity which are direct effects of increasing social injustice and hardship to cope with the hardening circumstances of life. The data on mortality in 2011 show that 60% of the total mortality cases belong to circulatory illnesses, which puts Macedonia on the top of all European countries. These illnesses are commonly related to poor nutri-tion, hard working conditions, socially related stress factors and housing conditions. Such a high rate of circularly illness related mortality is another effect of increasing social inequality which puts a majority of the population at risk. It is important to note that the risk related to this kind of mortality is evenly spread within the popula-tion which lives in extreme poverty, below the poverty line and the middle and working classes. This proves that the inequality generated effects are situated in the same line of the largest scale of economic inequality, that of the top 20% and the rest of the population.

Access to healthcare in Macedonia has been a political issue for years while an ex-tensive attack on public healthcare has been carried out under different govern-ments. The implementation of the use of blue coupons (issued to the people cov-ered by public health insurance) in private hospitals has made it possible for more public funds to be spilled into private companies, thus devastating the services of the public healthcare institutions. Services offered in the private hospitals in Mace-donia by far override the quality of that offered in public ones. Having in mind the fact that the blue coupons cannot be used in private hospitals for major interven-tions that are offered in public hospitals, it is clear that only the richest in the coun-try have access to these interventions or treatment, while the rest of the population is forced to wait on waiting lists of public hospitals, while their condition deterio-rates.

Another important aspect of the divide between rich and poor that produces the social injustice in Macedonia is that it is used for the purposes of political manipula-tion due to the ethnic composition of the country. Ethnocentric political parties have extensively used the economic disparity argument in line with nationalistic ideology. Thus, on one hand the political parties of Albanians in Macedonia have consistently claimed that the majority of the poor in Macedonia are Albanians due to the ‘tradi-tional’ economic discrimination by the state, low public investments and poor infra-

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structure in the western part of the country (where majority of Albanians live). On the other hand, the employment of Albanians in state institutions as put forth by the 2001 Ohrid Framework Agreement (which aims to eliminate discrimination of repre-sentation of Albanians in public institutions) is interpreted as a factor for the rise of unemployment among ethnic Macedonians. Thus the rise of social inequality and injustice in Macedonia, because of the dominantly present nationalistic discourse in politics, immediately constitutes a stability and security risk in the sense that it ag-gravates the ethnic tensions in the country.

The figures of increasing inequality and the Gini index for the country show that only the top 20% of the society have been increasing their wealth while the income of all the rest has been on a constant decline. This phenomenon has put the pres-sure on a majority of the working population to get loans from bank in order to en-sure proper living conditions. Although income of the working class population is quite low, the fact that the major employer in the country is the state provides the banks with the guarantee that the loans will be returned by the workers in the next decades. This situation results in an even lower income for the workers and a long guaranteed income for the banks.

5. Actors of change

The actors of change should play the leading role in initiating policies for reducing the inequality in democratic societies. That imposes the question whether the Ma-cedonia society, being so unequal, is a democratic one. Since these inequalities are systematic, the organizations that try to fight inequalities should be recognized and acknowledged. Unfortunately, not all actors, parties or NGOs, play a positive role. That is why this analysis is considering the Macedonia Platform against Poverty and the Citizen movement AMAN as organizations that have small and mild effect on poverty, and the Social Democratic Union and trade unions as factors that are sup-posed to be at least modest actors of change, but they are not.

5.1 Macedonian platform against poverty

The ‘Macedonian platform against poverty’ (MPAP) is an open coalition of citizens and organizations that has a purpose of reducing poverty in the Macedonian society by promoting social justice, participatory democracy, protection of human rights, equality, rule of law and fight against discrimination. This coalition is formed in 2010 as a non-profit organization mainly sponsored by foreign foundations.

There are 68 organizations participating in the activates of the coalition that focus on mapping the social needs on local level, awareness rising through media cam-paigns, organizing fund raising and debates, making reports, analyses, publications, and lobbying on national legislation.

In a short interview, the president of the coalition, Mila Carovska, stated that their main activities presently focus on debate on the positive effects that progressive taxation has on poverty, introducing the minimal income as a social assistance by the state, inclusion of the victims of domestic violence in the labour market with cooperation of the Ministry of Labour and the Chamber of Commerce etc.

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5.2 Citizen movement AMAN

AMAN is an open, horizontally organized social movement made by citizens estab-lished in August 2012 after the rise of the electricity, oil, gas and heating prices. The movement believes that the prices must ‚be made appropriate to the standard of leaving of the majority of the people of Macedonia.‛59 AMAN started as a protest movement with a goal of raising the public awareness as a way of pressuring the institutions. For that reason they organized protests every week, for a period of sev-eral months. The protests were taking place in several cities: Skopje, Bitola, Prilep, Kumanovo, Stip and Tetovo. This movement also collected 10,000 signatures and in front of the Parliament introduced an amendment proposal for changing the law on energy. The Parliament, consisted by the MP’s almost exclusively from the ruling coalition, simply rejected the amendments.

The demands of AMAN are: abolition of the 33% engaged capacity in the electricity bills; restoration of the daily low cost tariff for electricity; stopping the further priva-tization and capitalization of the electricity sector; more investment in sustainable energy sources; revocation of the new rules and tariffs of the Central Heating Com-pany; reduction of the prices of fuels to a level appropriate to the standard of leav-ing etc.

5.3 Social Democratic Union

The Social Democratic Union of Macedonia (SDSM) is the main social democratic party in the country and the biggest opposition party. In its most recent party document called ‚Solution for Macedonia‛, SDSM has stated that the rich and the poor should not pay the same rate of personal income tax and that ‚the flat income tax did not take into account the differences of people’s income.‛60 They believe that the flat tax is not fair, therefore they advocate for progressive taxation.

The rates of the progressive income tax are not mentioned in the program. How-ever, in one interview given for the newspaper ‚Utrinski Vesnik‛ the vice-president of the party, Zoran Jovanovski, stated that ‚SDSM will introduce progressive taxa-tion on personal income. Employees who are paid up to two average salaries will continue to pay the tax rate of 10%. Those employees who have personal income up to four average salaries will pay 12% and those with the highest income, more than four average salaries, will pay 15%‛61 Obviously, for SDSM even the reintro-duction of their personal income tax rates that the conservative government has abolished (15%, 18% and 24%) is too ‚radical‛. If we keep in mind that in 2011 only 1.2% of the employees were receiving wages higher than two average salaries, it becomes clear that SDSM’s proposal is only a correction of the neoliberal policy of the present conservative government.

59 Citizen Initiative AMAN, Retrieved February 18, 2012, http://amanmk.wordpress.com/%D0%B0%D0%BC%D0%B0%D0%BD/

60 Social Democratic Union, Party Program – Solutions for Macedonia, Retrieved February 2012, http://www.sdsm.org.mk/upload/PROGRAMA_PDF_Web.pdf

61 ‘The rich should pay more, and the government should save more’, Interview with the vice-president of SDSM, Zoran Jovanovski, Utrinski Vesnik, 05.03.2012, http://www.utrinski.com.mk/default.asp?ItemID=974BB1AE8439BA48BD8310E4572C262B

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What is striking in the party program of the Macedonian Social Democrats is that they want to reduce even more the corporate tax. ‚In the later period we will try to reduce the corporate tax to 9%, and with that measure we will try to create an im-age of Republic of Macedonia as one of the countries in the Europe with the lowest rate of taxation on income.‛62

5.4 Trade unions

There are two independent branches of trade unions and four confederations cur-rently active in the country. All of them were weak in the past and are becoming even weaker. One untypical curiosity characterizing the Macedonian trade union confederations is that either they are close to the conservative government or are conservative in their underlying ideology. This is especially evident after 2010, when the biggest confederation was taken over by groups close to the government.

Trade unions often complain that the social dialogue in Republic of Macedonia is not functional. They also complain that no other social partner is listening to their arguments. However, since they did not manage to become relevant factor in the society, and do not have broader workers’ support (they didn’t do anything relevant to get it), the government and the employers’ organizations do not take their argu-ments and complaints as ‘significant’. When defending workers’ rights, the unions use defensive, pale and not well structured arguments. They are only present in public, when the government is trying to impair some of the rights, and almost never present when it is time to gain some rights.

