Poverty and social inequalities

The article attempts to explain why the public in the rather markedly growing CEE and Baltic countries tends to be highly critical of the economic benefit they have derived from the transition process.

Whereas the Central European, Eastern and Baltic Countries (CEEBC) are enjoying rather a strong growth rate (approximatively 3.5% per year), according to the opinion polls published regularly in each country, their people appear highly critical of the economic benefit they have derived from the transition process. According to one of the most recent surveys, carried out by the World Economic Forum for its annual meeting in Davos last week, just after the World Economic and Social Forum in New Delhi, 70% of the Bulgarians and 53% of the Poles see themselves as less well off than ten years ago. How can this apparent paradox be explained?

One reason for this is the slowness of the economic catching up process in comparison with the 1989 level: in 2002, real GDP in the region exceeded the 1989 level by 13% on average, whereas five countries (three Baltic States, Romania and Bulgaria) still remain largely below this level.

The increase in inequalities of income also reinforces this perception. These inequalities are measured by evolutions in the Gini coefficient, which is rising in every country in the region (0 represents perfect equality and it tends towards 1 when inequalities are increasing). According to the World Bank, this increase can be explained by positive economic developments: better salaries for more highly qualified staff, better reward for business risks*, etc. Moreover, although these inequalities are increasing in the CEEBC, they are moderated by welfare benefits and taxes. And they are no higher than those within the EU-15, which shows considerable differences between Member States. A different evolution took place in the former USSR, where inequalities have massively increased, mainly because of “rent appropriations” by politically well-placed elites.

Evolutions in employment and unemployment rates are the third reason for this apparent paradox. At the end of 2002, for the whole region, the employment rate stood at 80% of the 1989 level and the unemployment rate reached nearly 14% (see RES 39 – Special Labour markets).

A final explanation can be found in the percentage of the population living below the poverty line, defined as an income lower than 2 USD per day. The situation varies from one country to another. In three countries of the region, less than 2% of the population is below the poverty line : Poland, the Czech Republic and Slovenia; Slovakia’s situation being similar (2.4%). These figures, not very recent but nevertheless the latest available from the World Bank, might have increased in Poland and Slovakia, where the unemployment rate increased between 1997 and 2002 from 11.2 to 19.9% and from 11.8 to 18.5% respectively. The poverty rate remains very high in Romania (20.5%) and Bulgaria (23.7%). In an intermediate situation, the three Baltic States and Hungary still continue to suffer from large pockets of poverty.

Thus, it appears that Transition in the CEEBC did not benefit everyone. Even though this phenomenon is much less marked than in the former USSR, these data recall that, alongside the macroeconomic advantages of Enlargement, the social perspective paints a less “rosy” picture.

For more analyses of the EU’s enlargement process, see the

enlargement website of DREE.