Posts Tagged ‘recession’
An inequality chasm is fracturing Europe, warns the OECD

April in Berlin, Germany. A homeless man sat begging for euros or food in the entrance of an S-Bahn station.
Deepening inequalities in income between the richer and poorer families, greater relative income poverty in recent years compared with earlier, a greater burden borne by children and young people than before because of their being relatively poor – these are some of the stark conclusions contained in the OECD briefing, ‘New Results from the OECD Income Distribution Database’.
This is the picture of Europe today (and of the non-European members of the OECD). “Looking at the 17 OECD countries for which data are available over a long time period, market income inequality increased by more over the last three years than what was observed in the previous 12 years,” observed the new briefing, which is sub-titled ‘Crisis squeezes income and puts pressure on inequality and poverty’.

Annual percentage changes in household market income between 2007 and 2010, by income component. Chart: OECD
The figures and data show that many of the countries recording the most dramatic increases in inequality are European countries which have been subjected to punitive austerity measures by the European Union and International Monetary Fund. The OECD report singles out Spain and Italy, where the income of “the poorest 10 percent was much lower in 2010 than in 2007”.
Five percent falls in income (per year) amongst the poorest 10 percent were also recorded in Greece, Ireland, Estonia, and Iceland. The only non-European nation with a comparable level of income decline was Mexico. The report also stated that over the same period, poor families in the United States, Italy, France, Austria and Sweden all recorded income losses in excess of the OECD average.
Indeed the ‘New Results’ briefing has showed that across OECD countries, real household disposable income stagnated. Likewise, the average income of the top 10% in 2010 was similar to that in 2007. Meanwhile, the income of the bottom 10% in 2010 was lower than that in 2007 by 2% per year. Out of the 33 countries where data are available, the top 10% has done better than the poorest 10% in 21 countries.
This is the OECD picture till 2010. Since then, recession has been the companion of inequality. With an average growth of -0.2 per cent in the first quarter (against -0.1 per cent in the EU as a whole) and hardly better prospects for the whole rest of the year (-0.7 per cent), according to Eurostat, the dreaded “double dip” has become a reality. The press attributes the result largely to the austerity policies.

Gini coefficient of household disposable income and gap between richest and poorest 10%, 2010: Chart: OECD
“Eurozone sets bleak record of longest term in recession,” reported the Financial Times. The daily noted that “this latest dismal record came after unemployment hit 12.1 per cent in the bloc, its highest level,” and that this data “is likely to add to pressure on the European Central Bank to take further action after cutting interest rates this month, and to revise down its economic forecast predicting a recovery later in the year.”
Moreover, relative income poverty – the share of people having less income than half the national median income – affects around 11% of the population on average across OECD countries. Poverty rates range between 6% of the population in Denmark and the Czech Republic to between 18% and 21% in Chile, Turkey, Mexico and Israel. Over the two decades up to 2007, relative income poverty increased in most OECD countries, particularly in countries that had low levels of income poverty in the mid-1990s.
In Sweden, Finland, Luxembourg and the Czech Republic, the income poverty rate increased by 2 percentage points or more. In Sweden, the poverty rate in 2010 (9%) was more than twice what it was in 1995 (4%). Relative poverty also increased in some countries, such as Australia, Japan, Turkey and Israel, with middle and high levels of poverty.
The OECD briefing has stated bluntly: “Households with children were hit hard during the crisis. Since 2007, child poverty increased in 16 OECD countries, with increases exceeding 2 points in Turkey, Spain, Belgium, Slovenia and Hungary.” The ‘New Results’ briefing added: “Since 2007, youth poverty increased considerably in 19 OECD countries. In Estonia, Spain and Turkey, an additional 5% of young adults fell into poverty between 2007 and 2010. In the United Kingdom and Ireland, the increase was 4%, and in the Netherlands 3%.”

Annual percentage changes in household disposable income between 2007 and 2010, by income group. Chart: OECD
Between 2007 and 2010, average relative income poverty in the OECD countries rose from 12.8 to 13.4% among children and from 12.2 to 13.8% among youth. Meanwhile, relative income poverty fell from 15.1 to 12.5% among the elderly. This pattern confirms the trends described in previous OECD studies, with youth and children replacing the elderly as the group at greater risk of income poverty across the OECD countries.
These results only tell the beginning of the story about the consequences of austerity, growing unemployment, the burden on children and youth, and burden on immigrant wage labour. The OECD data describes the evolution of income inequality and relative poverty up to 2010. But “the economic recovery has been anaemic in a number of OECD countries and some have recently moved back into recession”, said the briefing.
Worse, since 2010, many people exhausted their rights to unemployment benefits. In such a situation, the briefing has warned, “the ability of the tax-benefit system to alleviate the high (and potentially increasing) levels of inequality and poverty of income from work and capital might be challenged”. These are unusually blunt words from the OECD and their use reflects the depth and persistence of the crisis of modern, reckless, destructive capitalism in Europe.
Of German wurst, French fries and an IMF bullet