Introduction of legal minimum wage is one of the few trade unions’ demands that were met recently. Still, the introduction of legal minimum wage was accom-panied by reduction of other workers’ rights and by their continued violation in prac-tice.

In such a situation it is not serious to claim that, as the current president of the big-gest trade union confederation Zivko Mitrevski has repeatedly said - workers’ rights in Macedonia are constantly improving and they are not as bad as presented.63

6. Conclusion and Recommendations

Judging on a basis of GDP growth data, Macedonian economy did not felt strong negative impact from the world economic crisis. However, GDP growth rates do not show the effects of a crisis on the rich and poor.

Relative poverty rate has grown from 29.4% in 2007 to 30.4% in 2011. The target for Macedonia in relation to the Millennium Development Goals is to reduce the relative poverty rate to 9.5% by 2015. As a consequence of the lack of interest of the establishment to tackle the problem and the predominance of neoliberal poli-

62 Social Democratic Union, Party Program – Solutions for Macedonia, Retrieved February 2012, http://www.sdsm.org.mk/upload/PROGRAMA_PDF_Web.pdf

63 Marija Mitevska, Mitrevski: It is not as Bad as it is Presented, Radio Free Europe – Skopje, July 22, 2012, (in Macedonian), http://www.makdenes.org/content/article/24651488.html

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cies, Macedonia will fail drastically in fulfilling the Millennium Development Goal on reducing poverty.

The unemployment remains one of the most frustrating social aspects of Macedo-nian society. For two decades it has never fallen under 30% and has thus continu-ously produced devastating consequences for a third of the population. Current economic policies do not provide any perspective for improvement, making unem-ployment, especially youth unemployment, one of the main social, economic and political challenges in the country.

While the state social assistance for poor households in the period 2007-2012 has dropped for almost 40%, it only shows that the social aspect of the state has dimin-ished since the figures on relative poverty on the same period show an increase of the head count index of 1%.

Minimal wage does not have a big effect on poverty. Only 7% of the full time em-ployed felt the effects from the new enacted law. Nevertheless, the effects are mild and do not contribute to reduction of the inequalities.

The benefits for the rich, already significant, have increased even more in the recent years. In 2008 personal income tax was reduced to 10% flat rate. Corporate tax was also lowered to 10% in 2007. Since 2009 the rates of social security contributions were similarly reduced. The government failed to reduce the rates of social security contributions as much as it planned, but the reduction of the rates is still significant, a sixth from pre-2008 level (from 32.5% in 2008 to 27% in 2010). The most detri-mental aspect of making changes in the legislation favouring the rich is the provi-sion, enacted in 2008, enabling the extra rich to pay social security contributions to a very small part of their gross salaries. The total amount of money that the state has lost in 2011 due to the privileged enrichment of the ten managers with highest salaries is 1.1 million Euros.

As a result of the ‚positive business climate‛ policy, the highest gross salary has grown for more than four times from 2008 to 2011. In 2008 it was 20,305 Euros per month and in 2011 it was 92,284 Euros per month. The highest net salary in 2011 was 244 times higher than the average net salary and 630 times higher than the minimum wage. After reaching highly unimaginable levels in 2008, the highest in-comes were reduced in 2009 and had a slight increase in the next two years. Still, their level is unimaginable for Macedonian circumstances. The highest gross in-come in 2011 was 425 times higher than the average gross salary.

The comparison of the highest salaries and incomes with the average and minimum salaries already tells a lot for the level of inequality in contemporary Macedonia. However, the key argument that the situation with the redistribution of incomes and wealth from the poor and middle classes to the rich in Macedonia is terrible is the fact that Macedonia’s Gini index became the highest among all European and for-mer USSR countries.

The actors of change that should play the leading role in reduction of poverty, fore-most the Social Democratic Union and the trade unions are only comforting with the neoliberal agenda. All that is left are NGOs and citizen movements whose aver-

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age impact suggestions do not have serious consequences on the institutions and the policy making in the country.

To tackle the problem of further impoverishment of the poor and the related en-richment of the already rich, we propose these immediate reforms:

abolition of the legal privilege for the extra rich concerning the paying of the social security contribution;

increase of the social security contribution rates; reintroduction of the progressive personal income tax with rates of 15, 18

and 24%; increase of the corporate tax rates by introducing progressive rates of 15 and

20%; increase of the legal minimum wage in order to provide decent living stan-

dard; cancelling the policy of imposing restrictive conditions for receiving and

maintaining the social benefits; implementation of the constitutional right of forming and joining trade unions

in order to enable workers to defend their rights and interests; drastic reduction of the budget money spent on unproductive basis (the

monuments and buildings of the project ‚Skopje 2014‛ are only the most drastic example) and channelling this money to poverty reduction and job creation projects;

state support for energy efficient solutions, especially for poorer citizens; establishing cooperation between Balkan countries in order to avoid the

competition to the bottom (especially concerning the tax policy).

These proposals are far from radical by international standards but they are quite radical for Macedonian circumstances due to almost completely unchallenged neo-liberal discourse governing the country since its independence in 1991. In a country with these figures of poverty, unemployment and inequality it is to be expected that there would be a strong social movement and a strong radical left political alterna-tives. Unfortunately Macedonia is one of the worst standing countries in Europe in relation to the social mobilization, trade union activity and labor legislation. The main political and social challenge in the country remains a strong social mobiliza-tion around a leftist and radical political organization that will propose a comprehen-sive revision of the systemic economic mechanisms and provide a way out of the continuously degenerating social and political context.

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Tomas Tomilinas, Jolanta Bielskienė, Linas Eriksonas: Lithuania

Poverty and wealth in Lithuania: a status report

Tomas Tomilinas, Jolanta Bielskienė, Linas Eriksonas

Summary

The main findings of the report are the following:

Lithuania has one of the highest risk of poverty or social exclusion rates in the EU – 33,4%

Relative at risk of poverty gap by poverty threshold in Lithuania has increased following the crisis

Absolute poverty rates have remained almost constant since 2005 Number of people entitled to social poverty benefits grew from 40 000 reci-

pients in 2008 up to 238 000 recipients in 2011, with a growth of 49% in 2011 alone

27.2% of all employees receive a minimum wage which is one of the lowest in Europe – 290 EUR

An average monthly wage in Lithuania is very low comparing to other EU countries – close to 580 EUR

Lithuania has very high youth unemployment statistics (34% in 2011) In 2011, the unemployment rate in urban areas was 13%, while rural

unemployment reached 21,8% (12,6% and 16,5%, respectively, in 2009) Low life expectancy: 40% of all Lithuanian men die before the age of 65

years The gender pay gap has been increasing over the last three years and has

reached 21,5% in 2010 with estimated increase up to 25% Women work in full-time jobs less than men. In 2009 part-time contracts

existed for 9.5% of women and 7% of men in Lithuania Lithuanians spend 13% on housing (heating, rent, electricity, gas), which is a

little less than the EU average, but together with food it takes half of monthly earning of an average Lithuanian household

By official estimates, around 0.6 million people have emigrated from Lithua-nia, a country of 3 million population, since 1990

In 2011, 63% of all emigrants were between 15 and 34 years old, including a high proportion of them with higher education

The corporate tax has been reduced from 19% in 1995 to 15% The level of general profitability in 2007 was 49% in Lithuania, well above the

EU average

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However, Lithuanian employees experienced the highest wage cuts in the EU - as much as 66% of employees indicated that their salary or income de-creased comparing to the January 2009

No progressive taxes have been ever introduced in Lithuania: it can be ar-gued that Lithuanian tax money is generally paid by low-income earners due to the large income gap

To sum up, the poverty dynamics in Lithuania are not dependent on macro-economic situation. The stagnation of salary growth in Lithuania is structural be-cause of almost total lack of pressures from trade unions and other collective actors as well as the domination of neo-liberal ideas. There is important misunderstanding in public perception, especially in other EU countries, about the situation in Lithua-nia which this reports aims to rectify.

Introduction

Scope of the report

The report has been prepared as a background material on the poverty situation in Lithuania for the event ‚Poverty and wealth in Europe‛ organized by Rosa Luxem-burg Foundation’s Brussels office. The report has been prepared by the experts from the DEMOS Institute of Critical Thought in Vilnius (Tomas Tomilinas, Jolanta Bielskienė and Linas Eriksonas). The data and information for this report have been collected from a variety of sources, including official statistics, research papers and presentations. In addition to secondary sources the experts have conducted infor-mal interviews with individual experts and policy makers who provided their in-sights on and off-the-record.

