In recent years, economic inequality gained prominence in the socio-economic debate. The Nobel Prize in 2019 was awarded to two economists who researched economic inequality – a scourge that has once again come to the fore of political thinking.
The debate on why so many people are being left behind in today’s economic models keeps evolving. Some academics argue that the excessive wealth of the few is not the reason why so many others are living from hand to mouth.
Albena Azmanova from the Brussels School of International Studies argues that politicians are addressing the ‘scourge of economic inequality’ incorrectly. This assertion may explain why taxing the super-rich has failed to endear social democratic parties to the masses of the have-nots in Western societies.
Dr Azmaznova makes a very valid point. The battle against economic inequality can only be won if governments focus more on building more stable, secure and sustainable societies. Most people do not hate the rich because many aspire to become rich someday. What should worry our leaders is the fact that affluence often entails social privilege.
When the wealthy engage in wheeling and dealing to preserve their privileges, when they rub shoulders with the politically powerful to engage in predatory practices, when they are allowed to get away with financial and other crimes against the interest of society, state capture occurs. When the political class is controlled by the rich and powerful, the rest of the community becomes defenceless.
For too long Europe has engaged in social dumping. One of many definitions of social dumping is “the practice, undertaken by self-interested market participants, of undermining or evading social regulations to gain competitive advantage”.
Taxpayers’ money must be used judiciously to provide the kind of financial security that everyone needs
A 2017 paper of the European Parliament highlights the fact that workers themselves can also participate in the “race to the bottom” by accepting disadvantageous conditions. In other cases, governments themselves reduce corporate taxes and make labour markets more flexible to attract investors.
Social dumping is one of the ugly facets of globalisation that rarely attracts headlines in the media. The COVID-19 pandemic has exposed the collateral damage caused by economic practices of the last few decades. The partial dismantling of social security systems, the spread of globalisation without adequate protection for those affected negatively by this phenomenon, cuts in public services, the tolerance of high levels of shadow economy activities and precarious work contracts have generated massive economic instability for ordinary people.
When one adds to these socially destabilising factors the weakness of public education and the underinvestment in public health, one can understand why the EU is facing massive challenges to achieve its economic objectives.
The way out of this dead-end socio-economic alley is strong political leadership. Political leaders need to adopt proven economic models that have been successful in promoting sustainable economic growth while providing citizens with levels of public services that facilitate social and economic mobility. The Scandinavian countries, as well as Germany and the Netherlands, show how these objectives, that may seem to conflict, can be achieved simultaneously.
We have our own list of priorities that are not being given the importance they deserve. According to Eurostat, Malta’s shadow economy at about 24 per cent of GDP is one of the biggest in Europe – bigger even than that of Italy and Greece. People who work in the shadow economy, whether foreigners or locals, are the most vulnerable when an economic downturn erupts. We have various evidence that social dumping is quite common locally but not addressed as it should be because it is perceived to be boosting our economic growth.
Low taxation undoubtedly attracts investment but on its own will not guarantee sustainable economic growth in the next decade and beyond. Taxpayers’ money must be used judiciously to provide the kind of financial security that everyone needs to succeed in being a productive member of society.
We need to fight the culture of entitlement that prevails not only among those who want to live off social benefits while being fully able to work, but also of the wealthy who are prepared to do whatever it takes to perpetuate their privileges through state capture.
A major international crisis like the one we are experiencing can bring about seismic changes in social and economic thinking. Despite the socio-economic progress that the EU has achieved in the last five decades, there are still many areas of policy failures that are perpetuating social injustices.
Only strong political leadership can address these injustices. Sadly, we lack such direction.