A closed chips stall called 'La Reine des Fritures' ('The Queen of French Fries') in French Flanders. Photo: Stephan Vanfleteren / Panos Pictures
Le Monde Diplomatique, that fearless critic of globalisation and the tyranny of the multilateral lending institutions, has said in its 2011 December issue that in November, the Franco-German directorate of the European Union, the European Central Bank and the International Monetary Fund — the ‘troika’ — were furious when the Greek prime minister, George Papandreou, announced plans to hold a referendum.
Absolute oligarchs dislike referendums because the idea has a great deal to do with consultation – not a favourite subject for the IMF in the 67 years it has claimed to shape the global economy. That is why, summoned to Cannes for an interview during a summit that his country was too small to attend, kept waiting, and publicly upbraided by Angela Merkel and Nicolas Sarkozy (who were responsible for exacerbating the crisis), Papandreou was forced to abandon the plan for a referendum and resign. His successor, a former vice-president of the ECB, promptly decided to include in the Athens government a far-right organisation banned since the Greek colonels lost power in 1974.
In ‘Europe in crisis, rule by troika’, Serge Halimi has written in LMD that the European project was supposed to secure prosperity, strengthen democracy in states formerly ruled by juntas (Greece, Spain, Portugal), and defuse “nationalism as a source of war”. But it is having the opposite effect, with drastic cuts, puppet governments at the call of the brokers, and renewed strife between nations. Everything, in short, that the IMF and the World Bank have pursued since 1944 mostly successfully in Asia, Africa and South America.
Former bankers Lucas Papademos and Mario Monti have taken over in Athens and Rome, exploiting the threat of bankruptcy and the fear of chaos. They are not apolitical technicians but men of the right, members of the Trilateral Commission that blamed western societies for being too democratic. “Having crushed Greece and Italy, the EU and the IMF have now set their sights on Hungary and Spain,” Halimi has written, and it is a grim warning.