The scope of the report has been given by the remit of the planned event and aimed to provide information on the situation in Lithuania concerning the following issues:

Development of poverty, wealth and inequality Levels of poverty and lack of basic necessities Consequences of social inequality Alternatives to overcome inequality and eradicate poverty

Measurement of poverty

Standard approach

The standard approach of measuring poverty is the one used by Eurostat to estab-lish at-risk-of-poverty thresholds (the Statistics Lithuania has started measuring poverty using this methodology in 2005 – until then no statistical data have been collected nationally). According to the Eurostat definition, the at-risk-of-poverty rate is the share of people with an equivalised disposable income (after social transfer) below the at-risk-of-poverty threshold, which is set at 60 % of the national median equivalised disposable income after social transfers. Pensions, such as old-age and survivors’ (widows' and widowers') benefits, are counted as income (before social transfers) and not as social transfers.

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However, the at-risk-poverty rates (at cutoff point of 60% of median equivalised in-come) have remained almost constant ever since they have been started being measured (2005-2011) and hovered around 20%1. The same risk-of-poverty rates were observed during the period of outstanding economic growth in 2005-2008 and the global crisis followed by dramatic domestic recession in 2009-2011 which wit-nessed a major deprivation of society and mass migration (see below).

Alternative approach

The inadequacy of the methodology in capturing the social reality has been voiced by researchers (Šileika, Zabarauskaitė 2009) who strongly argue that poverty meas-urement based on the relative poverty line is not effective in Lithuania because it does not clarify the actual poverty rate in the country. The researchers have claimed that the relative poverty measures are better applicable in highly developed coun-tries where intellectual and social rather than physical needs are in the main focus. Meanwhile, the absolute poverty threshold should be used in underdeveloped and semi-developed countries when calculating poverty rates.

To identify the absolute poverty line in Lithuania, these authors suggest the Cost of Basic Needs method. The method stipulates a minimum consumer basket (includ-ing food and non-food articles) adequate for basic consumption needs, and then estimates its cost for different groups of the population. Equipped with this method, the authors have come to a conclusion that during the period of 2005–2007, charac-terized by the stable economic growth, low unemployment and high emigration rates and ‚remittance economy‛, the level of absolute poverty still increased in Lithuania from 18% in 2005 to 21,6% in 2007.2

Poverty levels in Lithuania

Economic poverty

Risk of poverty or social exclusion

On the basis of the risk-at-poverty methodology a further policy indicator (as estab-lished in the EU 2020 Strategy aiming to reduce the number of persons at risk of poverty or social exclusion in Europe) has been monitored by the Eurostat, namely at the ‚risk of poverty or social exclusion rate‛ (abbreviated as AROPE).

The AROPE indicator is defined as the share of the population in at least one of the following three conditions: 1) at risk of poverty, meaning below the poverty thre-shold (as explained above), 2) in a situation of severe material deprivation, 3) living in a household with very low work intensity.

Severely materially deprived persons have living conditions constrained by a lack of resources and experience at least 4 out of the 9 following deprivation items: cannot

1 Based on data from Statistics Lithuania. http://www.stat.gov.lt/ 2 A. Šileika, R. Zabarauskaitė. Skurdas: Metodologijos klausimai ir lygis Lietuvoje. Socialinis darbas, 2009 m. Nr. 8(1).

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afford 1) to pay rent/mortgage or utility bills on time, 2) to keep home adequately warm, 3) to face unexpected expenses, 4) to eat meat, fish or a protein equivalent every second day, 5) a one week holiday away from home, 6) a car, 7) a washing machine, 8) a colour TV, or 9) a telephone (including mobile phone)

People living in households with very low work intensity are those aged 0-59 who live in households where on average the adults (aged 18-59) worked less than 20% of their total work potential during the past year. Students are excluded. The total number of people at risk of poverty or social exclusion is lower than the sum of the numbers of people in each of the three forms of poverty or social exclusion as some persons are affected simultaneously by more than one of these situations.

According to the 2011 data Lithuania has one of the highest AROPE rates in the EU – 33,4%, surpassed only by Bulgaria (49,1%), Romania and Latvia (both around 40%). In 2008 this figure stood at 27,6%. According to the latest available data (2011), 20% of inhabitants of Lithuania were classified as persons at-risk-of-poverty, 18,5% as persons severely materially deprived and 12,3% as persons aged 0-59 liv-ing in households with very low work intensity.

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Figure 1: People at risk of poverly or social exclusion as %age of total popu-lation (Source: Eurostat, 2011)

Figure 2: Relative at risk of poverty gap by poverty threshold in Lithuania, EU12 and EU27 (cut-off point: 60% of median equalized income) (source: SILC)

0,3

-10,0 -5,0 0,0 5,0 10,0 15,0

1

Relative at risk of poverty gap by poverty threshold changes from 2005 to 2011

Romania

Latvia

Spain

Bulgaria

Lithuania

Croatia

Greece

Italy

Estonia

New Member States (12 countries)

Euro area (17 countries)

European Union (27 countries)

Portugal

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Figure 3: Relative at risk of poverty gap by poverty threshold changes from 2005 to 2011 (cut-off point: 60% of median equivalised income) (source: SILC)

Figure 4: At-risk-of-poverty rate before social transfers (pensions excluded from social transfers) by poverty threshold (cut-off point: 60% of median equivalised income after social transfers) (source: Eurostat/SILC)

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Absolute poverty levels

The absolute poverty level has started growing following the entry of Lithuania into the EU and coincided with the first EU Structural support period (Figure 5). Whether the non-existence of the Structural support would worsen the situation is beyond the scope of this paper.

Figure 5: Dynamics of the absolute poverty level in Lithuania following the entry into the EU and during the first EU Structural support period, 2005-2007,% (source: Šileika and Zabarauskaitė, Statistics Lithuania)

There is lack of in-depth studies on absolute poverty during the global economic crisis; however, official figures on use of social policy tools suggest that the situa-tion in Lithuania has worsened dramatically. The number of people entitled to social poverty benefits grew from 40 000 recipients in 2008 up to 238 000 recipients in 2011, with a growth of 49% in 2011 alone3.

Number of recipients of social benefits

The social poverty benefit is a cash social assistance provided by the government and municipalities to deprived people according to the Law on Cash Social Assis-tance for Low-Income Residents. It is paid to a family, persons living together or a single resident if their monthly income per person is below the level of the State Supported Income (SSI). The level of the monthly SSI is 350 Litas or 101 EUR per family member per month.4 According to the law, if unable to provide them-selves with sufficient funds for living, the families and single residents shall be enti-tled to the social benefit payment or compensations for the costs of house heating, hot and drinking water.

3 Skurdo praraja plečiasi vis grėsmingiau. 2011-09-30 www.delfi.lt 4 Based on data from the Ministry of Social Security and Labor. www.socmin.lt

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Figure 6: Number of recipients of social benefits, 2005-2011 (source: Minis-try of Social Affairs, 2013)

Being politically decided upon, the level of 101 EUR per month is much lower than the actual cost of living in Lithuania, with food or fuel prices resembling or even ex-ceeding those in Germany or Belgium. It is obvious that this sum is not sufficient even to cover minimum food needs of a standard family, to say nothing about the transport, healthcare, or clothing.

Yet, 7,4% of Lithuanians fall short of the income level of SSI, so they are entitled to the cash assistance from the government.5 The system of cash support for the poor is very strict, obliging the potential beneficiaries to prove that their actual income is lower than the SSI and they do not possess any valuable assets or extra income. The size of the flat is calculated too, to exclude people with a living space surpass-ing their basic needs.

High rates of unemployment come as a primary reason behind the rapidly growing need for social poverty cash assistance; however, as a rule, politicians choose to portrait those in need as lazy people who are not willing to work.6 Such statements display a fundamental problem of the country's mentality and traditions.

