Some boats sink faster in the storm

| Boyan Zahariev,

Human Development Report 2009. Overcoming Barriers: Human Mobility and Development, p. 196-197.

 

Times of fast economic growth create the illusion of never-ending welfare. Even those who have no skills find work, sometimes even well paid. But most importantly, no one sees the obvious – that this can’t continue forever, that the trap of poverty will always lurk behind the low education and the lack of skills.

The data from a recent study of the effects from the crisis on the Bulgarian households in 2009 and early 2010 confirmed the expectations that the crisis, as well as the economic growth, doesn’t make “social policy”. The well-known metaphor of market optimists that “a rising tide lifts all boats” (even more the light boats of the poor than the heavy yachts) is beautiful but untrue in the real world of market relations. It turned out that the economic storms have no mercy for the most vulnerable of the economic rises. The Roma are among the first victims on the labour market, among those who have lost most income and have impoverished the most over the period after 2007 (the latest reliable data on their welfare date back to that time).

Unfortunately, even before the crisis hit, in a fit of unjustified optimism, not to say shortsightedness, the Bulgarian state demonstrated serious elements of the social safety nets as well as other mechanisms that guaranteed at least partially equal access to pubic services. The state created probably the most regressive tax system in the EU. In this context, the latest data on poverty in Bulgaria are not surprising. They are very much consistent with the Eurostat data which indicate that the turn into poverty has began before the crisis.

What did the economic crisis bring to the Roma in Bulgaria?

  Data from the World Bank and the Open Society Institute – Sofia show that poverty among the Roma has reached 55%, or approximately three times above the poverty rate for the country. It should be noted that the great increase in relative poverty has probably occurred before the crisis. It is possible that the crisis hasn’t contributed to this or that its contribution was insignificant. Eurostat published very somber data on poverty in Bulgaria in 2008, which differ significantly from the data provided by national statistics. According to these data, the risk of poverty after social transfers in Bulgaria has increased significantly between 2005 and 2008 and from a country with moderate and even low risk of poverty, Bulgaria has reached the third place in this unprestigious ranking.

Risk of poverty after social transfers (%)

It should be noted that the European indicators measure the relative poverty, which makes them very sensitive to increases in inequality. The other main indicator for social cohesion illustrates well the strong division of the Bulgarian society over the last years.

The chart shows the ratio between the aggregate income of the uppermost income quintile (the 20% with the highest income) to the lowermost (the 20% with the lowest income) for 2005 and 2008, by country. The left side of the graph shows the unprecedented leap that has brought Bulgaria to the third place.

The effects of the crisis on the Roma

Since some of the indicators that I am going to quote below are at household level, I’d like to remind that the larger households with five or more members are more typical of the Roma, while the share of the most common two-person or three-person households is by some 18% lower.

