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10/12/2016

Inequality and the already close-to-be-missed last chance of Mr Juncker

Social Europe & Jobs

Inequality and the already close-to-be-missed last chance of Mr Juncker

Philippe Lamberts

[European Parliament]

Growing inequalities unravel solidarity ties between people and the Commission has a role to play  by setting the right standards and incentives in order to reverse the trend, writes Philippe Lamberts

Philippe Lamberts, MEP, co-Chair of the Green/EFA Group

Inequality in Europe has risen quite substantially between the mid-1980s and 2008. This evolution can be attributed to widening gap between the income of the 10% top earners and the rest of society’s. Their average annual real disposable income growth grew more than 2,5 faster than for the income of the poorest 10 %This all means that, at the EU level, the top earners who earned 3,5 times the income of the 10 % poorest earned in 2008 5,5 times more.

The release in 2013 of Piketty’s seminal book “Capital in the 21st century” has rekindled the debate on inequality everywhere around the world: from Paris (OECD) to Washington (IMF) and New York (FED) through Frankfort (ECB) and even Davos (World Economic Forum). Everywhere? Not really: in spite of the latest communication on “Employment in Europe” (Commission, 2014) confirming that the trend persisted in at least half of the Member States until 2013, the European institutions still refuse to address this worrying phenomenon: the word “inequality” was not even mentioned once by Jean-Claude Juncker during his speech setting out his team’s roadmoap before his appointment as the new President of the Commission in July 2014.

Though Mr Juncker stated that “this Commission will be the last chance Commission,” he should be aware that growing inequalities unravel solidarity ties between people; it is well known that it is easier for a community to show support for the most vulnerable when gaps in living standards are less heterogeneous. In communities where inequalities are very strong, the feeling of the duty to care for the poorest wavers. The well-off perceive the unemployed and those for whom life is a daily struggle as an unbearable social burden that they want to get freed from.

Growing inequalities push individualism forward, as reflected by the reluctance to pay high taxes in order to finance social spending. It propels mistrust towards the political system and democracy as a whole since “a rising concentration of income at the top of the distribution (…) allows top earners to manipulate the economic and political system in their favor.” (IMF, 2015). According to a recent study of the IMF,” “the decline in unionization in recent decades has fed the rise in incomes at the top”. Yet, the constant push of the Commission “to move [real wages] in line with productivity developments, including at industry and firm level” (Annual Growth Survey, 2015) undermines the bargaining power of workers and the setting of common threshold in terms of pay, duration of work, etc.

This debate on inequality is and should remain a burning urgency and the momentum should be kept until concrete political conclusions are reached. Decision-makers should not draw their attention away from the +4.9 million poverty figure and should ensure that decent living standards are at reach for every single European citizen. Indeed, the non-compliance with the 2010 commitment to slash by 20 % the number of people at risk of poverty is all the more striking that because only 12 countries received a (non-binding) country specific recommendations related to poverty while 5 among them managed to make progress and 13 Member States that performed badly escaped such a recommendation!

Inequality also has also an intergenerational and broader dimension in terms of potential living standards. Most of parents fear that the outlook for their children will be less bright than theirs when they were the same age. And they are pretty right: 3 of the biophysical limits (CO2 concentration, biodiversity loss and ocean acidification) of the Planet are already exceeded and we shall reach a peak (or plateau) of most resources (from oil to lead via copper and lithium) before 2050. The huge amount of public and private debt (the latter up to 3 times the relative size of the former in the EU) piled up over the years is already weighting on the next generation. Also, past-oriented interest payment on public debt is 2 times higher than far-sighted expenditure on primary education.

Inequality manifests itself not only between individuals but also between companies. A case in point: on account of their political power pertaining to their size and their ability to cause trouble if their “right to profit” is challenged, multinational companies enjoyed various preferential tax schemes. These boil down to implicit subsidies and unfair competition at the expense of SMEs that are not capable of securing such provisions for themselves. In Belgium, for instance, the average tax rate of the most 1.000 profitable (mainly large) companies is 5 times less than the statutory rate (6.7% Vs 33.9 % in 2013). The top 50 enjoyed a tax rate of less than 3 %! Belgium is no exception in the European landscape with that respect.

Addressing both the corporate and the intergenerational dimensions (so far unrecognized) of inequality requires more than well-meaning speeches or genuine indignation. The EU has a role to play in this matter, by setting the right standards and incentives and monitoring their efficiency as well as by developing an appealing vision, sticking to it and mobilizing around it. Since it takes time to reverse the trend of so many forms of inequality and sometimes too much time so that democratic collateral damages cannot be contained, it is urgent to act now. So, Mr Juncker, what are you going to do about this?