5 Skurdo praraja plečiasi vis grėsmingiau. 2011-09-30 www.delfi.lt 6 R.Lazutka: žmonės skursta ne dėl tingėjimo. 2010-11-08 www.ekonomika.lt

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Monthly earnings

Out of 32 publicly listed companies in Lithuania, 25 ones declared profits in 2012, as reported by the business newspaper Verslo Žinios. They earned 705,8 million LTL in profit. The profits of all companies in Lithuania (except the financial sector) grew by 15,5% and amounted to 217,7 billion LTL in 2012. However, the growth had al-most no effect on salaries that only grew by 1,1% in 2012. Due to inflation (3,2%), they actually shrank in terms of real purchasing power.

In general, an average wage in Lithuania is very low comparing to other EU coun-tries – close to 2,000 LTL (€ 580) per month; moreover, during 2008 and 2010 it de-creased by almost 8%on average. In some sectors (e.g., manufacturing), it was a growing unemployment which came as a primary consequence of the crisis, while in others (e.g., public administration and defense; compulsory social security) the downturn was mostly marked by shrinking wages.7 More on the gender pay gap see in the subsection ‚Gender poverty‛.

Table 1: Average gross monthly earnings in Lithuania in 2006-2010 Aver-age gross monthly earnings in LTL (EUR 1 = LTL 3.45) Note: Lithuanian Sta-tistics provides comparable annual data on wages by gender since 2008 only (source: Lithuanian Statistics, Labour Statistics)

2006 2007 2008 2009 2010

Total 1,496 1,802 2,152 2,056 1,988

1. Male - - 2,387 2,205 2,151

2. Female - - 1,928 1,924 1,844

Minimum wage

The economy is dominated by the minimum wage, since the proportion of low-wage earners in Lithuania is 27.2% of all employees, and only in Latvia this share is higher. Low-wage earners are defined as those employees earning two thirds or less of the national median gross hourly earnings.8

7 Lithuania: Evolution of Wages during the Crisis. European Foundation for the Improvement of Living and Working Conditions. http://www.eurofound.europa.eu 8 Earnings statistics. Eurostat. http://epp.eurostat.ec.europa.eu

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Figure 7: Minimum wages in the EU countries (source: Eurostat, 2013)

Figure 8: Minimum wages in EU Member States, Croatia, Turkey and the USA, as of 1 January 2013, in EUR (source: Eurostat)

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According to the trade unions, the very low minimum wage level in Lithuania does not encourage people to take up employment, inhibits natural competition in the labor force, hampers recovery of the domestic market and facilitates a grey econ-omy. It is also one of the factors behind large-scale emigration from Lithuania.9

Unemployment

The unemployed are the main group to be at risk of poverty in Lithuania. Unem-ployment social insurance benefits provide a person with only 45% of his/her former income; actually, only 15%of the unemployed are entitled to get the cash benefits (about 30% in 2010),10 a figure suggesting that, in fact, Lithuania has abolished the social insurance system for the unemployed, although they all paid taxes before los-ing their jobs. The exclusion of the unemployed from the insurance system was introduced through a range of restrictive regulations to avoid misuse of benefits by people who have undeclared income. In 2009, even more restrictions were enabled.

Unemployment benefits are paid to those who had legally worked for 18 months, a rule creating multiple difficulties to young people who lost their jobs during the cri-sis. According to Eurostat, Lithuania has very high youth unemployment statistics (34% in 2011) and is only better than Greece, Spain and Portugal.

Rural poverty

The inequality of income does not reflect the poverty and wealth situation in Lithua-nia. Rooted deeply in history, some crucial social problems may provide a better picture.

To a substantial extent, the poverty in Lithuania is still a very rural phenomenon. Most of statistical data are divided into urban and rural to highlight considerable differences. Data on relative poverty show 10% gap of poverty level between cities and rural areas. In Soviet times, combined with almost absolute redistribution of wealth in the planned economy, the industrialization of farming together with Lithu-ania's role of an agricultural supplier of the USSR created conditions for decentra-lized development. A large share of the population lived and worked in rural areas.

After the collapse of the Soviet system and radical land reform, the ownership of land was prioritized to those who owned it before the Soviet era rather than those who were currently working on it. It resulted in a dramatic growth of unemployment and poverty in Lithuania's countryside. Despite substantial EU funding for agricul-ture and rural development, income gaps and human development statistics are much worse in rural areas than in cities. In 2011, the unemployment rate in urban areas was 13%, while rural unemployment reached 21,8% (12,6% and 16,5%, re-spectively, in 2009).

9 Lithuania: Evolution of Wages during the Crisis. European Foundation for the Improvement of Living and Working Conditions. http://www.eurofound.europa.eu 10 Nuo analize pagrįsto politikos dialogo iki veiksmingo sprendimo priėmimo: ekonominės krizės

ilgalaikių pasekmių socialinės atskirties situacijai Lietuvoje vertinimas. 2009, www.undp.lt

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The gap in life expectancy between professions illustrates the human cost of the inequality. Farmers and rural workers are three times more likely to die in early age than their fellows from other groups of the society, and also from other EU member states.11 The problem of Lithuanian men's life expectancy is generally very deep. 40% of all Lithuanian men die before the age of 65 years, compared to 22% in Czech Republic.

Not for nothing has the neoliberal government increased the pension age from 62 to 65, when combating crisis and introducing harsh austerity measures. Lithuanian men die before they can retire. Such illnesses as tuberculosis, linked to life condi-tions and poverty, are back in Lithuania. Together with Romania, Lithuania is lead-ing in dark statistics of tuberculosis in the EU with more than 47 sick people per 100 000 annually.12

The rural poverty is well exemplified by the number of inhabitants receiving social benefits, the number of pupils provided with free meals at schools and recipients of compensation on heating expenses (Figures 9-11).

11 Inga Saukienė, Lietuvoje priešlaikinė mirtis gresia ūkininkams ir darbininkams, ilgiausiai gyvena tarnautojai. 2011, www.delfi.lt 12 Rotary projektas prieš Tuberkuliozę Lietuvoje 2009-2011 metai. www.rotary.lt

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Figure 9: : Number of recipients of social benefits per 1000 inhabitants in 2012 (source: Ministry of Social Affairs)

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Figure 10: Number of pupils provided with free meals at school per 1000 inhabitants in 2011 (source: Ministry of Social Affairs)

Figure 11: Number of recipients of compensation on heating expenses per 1000 inhabitants in 2011 (source: Ministry of Social Affairs)

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Gender poverty

The poverty issue in Lithuania has important gender and age dimensions. Lithuania has a considerable income gap between men and women (Table 1). Lithuania showed positive dynamics of decrease of gender income gap after joining the EU and implementation of many anti-discrimination policy measures, however this positive trend has stopped. Women are paid less and they are more likely to be at poverty risk, especially because they take responsibility for children.

This gender pay gap (representing the difference between average gross hourly earnings of male and of female paid employees) has always existed in Lithuania. However, over the last three years it has been increasing and the highest ratio was now recorded in 2010 (Table 2).

Lower women salaries inevitably mean life with less income and lower retirement benefit. Differences between wages of men and women are particularly pro-nounced now, as during the financial and economic crisis wages decreased, espe-cially in those sectors where collective agreements are not concluded

Table 2: Gap between salaries of women and men in Lithuania 2003 – 2010 (%)

2003 2004 2005 2006 2007 2008 2009 2010

Lithuania 17 16 15 16 16 18 19 21,6

According to Atmanaviciene, the employment of women is higher than for men in 2009 (60.7 and 59.5%), as well as now for the second quarter of 2010: 57.9% com-pared to 55.5%13. However, according to various other sources the gender pay-gap has still remained significant and may speed up to some 25%.

According to the data represented in Table 3, more men than women work in the private sector (80.5% and 62.1%) whereas women more often than men work in the public sector (37.9% and 19.5%).

Women Men Sex distribution, %

Thousand % Thousand % Thousand %

Public sector

278.6 37.9 132.9 19.5 67.7 32.3

Private sector

457.2 62.1 547.1 80.5 45.5 54.5

13 D.Atmanaviciene, „Gender pay-gap between salaries of men and women – the case of Lithuania‚ (a confe-rence paper)

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Despite women's better education, in 2009 the women's average monthly gross wages in the Lithuanian economy amounted to brut 1,910 Litas and thus only to 80.6% of men’s salaries (2,369 Lt). These differences are a result of both – vertical and horizontal – segregation on the labour market.