A ferris wheel runs in the centre of Brussels next to an old building advertising Martini and Zanussi. Photo: Stephan Vanfleteren / Panos Pictures
Red Pepper has more on the ways and means of the IMF.
“It’s stripped millions of people of their livelihoods, but the global economic crisis has brought one institution back from the dead: the International Monetary Fund. Two years ago, the IMF looked to be on its last legs. It had got to the stage where nobody wanted to borrow its money. Many developing countries started accumulating reserves to avoid ever having to go to the IMF loan shark. Developed countries in trouble would go just about anywhere – China, Russia, Saudi Arabia – to avoid the IMF.”
Then came the meltdown. “The IMF failed to see it coming – pretty damning for a body supposed to oversee global financial stability – but bankrupt countries suddenly had no choice but to come begging.” Exactly the point – the IMF did see it coming because this is what its prescriptions for the previous decade were aimed at in the first place. In April last year, the G20 pumped the organisation with £330 billion of new funds. Uruguayan writer Eduardo Galeano called the decision ‘black humour’, saying it would ‘rub salt in the wound’ of countries hit by a crisis they did not create. The IMF is now re-armed and doubly dangerous, with large new areas in what was formerly the Eurozone to subjugate.
Not quietly by any means. After all, the Greeks are Greeks first and then, perhaps, Europeans. Ditto with the Italians, Portuguese, Hungarians, Spaniards and Latvians. It is looking rather like the Germans and the French (elite, mind you, not the labour, the unemployed, the migrants and the armies of informal workers struggling on 25 euros a day) are the last Europeans left.
But this is why major protests have been convulsing Greece throughout the autumn with strikes, and occupations of the main squares in many towns. Civil servants blockaded their ministries, preventing ministers from accessing their departments in September and October. The early November surprise announcement of a popular referendum in Greece on the EU-IMF loan terms and conditions would have marked the first time an IMF lending package was subjected to a test of popular ownership. In the end the political pressure heaped on the Greek prime minister by other European countries, the Greek political opposition and factions from within his own government forced him to back down and resign as prime minister.
After the collapse of the Greek government, Elena Papadopoulou of the Athens-based Nicos Poulantzas Institute said: “Despite the proclaimed enthusiasm, there is no realistic reason to believe that the new coalition government – with the participation of the extreme right – will follow anything other than the socially destructive policies applied according to IMF recipes with the agreement of the European elites.”
US Census poverty data: more poor today than 50 years ago
A finding of great importance was released this week, of the number of people living in poverty in the United States of America (USA). The data was released by the US Census Bureau, which is carrying out the 2010 census of the USA.
The message is a stark indicator of the acute ill-health of the current global economic system and needs to be treated as such. The number of people living in poverty in the USA rose to 43.6 million in 2009 – this is the largest number since the agency began making such estimates 50 years ago and represents an increase of 3.8 million compared to 2008. As of last year, one in every seven Americans was poor, according to the government’s definition of poverty. The official poverty rate of 14.3% is the highest since 1994.
The poverty rate jumped more than a full percentage point, from 13.2% in 2008. There were 8.8 million families living in poverty in 2009, including one child in every five. This is the same rate of child poverty that existed nearly five decades ago, when President Lyndon Johnson announced his “War on Poverty”. With this data, the government of the USA is advised to cease and call off all the other wars it is waging and renew the war on poverty within its own boundaries.
Reflecting the impact of the economic slump and mass layoffs and wage-cutting, the increase in poverty was concentrated among working-age adults and their children – the poverty rate for working-age adults rose from 11.9% to 12.7% percent, for children the poverty rate rose from 19.4% to 20.7%, and the poverty rate for those 65 and older fell from 9.7% to 8.9%.
The new figures on poverty in the USA have powerfully shown that what passes for contemporary economic theory, such as the efficient markets hypothesis, has nothing whatsoever to do with human development. The ‘efficiency’ of markets are a direct expression of the needs of finance capital which has assumed such a powerful role in the world economy over the past three decades.
Why has such devious and destructive theory been turned into policy for so long? Because it serves definite financial interests. Because, without such hypotheses and the support given them by the system we call ‘globalisation’, most of the trading and risk models used by major financial institutions would have to be thrown out.. These figures from the USA – amplified a thousand times in the figures from less industrialised countries – show why the system is choking every species on the planet including our own.
For readers from the USA, there is an objective commentary of the new poverty data here. The actual US Census Bureau data, analysis and supporting information is available here.
The Economic Policy Institute commented: “For the first time on record, the nominal (non-inflation adjusted) income of the median, or typical, household actually fell, from $50,303 in 2008 to $49,777 in 2009. Inflation was negative from 2008 to 2009, dropping by 0.4%, so real (inflation-adjusted) income did slightly better. Real median income declined by $335 from $50,112 in 2008 to $49,777 in 2009, a decline of 0.7%. The real median income of working-age households declined even more, falling by $754 from $56,575 to $55,821. African Americans were hit particularly hard in 2009, with the median African American household income dropping by 4.4%.”
The EPI said the 4.7 million drop in the number of earners working full-time, full-year, was “particularly astonishing”. A disproportionate amount of this decline was among men — the number of men working full-time, full-year dropped by 3.8 million, while there was a 900,000 drop in the number of women working full-time, full-year. The job loss and hours reductions of 2009 meant there was a 3.7 million drop in the number of workers with any earnings at all in 2009, and a 1.1 million increase in the number of workers working part-time and/or part-year.
That’s not all, said the Urban Institute. “This 15-year high still understates the dire straits of many Americans today.” The current recession began in December 2007, and the unemployment rate doubled (from 5 to 10%) between December 2007 and December 2009. The Census poverty estimates are based on family income received during the 2009 calendar year. Since the unemployment rate rose during the year, the 2009 poverty rate understates deprivation at the end of the year.
Making sense of OECD’s new ‘interim’ assessment
With its customary fence-sitting and misplaced political correctness in times of trouble, the OECD (Organisation for Economic Co-operation and Development, all of 33 members strong now) has released its ‘Interim Assessment’ of the economic outlook for OECD countries.
The material and pontifical tone is attributed to Pier Carlo Padoan, OECD Chief Economist and Deputy Secretary-General, whose opening salvo is enough to put you off interim assessments for the rest of the year: “Recent high-frequency indicators point to a slowdown in the pace of recovery of the world economy that is somewhat more pronounced than previously anticipated. Against this background and according to the OECD short-term forecasting models, growth could slow in the G7 economies to an annualised rate of about 1.5% in the second half of the year. There is nevertheless great uncertainty in the outlook arising from a combination of weaknesses and strengths.”
Shorn of the absurd caution with which tenure economists of the neo-classical persuasion litter their pronouncements, here is what the esteemed Mr Padoan has said: households are becoming broke, the recession has had a lot to do with their becoming broke, there are not enough jobs for the members of these households, the jobs that they do have are by no means secure, and that’s why they’re being very very careful with spending.
The “interim assessment” put it differently in what purports to be Anglais: “Private consumption growth may be constrained by additional adjustments by households to the balance-sheet losses suffered during the recession and in response to housing market developments, should house prices weaken further. In addition, uncertainty about unemployment could put a damper on the expansion of private consumption. A weak economy and uncertainty in sovereign debt markets might also affect adversely the financial system and private demand gowth through deleterious feedback mechanisms.”
Losses, deleterious, uncertainty, unemployment, damper, weak, debt – these are the keywords. You’ll get the hang of it.
MDGs, hunger and the global food system

