Monday, February 03, 2014

Danger of globalisation backlash growing

Perversely, however, the outcome has been more inequality. The wealth gap between the richest and the poorest European Union states is growing. And last year, the number of people who slid into poverty in Europe was larger than in any other continent, except for Africa, according to a recent global poverty report from the International Red Cross.
To be sure, the roughly ¤1 trillion (S$1.72 trillion) spent by the EU over the past quarter of a century alone in direct grants to poorer members made a huge difference: Countries such as Greece or Spain may be financially stricken, but they are still better off than they were a generation ago.
Still, the reality is that Germany remains about a third richer than the European average, while Greece is about a quarter poorer; Europe's centuries-old northsouth divide not only remains, but has also been reinforced by the EU financial crisis.
More significant, however, have been the growing poverty indicators within each European nation. Throughout the continent, poverty is defined as an income level of less than 60 per cent of the national median household income. In the former East Europe communist countries, up to a fifth of the population lives under this threshold. Around 15 per cent of the citizens of France, Germany and Britain are classified as poor.
Overall, there are more than 18 million people receiving EU-funded food aid, 43 million who do not get enough to eat each day and 120 million out of a total EU population of 500 million deemed "at risk of poverty" by Eurostat, the continent's statistical agency. "We see a quiet desperation spreading among Europeans," warns the International Red Cross report.
Wealth inequalities are also rising, often in tandem with growing prosperity, as Ireland's example shows. Two decades ago, just before it embarked on its furious economic growth which earned it the nickname of the "Celtic Tiger", the richest 10 per cent of the population owned 30 per cent of the national wealth. Today, that figure is 36 per cent, the second-highest wealth differential in Europe.
The continent's disparities and social exclusion trends are only likely to increase, given record-high unemployment. Over 12 per cent of Europe's labour force is currently without a job, with youth unemployment double that rate; in countries such as Spain or Greece, half of all those aged under 25 have no jobs.
There are many reasons for these developments. Mismanagement is one: huge transfers of cash from wealthier to poorer European countries cannot compensate for bad governance. A European welfare system which just keeps people at the poverty level but offers no incentives for progress does not help either. And a rigid, unionised labour force raises the entry bar for youngsters.
Yet a key cause for these growing inequalities is globalisation: Skilled people have prospered since they were the best-placed to adapt to changing technologies and working environments, but the unskilled in Europe have been hit hardest, since their jobs have gone to lower-paid workers in the developing world. The most vulnerable group of people in Europe today are not migrants or ethnic minorities but young, uneducated white males, often both unemployed and unemployable.
World leaders are right to fear the political consequences of this phenomenon. Social exclusion creates a disenchantment with existing political institutions and a yearning for seemingly simplistic new approaches: The growth of racist and anti-capitalist political movements of both the left and right in Europe is an early warning.
Mr Alexis Tsipras, leader of the extreme left Syriza party in Greece, demands the arrest of all bankers and the confiscation of their assets; he controls almost a third of the country's parliamentary seats. Meanwhile, Ms Marine Le Pen, leader of France's right-wing National Front, regards immigrants as "occupiers" and wants white Frenchmen to be given priority in employment.
"There is nothing politically more explosive, more dangerous and more destabilising than having a whole generation of young people being very frustrated," said Mr Angel Gurria, the boss of the Organisation for Economic Cooperation and Development, at the recent Davos economic forum.
And, as the middle classes get increasingly squeezed, the danger of a backlash against globalisation and free trade increases.
The problem for European leaders is that there is little they can do, at least in the short term. Taxing the rich sounds nice, but it never produces enough cash and leads to capital flight. Increasing social expenditure has been tried for decades, and is no longer affordable.
And, sadly, matters look set to worsen as the continent's overall wealth continues to shrink. According to the EU's own official projections, if nothing is done to reverse the current decline, living standards on the continent will be lower by the middle of the next decade than they were in the mid-1960s.
And fighting for a slice of an increasingly shrinking pie will get messier.
The wealth divide
  • The richest 85 people in the world own as much wealth as its 3.5 billion poorest.
  • Almost half of the world's wealth is owned by just 1per cent of the population.
  • The wealth of the 1per cent richest people in the world amounts to US$110 trillion (S$140 trillion). That's 65 times the total wealth of the bottom half of the world's population.
  • Seven out of 10 people live in countries where economic inequality has increased in the last 30 years.
  • In the United States, the wealthiest 1per cent captured 95 per cent of post-financial crisis growth since 2009, while the bottom 90 per cent became poorer.