In 2009 women's average gross hourly earnings in the country and in the public sector accounted for 83.1% of men's average hourly gross wages and salaries in the private sector – 77.9%. Women's average gross hourly earnings in the economy (with the exception of some individual enterprises) in 2009 were 19.4 % less than men.

The gender pay-gap is more pronounced in the private sector where women are paid less than men for the same responsibilities and the work performed. In civil service, both public administration and service sector, the salary is regulated by law. Therefore, there is no difference what sex and post one takes, and the salary is fixed taking into consideration the category and level of responsibilities.

The biggest difference between the earnings is found in the field of financial and insurance activities: women in this sector earned in 2009 only 57.3% of the average gross hourly earnings of men. In other economic activities the gap of men's and women's pay is less exceptional as follows:

Accommodation and food industry women receive 80.2% of men's wage Manufacturing 71,7% , Human health and social work activities 74,7%, Professional, scientific and technical activities 85,1% Public administration 91,8% Higher university professions 73.9%.

According to Atmanaviciene, a clear vertical (i.e. women occupy lower paid and less economic and social prestige posts) and horizontal (sectors with more employed women are the lowest paid) labour market segregation is based on sex. Though women have the same and often better education than men, women get rarely management positions.

Women work in full-time jobs less than men. In 2009 part-time contracts existed for 9.5% of women and 7% of men in Lithuania. Although the rate of output is often much the same as working full-time work, part-time job are paid much less.

In his 2009 review of the situation after the crisis peak, Lazutka showed that a sta-tistical Lithuanian family with one or two children has suffered a lot. The number of poverty social benefits paid by the state to such families rose by 90% just in the first quarter of 2009. Another traditional poverty risk group is a single parent, usually a woman, with a child (44% of them at poverty risk in Lithuania, with 34% average in EU-15). Even bigger incoherence with EU tendencies is observed in Lithuanian families with three or more children. Such families are highly likely to end up in po-verty, facing a twice bigger risk than similar families in EU-15.14

14 Nuo analize pagrįsto politikos dialogo iki veiksmingo sprendimo priėmimo: ekonominės krizės ilgalaikių pasekmių socialinės atskirties situacijai Lietuvoje vertinimas. 2009, www.undp.lt

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As emigration from Lithuania is generally connected to poverty and responsibility for children, it is important to show that recently women are more likely to emigrate than men. According to recent studies on emigration, this is a relatively new phe-nomenon: 67% of emigrants in 2009 were women, and only 43% in 2001.15

Food cost impact on poverty

According to Eurostat (2010), Lithuanians belong to the group of three poorest Eu-ropean nations (together with Macedonians and Romanians) that spend more than 20% of their monthly income on food. These numbers are average. A more recent (2012) study produced by a survey company „Gfk Custom Research Baltic‚ showed that 18% of Lithuanians spend more than 75% of their income on food.16 These people cannot afford heating in winter; they cannot pay for transport or good cloth-ing, and they do not spend on education, culture, holiday or anything else.

A 'richer' and the biggest group – 54% of Lithuanians - claim they spend 26 to 50% of their monthly income on food. These numbers prove that food is becoming a strategic commodity; however, it is not an issue for the mainstream politics. The domination of liberal market ideas during the last decades pushed the problem of food accessibility out of any possible democratic control and regulatory effort.

The period between 2009 and 2011 was the only exception, when the discussion of possible regulation of food prices appeared on the top of the agenda. In 2009, the Lithuanian parliament even passed a regulation to introduce a maximum mark-up of 20%for retail industry, but it was vetoed by the liberal president Valdas Adamkus, an ex-US citizen, and the law never came into the force.17

However, the discussion went on. In spite of the global food price decrease in the first half of 2011, Lithuanian food prices kept growing.18 Northeast Polish supermar-kets enjoyed waves of shoppers coming from the neighboring regions of Lithuania, since food prices were and still are much lower in Poland than in Lithuania.

One can ask: how do Lithuanians make the ends meet then, if food and heating are so expensive? Why there is no social unrest? It is not supported by studies, but a possible answer is the solidarity of generations, with old parents supporting their children's families. A relatively substantial practice of self-grown food is another so-lution available. Many urban families own some land in countryside and grow their potatoes there, assisted by local family-members. It is still possible, since 30%of population is rural.

Food price and income problems are better illustrated by showing how many people are in fact starving. According to the „Win-Gallup International‚ study (2011), implemented in 57 countries, more than 350 thousands Lithuanians claimed that during last 12 months they often or sometimes lacked necessary food to eat. 350 000 is more than the population of Kaunas, the second largest city of Lithuania.

15 Inga Saukienė. Lietuva – vienišų moterų kraštas. 2009, www.delfi.lt 16 Lietuviai maistui išleidžia daugiau nei latviai. 2012, www.ekonomika.lt 17 Kainų įstatymas. 2009 m. kovo 17 d. Nr. XI-194.Vilnius www.lrs.lt 18 D.Matulionis: Vyriausybė nereguliuos didėjančių maisto produktų kainų. 2011, www.ekonomika.lt

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Approximately the same number is visible in the public statistics of NGOs (Food Bank, Red Cross, Caritas) that manage the EU food aid program. A plan for the free distribution of food to the neediest people in the community was launched in 1987. Based on the use of intervention stocks, this measure has since then become a permanent EU policy tool. The scheme has allowed member states to release public stocks of surplus food for use as food aid („food packs‚ of cereals, sugar, milk powder, butter are distributed to people in need).

Lithuania is a part of the program since 2006, and the number of food aid recipients is constantly growing (357 103 people in 2010).19 Since the EU is planning to close the food aid program in 201420, the future of this important assistance tool to the most vulnerable remains unclear.

The huge number of people in need of „food packs‚ does not change the climate of the political debate. Most of the political parties claim that social policies in Lithua-nia are not efficient because it does not motivate people „to look for a job‚.

As already mentioned above, the neo-liberal discourse is often portraying people in poverty as „lazy‚and „cheating to get social benefits‚. However, recent survey of people who get the EU food aid, produced by „Nielsen‚, shows that food packs are the most often distributed to women of an average age of 40, who raise children. 19%of those receiving food packs are working full time and still in poverty.21 The image of a woman, working in large supermarket with hundreds of shops, cafes, and clubs, is the best illustration of the situation in Lithuania: supermarket workers do not earn enough to buy food in these supermarkets.

According to the mainstream policy-makers, the main factors for the food price sit-uation are high energy prices as well as the openness of Lithuanian economy – most of Lithuanian producers work for export and do not care about the local mar-ket which is very small. Massive EU investments to the Lithuanian agriculture has facilitated the modernization of large export farms, but has not ensured sustainable food supply for local markets.

The level of cooperation in Lithuanian agriculture is still very low. The share of a Li-thuanian farmer in final prices of grocery products is very small, because the liberal economic policies have promoted the concentration of markets in hands of food retail chains and industrial producers22. It is not in contrast with main trends in Eu-rope, but still Lithuania has the biggest supermarket area per capita with one com-pany controlling more than 35 of the national food market.

During the recent national election campaign (2012), the oppositional parties adver-tised the idea of regulating prices of staples, such as milk, meat and vegetables. It is worth saying that Lithuania is regulating markups of medicine, as well as tobacco and alcohol products, but not food. The policy-makers alleged that some retailers apply 100% or more of mark-up and use their dominance to inflate food prices. More regulatory measures were also proposed to tackle food chains' domination

19 Paramos maisto produktais prašo ir darbą praradę jauni asmenys. 2010, www.delfi.lt 20 The Commission adopts food aid plan for the neediest people for 2010. www.europa.eu 21 Nepasiturintieji įprato nesiskųsti, o paramą maistu gėdinasi priimti. 2012, www.lrytas.lt 22 Artiom Volkov Bendroji žemės ūkio politika: graži pradžia, miglota ateitis. Lietuvos agrarinės ekonomikos insti-tutas. Žemės ūkio politikos skyrius. 2012, www.lvzs.lt

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and concentration, but the 2008-2012 right-wing government was opposing any substantial market regulation measures, allowing only some to be put in practice.23

VAT is another important part of the debate on food prices in Lithuania, as well as amounts that Lithuania is getting from a number of European funds for direct pay-ments and market spending. Lithuanian food producers suffered substantial losses during the crisis, with government decisions hitting them even more painfully than the actual market reality. The right-wing government of 2008-2012 introduced VAT reforms, abolishing VAT discounts for everyday fresh food and enforcing universal 21%VAT tariff.

