Issue link: https://maltatoday.uberflip.com/i/260953
maltatoday, SUNDAY, 16 FEBRUARY 2014 Claudine Cassar Opinion 23 Opinion S ince the crash of the markets in 2008, which brought to an abrupt end a long stint of growth and prosperity, there has been renewed interest in the eradication of poverty in the developed world. Everybody knew that rich western countries had their fair share of poor people. Inequality was deemed a fact of life, and even seen as necessary for a capitalist economy to work and flourish. The communist countries' forced equality was seen as a dismal failure which resulted in America and its capitalist allies "winning" the cold war. This "victory" led many countries (including communist and ex-communist ones) to liberalise markets and reduce barrier to trade. However, after years of growth and prosperity everything came crashing down, repeating the history of the Great Depression. What was shocking now, as it was 80 years ago, is that the poor bore the brunt of the crash and not the people who had made unscrupulous decisions. Talk of millions in bonuses and severance packages to bankers who had clearly harmed the economy enraged everyone. Suddenly the shift from left to right of the political spectrum started to reverse, and socialists in the developed countries started coming out of hibernation. Recently I watched a very well-made documentary called "Inequality for All", where ex- Secretary of Labour Professor Robert Reich elegantly described the relationship between economic prosperity in America and inequality. Basically, as the gap between rich and poor widened the economy faltered and vice versa. He showed that countries have better economic growth when their societies are more equal. This is encouraging given the fact that Malta is ranked amongst the countries which have less income inequality than the likes of the USA which has a very bad ranking (using the Gini Coefficient which measures the income distribution of a nation). To be totally fair, it is not inequality per se that stagnates growth, but poverty. Basically, if everyone was equally poor one would not expect growth and prosperity. Similarly if there was great income inequality, but the people at the bottom had lots of disposable income, this would not negatively affect growth. It is the workers and the middle class, the people who are spending money, who make the economy work. You can have a coterie of millionaires buying luxury stuff, but they will not go out to eat 10,000 pizzas in the evening or buy 1,000 cinema tickets on the weekend, nor will they buy 500 TVs or laptops. Unfortunately, the recent downturn of the world and European economy has affected the spending power of the masses. The demand for luxury goods has not been as affected, as rich people rarely spend more than a fraction of their income, so any decrease in income usually only affects the amount that they save. Recently the Prime Minister vowed to reduce the number of people at risk of poverty and social exclusion. It is in everyone's interest for the government to be successful in this. Everyone benefited from the growth spurt our economy went through in the 90s and 00s, but unfortunately the last few years have negatively affected mostly the weakest. Just like the PN rode on the tide of economic European growth by following other countries' formulae for success, the PL must now follow up by correcting the mistakes which the same countries made to redress our current situation. Joseph Muscat must walk a very fine line, as in order to promote growth of the economy one has to make Malta a competitive country. One of the primary goals must be to change our welfare system to a "leg- up" system instead of a system of hand-outs with no strings attached. I am sure that this will not be looked at favourably by some Maltese who have been "institutionalised" into welfare dependency. Minister Marie-Louise Coleiro Preca, fellow ministers and Labour MPs surely have to see dozens of constituents every day begging for housing and benefits. Just like Johns Hopkins' and Dalli's advice for politicians to "back off " from interfering in the running of Mater Dei, similarly politicians should not be involved in welfare. No phone calls asking why so-and-so has not been "boarded out", or why family X has not been given a flat yet. Any contact between politicians and government departments must be done transparently in writing. The weakest in society must always be helped, but decisions regarding who needs help must be taken by professionals. Keeping Malta competitive means that Maltese wages should only grow in line with productivity, but on the other hand unless Maltese workers have money to spend then our economy will not grow. One solution is to reduce the cost of living as well as other costs that impact the country's competitiveness. The government has already promised a decrease in utility costs, which will reduce both family and business costs. The reduction in income tax rates proposed by the previous government also had the aim of increasing spending, however I think it would have been more effective had it been more aggressive at lower income bands at the expense of higher earners. The availability of free healthcare and education in our country positively affects spending power, however one might not be able to give a leg up the disadvantaged if spending is not rationed accordingly. At the end of the day there is no easy solution to eradicate poverty. There are no quick fixes and half- baked measures will cause more harm than good. One of the primary goals must be to change our welfare system to a "leg-up" system instead of a system of hand-outs with no strings attached You can have a coterie of millionaires buying luxury stuff, but they will not go out to eat 10,000 pizzas in the evening or buy 1,000 cinema tickets on the weekend CHECK OUT CLAUDINE CASSAR'S LATEST COLUMNS ON http://www.maltatoday.com.mt/en/blogs Poverty and inequality