This means that one affected Roma household generally means a larger number of affected persons, and the same volume of resources per household actually means fewer resources for the Roma. Having made this clarification, I’d like to move to the analysis of the main indicators in the study conducted by the World Bank and the Open Society Institute – Sofia. In early 2010, those with labour income were 64% of the whole population; the average income of the households with such income was BGN 970 per household. The average income of all households from all sources was BGN 932. 44% of the Roma households have some sort of labour income. The average labour income in the households in which there is at least one employed member, was BGN 541, much lower than the country average. The households that get some income from social benefits account for 25% of the population as a whole, and receive on the average BGN 106 per household. It should be noted that the access to social programs is based on the current legislation; it’s not a Roma privilege as it is sometimes being interpreted even in statements of high ranking officials, but a reflection of the fact that both the scope and the depth of poverty among the Roma are greater. 58% of the households in the country receive pension income; the average pension income is BGN 345 per household. 48% of the Roma households receive pension income; the average income per household is BGN 296. The difference in the average income per capita in a household, which is a more precise measure of welfare, is of course even greater, due to the larger size of Roma households. 18% of the households receive transfers. If we ignore the transfers below BGN 20, the remainder is 15%. The average transfer per household is BGN 125. 22% of the Roma households receive transfers. The average transfer per household is BGN 91. I’d like to underline that the transfers should not be regarded as a substitute to the social system. They don’t target poverty reduction and as a whole reproduce the existing social distances: wealthier households get more generous transfers while the poorest often have no access to such assistance even if they seek it. In 17.6% of the Roma households someone has lost their job between March 2009 and February 2010. An average of 11.4% of the households have lost a job over the same period. Why does it happen that the probability for a Roma to lose his job is much greater than among the Bulgarians? 13% of the population and 30% of the Roma say that a member of their household who hasn’t worked before has tried to find a job but couldn’t or couldn’t find one with the working hours that he wanted. The greatest number of households state that they have a member who has lost his/her job between July and December 2009; among the Roma, this number is three times greater than in the first half of the year. It is also noted that in 3.4% of the Roma households someone has lost a pension or social assistance during the peak of the crisis. Less than 1% of the Bulgarian households indicate such occurrences. It turns out that as a whole the Roma lose their jobs more easily during the crisis and have greater difficulties in finding additional employment. This may probably be partially explained by their lower education and skills. Another part of the explanation could be in the direct and indirect discrimination at the workplace and when looking for a job. The problem with the unpaid utility bills, which focused the public attention for years and poured gas on the fire of prejudice, was somewhat forgotten over the past several years, despite the fact that a significant number of insolvent households remained in the main Roma ghettoes and difficulties in paying their electricity bills. Not paying for the water bills was a widely used practice, too. But the expansion of this problem was put under control and in some places, such as the Stolipinovo neighborhood in Plovdiv, the responsible behavior of the utility supplier and the efforts of non-governmental organizations resulted in some progress. The only utility service that the Roma have no problem paying for is central heating, as very few Roma use this service. On the other hand, more than 4% of the population as a whole have a problem paying their heating bills, with the percentage even higher among ethnic Bulgarians – 5.6%. This is an illustration that the unpaid utility bills are not a Roma problem. 24% of the Roma are not paying their electricity bills, while 29% state that they are not paying their water bills. The crisis brings back the problems with the unpaid electricity bills. The data indicate that by March 2009 the share of Roma households with long-term obligations on electricity bills was 4%, a very low percentage given the severe socio-economic conditions in the Roma ghettoes. In the last quarter of 2009 the problem came back in full force. In less than half a year, by early March 2010, another 18% of the Roma households had accumulated obligations on their electricity bills. What is more interesting, though, is that the Bulgarian households are also having problems with their electricity bills. By February 2010 the Bulgarian households with unpaid electricity bills were 3.6%, which means that in absolute terms they were three times more than the Roma households with unpaid bills. Even among those who have stopped paying over the last quarter of 2009, the Bulgarian households are 1.5 times more than Roma ones. Under severe economic pressure, the most vulnerable part of the Bulgarian society reacts in the same way as the huge mass of poor Roma: by limiting its consumption costs by depriving itself of basic services pertaining to the quality of life.

 

 

 

A similar thing is happening with regard to the water bills, although in this case the number of households with obligations before the crisis is significant.


As a final aspect of the analysis, a quick look into the aggregate income and the income inequalities among the Bulgarian population as a whole and the Roma communities, turns to be very revealing. The Lorenz Curve on the graph below, which is related to the so-called Gini Coefficient (we’ll talk about it in a little while), illustrates the inequality in income distribution. The curve shows that the poorest 10% of the population get 1.7% f the aggregate income, while the poorest 20% get 6% of the aggregate income.

Among the Roma, the poorest 20% get approximately 3% of the aggregate income (of the Roma). The richest 20% of the Roma households get almost 50% of the aggregate income.

Among the Roma, the poorest 20% get approximately 3% of the aggregate income (of the Roma). The richest 20% of the Roma households get almost 50% of the aggregate income.