Despite arguments that most of the EU member states have very low VATs on fresh food, the government was eager to „strengthen the market‚ and „lower the subsi-dies‚. This resulted in the increase of food prices as well as weakening of local food production.

According to the EU Common Agricultural Policy regulations, Lithuanian as well as other Baltic states' farmers receive lesser direct payments than farmers in other member states. Direct payments to Lithuanian farmers are planned to be increased to 65 % of the EU average in 2014-2020, from the current 50 %. However, the gov-ernments of the Baltic states want their farmers to be paid as much as the EU aver-age.

Lithuania poses a very good example of a failed food market in urgent need of new regulatory measures. The increased concentration of food market in hands of four major companies had negative impact on competition and completely excluded small retailers. Below-cost selling practices, price wars, and predatory pricing come as a consequence, amid the lack of regulatory „price floor‚ for retailers.

Lithuania has no restrictions on shop opening hours, something in place all across Europe. Neither can we find any general regulations on commercial establishments, nor urban planning regulations on construction permits to limit the establishment of new stores in city centers. According to the mainstream economic studies, all of this should provoke efficiency gains leading to lower consumer prices. However, it is not the case. The transmission from producer to consumer prices is crucial in terms of basic human needs. If a producer is paid almost nothing (Lithuanian milk producers get only 20%of final consumer milk price) and the consumer has to pay an unreasonably high price for food, it indicates a structural problem and a failure of market in food supply.

This is particularly the case for Lithuania. Back to the global food crisis in 2007, in most of the Euro zone countries producer food prices started to rise faster than consumer food prices. Partially absorbed by the food retail sector through a reduc-tion of profit margins, the producer price increases were not fully transmitted to consumer food prices. In most of the new member states, on the contrary, the in-crease in consumer food prices between July 2007 and July 2008 exceeded the producer price increases during the same period, a phenomenon indicative of in-

23 Seimo narys B. Pauža nepritaria radikalizmui bei siūlo kompromisą dėl kainų reguliavimo. 2011, www.lrs.lt

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creased margins in food retailing. Lithuania together with Romania was and still is in the lead of food price increase.24

Energy cost impact on poverty

The number of people in absolute poverty has grown substantially between 2007 and 2009 in bigger cities, despite the fact that urban areas were in the core of suc-cessful economic growth in that period. This can be explained by the opening ine-quality gaps (shown above) and growing prices on housing, heating and transport, more typical for urban than rural areas. The energy costs has contributed to signifi-cant debt levels of households to utility providers.

Figure 12: Household debt to central heating providers in 2009-2012 (mil, Lt)

Lithuanians spend 13% on housing (heating, rent, electricity, gas), which is a little less than the EU average, but together with food it takes half of monthly earning of an average Lithuanian household, in a sharp contrast to any Western society.25

24 LinaBukeviciute, Adriaan Dierxand. Fabienne Ilzkovitz. The functioning of the food supply chain and its effect on food prices in the European Union, European Economy. European Commission Directorate-General for Economic and Financial Affairs. 2009, http://ec.europa.eu

25Vaida Lisauskaitė. Differentiation of income and consumption of the Lithuanian population, 2010, http://www.thefreelibrary.com

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According to the Report of the European Commission, Lithuania is paying the second highest price in Europe, after Bulgaria, to Gazprom for Russian gas imports for consumption. Bulgaria paid an average of 42.2 €/MWh, the Czech Republic 37.4 €/MWh, Estonia 33.1 €/MWh, Latvia 31.7 €/MW26h, Lithuania 38.7 €/MWh and Slova-kia 31 €/MWh for Russian gas in 2012.

The costly gas import is not the only reason behind the heating policy failures that push the Lithuanian public into energetic poverty during each cold season. Impor-tantly, Lithuania failed to follow the example of Poland which has introduced effec-tive policies to renovate highly energetically inefficient flat-blocks and stop substan-tial energy losses. So far limited to just some municipalities, the renovation process is likely to finally be launched nation-wide under the new government's initiative announced in 2013.

However, the public control over the municipal heating companies is the top chal-lenge for the energy policies in Lithuania. Having rented their heating facilities to private, often foreign companies, the majority of Lithuanian municipalities now are puzzled by legal problems if try to exercise control over the public property. Accord-ing to Raimondas Kuodis, a well-known Lithuanian economist who is also a mem-ber of the Board of the Central Bank of Lithuania, the political experiment with rent-ing electricity and heating facilities to private companies has failed and the Lithua-nian government was forced to take the property back to public hands.

It has happened in electricity sector, but the municipal heating is still in private hands in many regions of Lithuania, creating multiple problems for consumers. 27 It has been estimated that private heating providers overvalue the heating price for consumers by more than 20%, as compared to public ones (more than half of 60 Lithuanian municipalities have rented heating facilities to private enterprises).28

The main problem is constituted by the inability of local and central authorities to renegotiate conditions of rent and pricing procedures. Having signed fettering rental contracts, municipalities have in some cases even made their conditions a secret for local politicians.

Consequences of Poverty and social inequality

Income inequality

After the transformation from the planned economy into the market economy, Lithuania ended up at the bottom of the EU redistribution rating29, with huge social inequality rates. According to the American Pew Research Center, support of mar-

26 Quarterly Report on European Gas Markets, Volume 5, Issues 2 & 3 : April 2012 – September 2012. http://ec.europa.eu/energy/ 27 R.Kuodis: šilumos ūkį galėtų perimti valstybė, 2012. http://www.lzinios.lt/

28 Information based on date from Lithuanian energy inspection www.vei.lt and Lithuanian tripartite council energy commision www.lrtt.lt

29 Main national accounts tax aggregates. Eurostat. http://appsso.eurostat.ec.europa.eu

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ket economy in Lithuania has dropped from 76% in 1991 to 45% in 2011.30 Social justice is finally on the top of the agenda.

The growth of average income level and boost of consumption does not mean the increase in the quality of life and life satisfaction. Many scholars argue that opposite tendencies usually occur. Material wealth is increased by the cost of life quality. As another side of the outstanding growth of Lithuanian economy in 2000-2008, in-come differentiation emerged.

Figure 13: Inequality of income distribution according to S80/S20 quintile share ration for elderly people in 2011 (source: Eurostat/SILC)

30 Lietuviai nusivylę demokratija ir kapitalizmu. 2011, www.delfi.lt

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Figure 14: Inequality of income distribution according to S80/S20 quintile share ration for all population (source: Eurostat/SILC)

According to Lisauskaitė, there is a clear correlation between the average income level and Gini coefficient, which shows that the richer Lithuanian society gets, the more social inequality grows (Figure 15).

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Figure 15: Gini coefficient and monthly income per household member, LTL. Variation trends of average income and Gini coefficient in 2000-2009. (source: Šileika and Zabarauskaitė, 2009)

Income inequality in the EU is usually measured in two ways: the S80/S20 ratio and the Gini coefficient. Inequality dynamics throughout the GDP growth period show that Lithuania is among the countries which have the worst Gini coeficient.

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Figure 16: GINI coefficient in Lithuania, EU12 and EU15, Source: Eurostat, World bank

The overall EU figure (2007) is 30, an increase from 29 in 2000. The lowest inequal-ity is in Slovenia, Sweden, Slovakia, Czech Republic, and Denmark (23 to 25) and the highest in the United Kingdom, Lithuania, Greece, Latvia, and Portugal (33 to 37).31

The Gini coeficient is a way of measuring the inequality of distribution of income in a country. It is a technical formula which identifies the relationship of cumulative shares of the population arranged according to the level of income, to the cumula-tive share of the total amount received by them. The S80/S20 ratio is the ratio of the total income received by the 20%of the country’s population with the highest in-come to that received by the 20%of the country’s population with the lowest in-come, the higher the ratio the greater the inequality.

