Income inequality threatens the socio-political structures in developed countries

Christine Lagarde, Managing Director of the International Monetary Fund (IMF), and José Manuel Barroso President of the European Commission (in the background, from left to right). 1st High Level Political Forum on Sustainable Development (HLPF) under the auspices of the 68th session of the United Nations General Assembly (UNGA). (EC Audiovisual Services, 24/09/2013).

Christine Lagarde, Managing Director of the International Monetary Fund (IMF), and José Manuel Barroso President of the European Commission (in the background, from left to right). 1st High Level Political Forum on Sustainable Development (HLPF) under the auspices of the 68th session of the United Nations General Assembly (UNGA). (EC Audiovisual Services, 24/09/2013).

Christine Lagarde, Managing Director of IMF, is not renowned for her social concerns and sensitivities. Yet, while speaking last week at the National Press Club, in Washington DC, about “The Global Economy in 2014”, among other important policy proposals for the world to exit the era of the “seven weak years”, she didn’t forget to cite the increasing inequality of income distribution as a major threat to socio-political stability, even sustainability.

She concluded that, “This all (observations – recommendations), points to one thing: the need to stay focused on the policies needed for sustainable growth and rewarding jobs, which in the end are needed to make everybody better off”. She also had a negative paradigm of unequal distribution of incomes, the USA economy: “in the United States, 95 percent of income gains since 2009 went to the top 1 percent. This is not a recipe for stability and sustainability”.

Unsustainable inequality

However, the same is true for this side of the North Atlantic Ocean. In Eurozone the last five crisis years have led to a marked deterioration of the income distribution curve and the ‘gini coefficient’ which measures inequality. This is especially true for the countries hit by the crisis and obliged to implement severe austerity policies. For example in Spain, the largest country of Eurozone with liquidity problems, this coefficient which measures income inequality, rose from 31.9 in 2008 to 35 in 2012.

No doubt the IMF has a more long term and complete picture of the word economy. Its managing director said “One of our strengths is that we have to look at the bigger picture – how all the moving parts fit together, how what happens in one country affects the wider global economy”. This is exactly the motive that put the inequality argument in her mouth.

In Greece, Italy, Spain, Portugal and elsewhere in the Eurozone the democratic system cannot stand any more austerity measures. The key point is that those measures, being either wages or social benefits cuts or tax increases, cannot be applied just because Berlin and Brussels want it. Fortunately, they have to be approved by the national parliaments. In countries where democratic institutions are well established and divergence from the democratic rule of law is not an option, the deterioration of the income distribution may lead to dead-ends.

An EU without Britain and Greece?

In cases like this, it’s not only that growth is out of question but even the standard economic activities are been obstructed by social and political uncertainties. It was not by chance that a fascist inclination party, the Golden Dawn, was catapulted in the third place of the Greek party system and gained in a very short time a position of national prominence, after a long time in the margins of law and recognition. The same severe austerity policies sent a marginal left wing party, SYRIZA, into the first place of preferences as expressed in polls and positioned it as major opposition in the Greek legislative. As Lagarde said, increasing inequality “is not a recipe for stability and sustainability”.

Unfortunately, Europe is stepping backwards on this path. The ‘petty jobs’ arrangement in Germany has deprived regularly working people of the ability to support a decent living. All over Europe an increasing number of workers live in the margins of social life unable to support a family. This is almost the rule in the south of Eurozone where more than half of youths are jobless. Even when at work their remuneration doesn’t permit them to support themselves in independent living outside the parental foyer.

All in all, democratic deficit or not, it seems that parliamentary democracies in Europe cannot support more deterioration of labour and social protection. The US, with their bi-party political system seems to be able to withstand more inequality than Europe. The EU has obviously reached its limits on this account. European south and north countries alike are now at risk of a political disintegration. Wealthy and impoverished EU member states face similar political dead-ends with the rise of extreme parties on both ends of the spectrum like the UKIP and SYRIZA. It’s more than certain that, if the present economic policies continue, the very existence of the EU itself may be at risk. Who can imagine a European Union without, Britain, Greece and Italy?

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