The conclusion is that there may be even greater inequality in poverty. If we take the above-mentioned Eurostat indicator on the ratio of the income of the richest 20% to the income of the poorest 20%, we’ll see that among the Roma this ratio was almost 17:1 in early 2010.[1] In the EU, the greatest registered inequalities on this indicator are a little over 7.5:1. Bulgaria is already in the third place with 6.5:1 for 2008. The World Bank and OSI-Sofia data for the beginning of 2010 provide a ratio of 7.2:1. This allows the assumption that when the official Eurostat data for 2009 are published Bulgaria might be the second country in the EU with the largest income inequality, preceded only by Latvia. This indicator is not measured outside the EU and the candidate countries but it’s obvious that upper to lower income quintile ratios over 15:1 need to be sought in a very different context than that in the EU. In 2002 Turkey’s result was 10.8, which subsequently went down to 9.9. Such contrast is understandable given the development gap rooted in the past that separates the European and the Asian part of the country. At a recent conference in Tirana on this occasion, a researcher from the Sabancı University said that Turkey is the Czech Republic and Cambodia united, meaning Istanbul and the areas populated by Kurds. It turns out that the reforms by market fundamentalists can model similar contrasts in just a few years and in the much smaller territory of countries like Bulgaria, which are now EU member states.

With regard to contrasts, I’ve heard people say that the excessively large and luxurious houses, the satellite dishes and some other features of contrast in the Roma ghettoes are an indication that the situation of the Roma is not that dire. This is a very inappropriate argument that wouldn’t merit attention if it hadn’t become a part of the “folklore” disseminated by the totally socially insensitive Bulgarian governments of the first decade of the 21st century. The same folklore contains also the “classical” image of the rich swindler who lines up for free soup or cheats the social welfare system. This image is among the main arms of the opponents of the social state since it was first created in the second half of the 19th century and until the Great Depression. An image meant to suggest that there should be as little social policy as possible because those who need it are either lazy or cheats. In the modern Bulgarian context this persistent archetypal character assumed the image of a Roma with golden chains who has parked his Mercedes in front of the social assistance office and went to get his benefits. In fact, World Bank studies indicate that the Bulgarian social assistance system is very well targeted, that is, the number of people who get support without meeting the criteria is minimal. Some percentage of errors in the inclusion is inevitable, as no administrative system is perfect. But unless the goal is to justify the lack of social policy, placing such cases in the focus of the attention in a single topic for public discussion, is absolutely meaningless. Especially if nothing is said about those who meet the criteria but for some reason don’t get benefits, i.e. about the mistakes of exclusion which data indicate are much more common. Also, we need to pay attention to the very criteria that are designed in such a way as to not allow some of the poor households access to the social assistance system.

In fact, to summarize the topic of inequality, the luxurious houses in the surrounding drabness and the satellite dishes overlooking uncollected trash and flowing waste water are the “logo” of ghettoes all over the world. The great contrasts in Bulgaria are the registered trademark of failed development, which the newly industrializing countries which have inherited great poverty from the past, are trying to avoid.

The countries with the highest Gini Coefficient [2], i.e. the countries with the greatest inequality in the world, are among the least economically developed and are located mainly in Africa, Latin America and Asia. In the 2009 Human Development Report Bulgaria still has the relatively low Gini Coefficient of 29.2 by 2007 data [3]. I’m sure though that in the next report the situation will change radically due to the changes in income distribution discussed above [4].

Everything described above happens on the background of the very sad macroeconomic picture in Bulgaria drawn (in tandem with) by the external pressure of the global economic crisis and the failed strategy of the Bulgarian economic development. The flow of external funds on which Bulgaria was over dependent has dried up and won’t be restored anytime soon. Contrary to the expectations, the crisis is just an assistant that helped manifest the deficiencies of economic growth in Bulgaria over the past years. Instead of summarizing, I’ll just note the main deficiencies which are directly related to the poverty increase in the country and to the compromising of the long-term prosperity opportunities, which of course means that the opportunity for the integration of vulnerable ethnic minorities and of all vulnerable groups as a whole, has been wasted.

1. The Bulgarian economic development project was based on the idea for a compromise between effectiveness and limiting inequality. The argument was that in order for the economy to be effective, we need low taxes for the rich, limited state expenditures, budget surpluses, narrower social programs and limited expenditures for almost all basic public functions.

2. As a result it turned out that economic growth was not based on fundamental economic factors, such as increased labour productivity and technological re-tooling, but on mostly speculative capital that Bulgaria managed to attract.