Rawal Dam Running Dry: A canoe near the former bank edge of Rawal Dam reservoir was left high and dry when waters receded to dangerously low levels due to the prolonged drought afflicting much of Pakistan. Officials of Pakistan’s Small Dams Organization (SDO) told the nation’s English-language Dawn newspaper that dam water was just 20 feet (6 meters) above the dead level and that the current supply might last only until mid-July. The reservoir has reached such low levels only once before, during the drought year of 2003. Photograph by Aamir Qureshi, AFP/Getty Images
A new report from the International Food Policy Research Institute (IFPRI, a US-based think-tank), discusses meeting the UN Millennium Development Goal to halve hunger. The report is called Business As Unusual.
The report says that the global food governance system itself needs to be reformed to work better. Reforms should include (1) improving existing institutions and creating an umbrella structure for food and agriculture; (2) forming government-to-government systems for decision-making on agriculture, food, and nutrition; and (3) explicitly engaging the new players in the global food system-the private sector and civil society-together with national governments in new or reorganised international organizations and agreements. A combination of all three options, with a leading role for emerging economies, is required.
The first step in reducing poverty and hunger in developing countries is to invest in agriculture and rural development. Most of the world’s poor and hungry people live in rural areas in Africa and Asia and depend on agriculture for their livelihoods, but many developing countries continue to underinvest in agriculture. Research in Africa and Asia has shown that investments in agricultural research and extension have large impacts on agricultural productivity and poverty, and investments in rural infrastructure can bring even greater benefits.
After the 2006-08 crisis, when staples such as maize, rice and wheat climbed to their highest prices in 30 years, many donor countries, aid agencies and analysts suggested that the existing Committee on World Food Security (CFS) be reformed. The CFS is a technical committee of the FAO, and serves as a forum in the UN system for the review and follow-up of policies on world food security, food production, nutrition, and physical and economic access to food.

Islamabad Water Carrier: Water shortages have become common for many people in the capital who must gather their daily water from government tankers or private trucks, when it's available at all. The nation’s acute rainfall shortage has also cut water supplies at hydroelectric dams, exacerbating disruptive power shortages and forcing officials to implement some rather dramatic solutions. Photograph by Aamir Qureshi, AFP/Getty Images
Jacques Diouf, director-general of FAO, announced last week that the CFS was being reformed to make it a “global platform for policy convergence and the coordination of expertise and action in the fight against hunger and malnutrition in the world”.
Uncoordinated policy actions of governments across the world during the 2006-08 food crisis made prices even more volatile and affected access to markets, said a new joint Agricultural Outlook for the next 10 years, produced by the Organization for Economic Cooperation and Development (OECD) and FAO. Food prices have come down, but are still high, according to FAO.
“While food prices have dropped, incomes because of the recession have been reduced by a much higher rate,” said Holger Matthey, an economist at the UN Food and Agriculture Organization (FAO). Some aspects of this “business as unusual” approach have already been successful in a few countries, but they need to be scaled up and extended to new countries to have a real impact on the reduction of global hunger.
Scaled-up investments in social protection that focus on nutrition and health are also crucial for improving the lives of the poorest of the poor. Although policymakers increasingly see the importance of social protection spending, there are still few productive safety net programs that are well targeted to the poorest and hungry households and increase production capacity.
The OECD-FAO Outlook has acknowledged that the 2006-08 food price crisis “was due to the contemporaneous occurrence of a panoply of contributing factors, which are not likely to be repeated in the near term. However, if history is any guide, further episodes of strong price fluctuations in agricultural product prices cannot be ruled out, nor can future short-lived crises”.