There is a considerable diversity within the EU in the degree of income inequality, measured by the ratio of the income share of the top 20% to that of the bottom 20%. The ratio for the EU25 as a whole is 4.8 (2007), but this varies from 3.3 up to 6.53. Slovenia, Sweden, Bulgaria, Czech Republic, Slovakia, Denmark, Finland and Hungary have the lowest inequality ranging between 3.3 and 3.7 while the highest inequality is to be found in Estonia, Italy, United Kingdom, Lithuania, Latvia, Greece and Portugal ranging from 5.5 up to 6.53. Overall inequality has increased signifi-cantly since 2000 when the EU ratio was 4.5. More detailed study of Lithuania shows that 20%of Lithuanian population controls 41%of total income, while the lowest income part controls only 7% of income.

31 Poverty and inequality in EU. European anti-poverty network. www.eapn.eu

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Lisauskaitė has shown that substantial differences are visible between consumer spending on culture and holiday as well as clothing, household issues, medicine and education not only between the most remote social groups, but also between 'neighboring' groups of the richest.

40% of population is spending almost nothing on culture, education and health, al-though these are the main factors of life satisfaction. Even amongst the richest, multifold differences appear between the consumption patterns demonstrating the existence of a very rich and possibly, influential, minority. This finding is interesting in the context of the ongoing debates about public funding for private medicine and education as well as reduction of public sector services. The domination of the lib-eral doctrine has resulted in introduction of a market-based principle that allows public money spending on private institution without any price control.

In recent years, interest in wealth studies has increased. However, there are still lit-tle reliable and comparative data available. Despite the difficulties of many banks and some big enterprises during the crisis, there is growing evidence that a small number of rich people exert key influence over economic policy as well as over poli-tics in general. Wealthy people are in a position to influence the definition of fun-damental social concepts and values.

According to Lisauskaitė, growing inequality of income damages the democracy, because the rich have a bigger potential to influence political and economic processes. Disproportions of wealth distribution are inherited by yet new genera-tions to come.32 Crucial concepts, such as the understanding of freedom or security, are shaped according to their needs.

Out-migration

Migration into higher wage countries

Lithuanians are characterized by a very low satisfaction about their income: accord-ing to European Foundation for the Improvement of Living and Working Conditions survey, only 23% of Lithuanians are satisfied with their wage level, an outstandingly low indicator among the EU countries.33

The dissatisfaction with living conditions results in a very clear trend for Lithuania to be a leader in terms of emigration, well outnumbering other EU member states, even the poorest ones (Figure 17). It is common to say in political debates that Lithuanians simply vote and protest with their feet. The migration into higher wage countries have been taken place since mid-1990s, yet it took on massive proportion after the entry into the EU.

32 Vaida Lisauskaitė. Differentiation of income and consumption of the Lithuanian population, 2010, http://www.thefreelibrary.com 33 Kas išraus darbuotojų skurdo šaknis? www.zinauviska.lt

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Figure 17: Net migration in EU Member States per thousand inhabitants, 2010 (source: Eurostat 2011)

By official estimates, around 0.6 million people have emigrated from Lithuania, a country of 3 million population, since independence in 1990, predominantly after the EU accession in 2004, when the economy was on the rise. The emigration reached its peak (over 80 000) in 2010, the crisis year; yet, the level remained high in 2012 (43 000) 34. Most emigrants share two main characteristics: they are very young and educated. In 2011, 63% of all emigrants were between 15 and 34 years old, including a high proportion of them with higher education.35

In the long term, this means a loss of competitiveness; however, mainstream politi-cians see the emigration as a possibility to save on unemployment benefits and therefore to gain competitiveness (competition in low income labor and country’s rating in fiscal discipline). The emigration is an important part of the political debate; however, usually it is referred to by right-wing ideologists as a threat to the ethnic Lithuanian nation rather than a danger to the social stability and long term social development, with very few politicians actually articulating the latter point.

Lack of wage bargaining

Given the structural difficulties faced by Lithuania in development of collective bar-gaining processes, the trade union pressure on capital and political parties is very weak. The country is among the outsiders in general unionization statistics, with

34 Lithuanian official statistics on emigration. Based on Lithuanian state statistics department data. http://www.stat.gov.lt/ 35 European Migration Network (EMN).National Contact Point in the Republic of Lithuania.

http://123.emn.lt

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nearly the most dramatic decline of union membership in the EU during first decade of XXI century. (-34% decrease in trade union membership during year of 2003-2008, far more than other countries except for Slovakia with same decrease num-ber).36

In Lithuania there is no information (statistical insights, studies, etc.) on the wage drift, as there is no information on collectively agreed wage increases – neither av-erage in the country, nor by sectors. The main reason of such situation – there is neither national, nor sectorial (profession-level) level wage bargaining in the coun-try.37 The overall fragmentation of unions, with numerous competing ‚umbrella-unions‛ and low membership, has resulted in this lack. Both the legislation and practices are concentrated on bargaining at a company level, which gives no poten-tial for the growth of general levels of salaries in professions (sectors). Number of strikes is close to zero, with rare exceptions.

Public sector workers are generally more unionized and have better working condi-tions, though predominantly not covered by collective agreements, either. The year 2011 saw important attempts to organize strikes both in the public and private sec-tors, by workers of schools and a brewery, respectively. Nevertheless, they all were blocked by negative court decisions, effectively restricting the right to strike. The European Court of Human Rights is currently involved in the issue.

Nationally, the trade unions are the most visible in their debates with the politicians on the minimum wage level. The minimum wage in Lithuania is not increased an-nually (last substantial increase in 2008). Currently it is almost the lowest in the EU27 at: 289 EUR/month. Given the general price level in Lithuania is about 70%of the EU average; it provides low-paid workers with a very restricted purchase power. The neo-liberal approach suggests that this situation is caused by the difference in labor productivity between Lithuania and rich EU member states. However, as labor productivity in Lithuania reaches 60%of the EU average, the wages are several times lower.38

Poverty fueled by debt

Going deeper in poverty situation and consequences of the global crisis in Lithua-nia, one cannot skip the problem of dangerous expansion of fast consumer-credit market. Generated by the crisis, the growing crowd of poor and unemployed people has been actively targeted by mushrooming financial companies that stimulate the boom of small consumer credits (rise of small-credit market in 2011 – 83 per cent).

On March 2013 the Law on Bankruptcy of Natural Persons came into effect. It was introduced following the EU Council regulation (EC) No 1346/2000 on insolvency proceedings which stipulates that it should apply to insolvency proceedings, whether the debtor is a natural person or a legal person, a trader or an individual. According to the Law a natural person could be declared insolvent if the total debt owned exceeds the limit of 21250 Litas. According to the reports from manocredit-

36 Mark Carley. Trade union membership 2003–2008. 2009, http://www.eurofound.europa.eu 37 Lithuania: Evolution of Wages during the Crisis. European Foundation for the Improvement of Living and Working Conditions. http://www.eurofound.europa.eu 38 R. Lazutka. Mane ima juokas kai sakoma, kad žmonės Lietuvoje nenori dirbti. 2013-03-14, www.balsas.lt

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info.lt which provides credit records on individual bank account holders in all banks in Lithuania, 12500 individuals could be declared insolvent account to the new Law. One third of them are former company shareholders, members of company boards or directors. The rest are business people. Altogether 12500 people have a debt of 2,49 billion Litas. The total debt of all natural persons in Lithuania is ca. 3,1 billion Litas, thus the individuals who have a debt less than 21250 Lt own banks about 0,6 billion Lt. Hence, we have a population of 50000 people who have a debt of 10-20000 Lt. This population has grown since 2010 by 100 %. Since bank loans have been very limited during this period, it is obvious that these debtors emerged due to taking on microcredits or credits for consumption.

Contrary to banks and cooperative credit unions, the quick-credit (microcredits or credits for consumption) companies prioritize advertisement campaigns on TV, ra-dio, and the web, offering a user-friendly opportunity of getting small loans (100 to 300 EUR) just by sending an SMS or several mouse-clicks. The pressure on a con-sumer to get easy money is so high that many miss the opportunity to check the terms and conditions.

The recent study of the Central Bank of Lithuania showed dramatic disproportions of the interest rates offered by traditional banks and quick-credit companies.39 A considerable amount of clients end up in a trouble after accepting a loan, illustrating a paradoxical metaphor of the Lithuanian social development: most of people, in-cluding the poor, have access to fancy mobile phones and computers, but they use them to search for easy-credit money to buy food. This is why statistical data on the Human Development Index in Lithuania may look optimistic40, but the reality is a way gloomier.