3. The real estate bubble was going to burst even without external pressure. The low technology and as a whole not very competitive economy sent wrong signals to the people with the lowest skills that one could make a good salary almost throughout his whole life without focusing on education.

4. One of the most unjust taxation systems in the EU, based on a flat income tax and depending on indirect taxes that have additional regressive effect, was gradually adopted in Bulgaria.

5. The duration of the last social safety net was limited 18, then to 12 months, with the well-known argument that such is the European practice. This policy was reproached even by the Council of Europe as incompatible with the social models in Europe. To think that the dividing line passed between economic and rights protection thinking would be wrong. The whole concept was as stupid from an economic point of view as it was unacceptable from a legal and moral standpoint.

6. The programs for massive investments in the improvement of the quality of life in Roma villages and neighborhood were practically terminated.

7. The reforms aimed at optimizing the school network were effected with too much haste, binging the almost solved problem of school drop-out back on the agenda.

8. Even before the crisis, between 2005 and 2008 the Bulgarian society went through a great transformation in the direction of increased inequality and poverty. This happened in a time of accelerated economic growth that should have brought prosperity but obviously not for everyone. Somehow we managed to focus our efforts on economic growth (in our case, the word “development” would be inappropriate) which doesn’t help the social inclusion of vulnerable groups and at the same time doesn’t bring the expected dividends in the form of a high tech economy and catching up in productivity growth.

9. The crisis hit Bulgaria as the EU country with the fastest growing poverty and inequality. In this ranking, Bulgaria is competing with Latvia and Romania but the overall increase of the two main Eurostat indicators – the risk of poverty after social transfers and the ratio of the 20% with the highest income to the 20% with the lowest income – is the highest in Bulgaria for 2005-2008.

10. The crisis strengthened one of the basic deficiencies of our economy, its technological and infrastructural lag. As a result, even during the boom period, it was unable to fully use the existing human resources and created the mass effect of overqualified jobs. When during the crisis unemployment started to rise, this led to pushing out the least qualified. In my opinion, this is the main explanation for the massive job loss among the Roma in the second half of 2009.

11. The large economic which implemented massive reconstruction packages are already seeking fiscal consolidation after the accumulation of large deficits. Bulgaria is currently attempting consolidation without any stimulus package. The reason is that the economy shrank radically and the budget was hit by an unprecedented crisis. The fact that even after the correction for the neglected national accounting we still have one of the lowest deficits in the EU should not mislead us. The relatively low budget deficit is due to the massive shrinking of budget expenditures.

 

IMF forecasts a slow recovery for Bulgaria, with economic growth around 0.2% this year and 2% next year [5]. Since Bulgaria did not effect and obviously won’t effect anti-crisis measures (apart from the budget protection measures which are pro-cyclical and reinforce the crisis), we can expect further deepening of the inequalities, including of the differences between the majority and the ethnic minorities. Even if the Decade of Roma Inclusion were to begin now, the outlook for a change in Bulgaria by 2020 would not have been good, unless we were to expect a radical change in our development trajectory.

 

 


 

 

[1] Own calculations based on the World Bank and the Open Society Institute – Sofia data.[back]

[2] The Gini Coefficient ranges from 0 to 1 (or from 0 to 100), where 0 means total equality, i.e. when wealth or income (or another measure of welfare) is distributed absolutely equally, while 1 is the greatest degree of inequality. The Gini Coefficient would be 1 (100) only when the whole income in a given economy is received by one person. Of course, such a case does not exist in reality. According to the 2009 Human Development Report, the country with the highest Gini Coefficient is Namibia - 74.3 or a degree of inequality that means huge wealth for a handful of people and huge poverty for all the rest. In comparison, the Gini Coefficient in some countries in northern Europe (currently the most egalitarian part of the planet) is around 25. [back]

[3] Human Development Report 2009. Overcoming Barriers: Human Mobility and Development, p. 196-197. [back]

[4] Eurostat measures a Gini Coefficient of 36 for Bulgaria in 2008, putting the country at one of the first places in the EU by this indicator, and out of the group of countries with low income inequality in the UN’s world ranking. [back]

[5] IMF. (2010). World Economic Outlook: April 2010. Rebalancing Growth. Washington, D.C., p. 55. [back]