39 Vartojimo kreditų rinkos apžvalga. Lietuvos centrinis bankas. 2012. www.lb.lt 40 Consumption expenses constituted 64 per cent of GDP in 2000 and 67 per cent in 2008. The average level of consumption expenses per household member almost doubled between 2000 and 2008. The number of indi-vidual cars grew consistently throughout the period of market economy, reaching 1,6 mln in 2008, or a car per two people approximately. The number of information and communication tools rose particularly fast, with over 52 per cent households owning a computer at home and over 85 per cent having a mobile phone. Vaida Lisauskaitė. Differentiation of income and consumption of the Lithuanian population, 2010, http://www.thefreelibrary.com

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Figure 18: Average total annual cost of a loan (source: Lithuanian Central Bank, 2012)

The policy-makers have failed to limit massive advertisement campaigns of easy credits, traditionally letting the free market ideas prevail. Warnings by Lithuanian sociologists in 2009 that over a half of Lithuanians (55 per cent) spend all their money for everyday needs and have no skills of investment or ‚saving for hard days‛, were ignored.41 The only articulated political response to the situation was passing the law on personal bankruptcy which enabled individuals, along with companies, to declare bankruptcy.

To summarize the behavior of people in poverty and economic policies of the Lithu-anian state, we can outline two contradictions: on one hand, the policy-makers show no attention to the problem of irresponsible consumerism, and on the other, the state is reducing public sector spending, including wages. However, this kind of collective austerity does not help to improve the structure of consumer behavior, directing consumer money on more sustainable resources – education, health or culture.42 Focusing on the macro-level goals, e.g. meeting criteria on inflation and public deficit, the state loses the battle for growth and life-satisfaction.

Potential for redistribution

Existing taxation rates

The high tax rate for low-wage earners in Lithuania is another important fact. It shows the same level of 40% for Lithuania and EU-27, but taking into account the difference in income level and big share of low-wage earners in population – one may argue that Lithuanian tax money is generally paid by low-income earners. In-come tax level was subject to several reductions with the most important decrease

41 Vaida Lisauskaitė. Differentiation of income and consumption of the Lithuanian population, 2010, http://www.thefreelibrary.com 42 Vaida Lisauskaitė. Differentiation of income and consumption of the Lithuanian population, 2010, http://www.thefreelibrary.com

12%21% 24%

216%

0%

50%

100%

150%

200%

250%

Credit unions Leasing companies

Banks Quick-credit providers

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in 2010. However, as showed by researchers (Maldeikiene 2009) the tax burden for families with 3 children had increased by 0,96% after the 2010 tax reform. 43

The corporate tax rate was reduced from 29% in 1995 to 15% now, with a tempo-rary increase in 2009. For years, Lithuania has been leading in capital tax ‚attrac-tiveness‛ for investors. Fueled by low taxes and rapid GDP growth, the plumping corporate incomes have never been challenged by redistribution attempts.

Figure 19: Total receipts from taxes and social contributions (including im-puted social contributions) as percentage of GDP in 2011 (source: Eurostat)

43 A.Maldeikienė. Kas įrodo, kad bus geriau? 2009 10 29 www.delfi.lt

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Figure 20: Total receipts from taxes and social contributions (including im-puted social contributions) as percentage of GDP in Lithuania, EU27 and EU15 in 2002-2011 (source: Eurostat)

Existing gross operating surpluses

The level of general profitability in 2007 was 49% in Lithuania, well above the EU average. Lithuania, together with several other post-Soviet countries, abolished progressive taxation in 1996 and introduced flat income taxation of 15% (at the moment), in contrast to the general context of developed countries, including the US, which use the instrument of progressive taxes. Figured 21-22 demonstrates the gross operating surplus generated in business sector in 2012 and shows a potential of redistribution via taxation.

However, Lithuanian employees experienced the highest wage cuts in the EU (to-gether with Latvian and Estonian employees) – as much as 66% of employees indi-cated that their salary or income decreased comparing to the January 2009 (in Lat-via this share was equal to 71%, in Estonia – to 53%), whereas the EU average was equal to 16%. Accordingly in Lithuania the highest shares (close to 70%) of em-ployees thinking that they may lose their job in the next 6 months were recorded (in Estonia and Latvia this share was equal to 64% and 72-76% respectively). More-over, data shows a clear relationship between the job security and changes in sal-ary/income: those who reported on the decrease of salary or income more often indicated that they might lose their jobs in the next 6 months and vice versa.44

44 Lithuania: Evolution of Wages during the Crisis. European Foundation for the Improvement of Living and Working Conditions. http://www.eurofound.europa.eu

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Figure 21: Gross operating surplus (on production activities before account has been taken of the interest, rents or charges paid or received for the use of assets) as %age of GDP (source: Eurostat

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Figure 22: Gross operating surplus (on production activities before account has been taken of the interest, rents or charges paid or received for the use of assets) as percentage of GDP in Lithuania and EU27 in 2001-2012 (source: Eurostat)

Attempts at progressive taxation

So far, all attempts to tax the rich have failed, except for some initiatives. The be-ginning of the global downturn in 2009 served the best opportunity for progressive taxation to be introduced, with a rapid decrease of state income capable of provok-ing a real debate on progressive taxation. By a request of Algirdas Sysas, an MP, the Ministry of Finance presented calculations that the state budget would gain substantial revenues (up to 250 million EUR), should the income taxation be split to 15, 18, 25 and 40% rates, depending on income levels. 45 However, the neoliberal government banned the publication of the ministry experts' calculations; the move was followed by a political statement that progressive taxation would harm the state budget by 70 million EUR.

The bankers and business associations are the most active critics of the progressive taxation idea. Some measures to reduce the flagrant social gaps are exemplified by an introduction of a luxury tax on real estate (2011) and abolition of all tax discounts for luxury property, such as yachts and personal planes (2007).

45 Based on interview with member of Lithuanian Parliament Algirdas Sysas (currently vice-chairman

of Parliament) and publications related to his legal initiatives in 2009-2010. www.lrs.lt

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According to liberal politicians, Lithuanian tax system includes some features of progressive taxation. From 2009, the tax exempt amount of income is applied indi-vidually subject to gross income from work. The larger is the income from work, the lower is the tax exempt amount of income. Currently, an individual whose monthly income from work is minimal or less is applied the tax exempt amount of income of LTL 470 (€ 136) per month (note: people with children are applied slightly higher tax exempt amount of income). No tax exempt amount of income is applied to people whose monthly income from work exceeds LTL 3,150 (€ 913). However, this is not similar to progressive taxation system, when the high-earners pay more.

Concluding remarks

The poverty dynamics in Lithuania are not dependent on macro-economic situation, a thesis exemplified by growing numbers of people in poverty at times of excep-tional GDP growth (2004-2008) and the times of recession alike. Introduced by the Lithuanian government during the global economic crisis in 2009-2010, harsh aus-terity measures resulted in more pressure on the poor and even higher emigration rates.

However, the recent austerity policies were hardly a bolt from the blue, but rather a continuation of long-term decisions towards weakening social policies and lowering redistribution of wealth, effectively resulting in creeping deconstruction of the pub-lic sector. Social and economic policies, even those designed to combat poverty, tend to pursue an extremely individualistic approach, with no potential to address such complex issues as unemployment or massive brain drain.

The stagnation of salary growth in Lithuania is structural because of almost total lack of pressures from trade unions and other collective actors as well as the domi-nation of neo-liberal ideas.

There is important misunderstanding in public perception, especially in the West, about the situation in Lithuania. The post-industrial economy of Lithuania is open and liberal; in a combination with certain peculiarities of the national mentality, this creates a temptation to see Lithuanians as if they were quite well-off. People do use lots of cars, mobile phones and the internet; they also own flats and have access to free education and free healthcare. Yet, they fail to make both ends meet in every-day life.

Caught in a situation of deprivation, with lack of money even for food and heating in winter, hundreds of thousands in Lithuania, a country with a population of 3 million, are pushed to marginal existence and/or eventual emigration. There is evidence available of an important rural and gender dimension of poverty in Lithuania. So far, the Lithuanian governments of the last decades have failed to implement effective policies to reduce inequality and tax the rich.

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