The age of vul­ner­a­bil­ity

Financial Mirror (Cyprus) - - FRONT PAGE -

Two new stud­ies show, once again, the mag­ni­tude of the in­equal­ity prob­lem plagu­ing the United States. The first, the US Cen­sus Bureau’s an­nual in­come and poverty re­port, shows that, de­spite the econ­omy’s sup­posed re­cov­ery from the Great Re­ces­sion, or­di­nary Americans’ in­comes con­tinue to stag­nate. Me­dian house­hold in­come, ad­justed for in­fla­tion, re­mains be­low its level a quar­ter­century ago.

It used to be thought that Amer­ica’s great­est strength was not its mil­i­tary power, but an eco­nomic sys­tem that was the envy of the world. But why would oth­ers seek to em­u­late an eco­nomic model by which a large pro­por­tion – even a majority – of the pop­u­la­tion has seen their in­come stag­nate while in­comes at the top have soared?

A sec­ond study, the United Na­tions De­vel­op­ment Pro­gram’s Hu­man De­vel­op­ment Re­port 2014, cor­rob­o­rates th­ese find­ings. Ev­ery year, the UNDP pub­lishes a rank­ing of coun­tries by their Hu­man De­vel­op­ment In­dex (HDI), which in­cor­po­rates other di­men­sions of well­be­ing be­sides in­come, in­clud­ing health and ed­u­ca­tion.

Amer­ica ranks fifth ac­cord­ing to HDI, be­low Norway, Aus­tralia, Switzer­land, and the Nether­lands. But when its score is ad­justed for in­equal­ity, it drops 23 spots – among the largest such de­clines for any highly de­vel­oped coun­try. In­deed, the US falls be­low Greece and Slo­vakia, coun­tries that peo­ple do not typ­i­cally re­gard as role mod­els or as com­peti­tors with the US at the top of the league ta­bles.

The UNDP re­port em­pha­sises another as­pect of so­ci­etal per­for­mance: vul­ner­a­bil­ity. It points out that while many coun­tries suc­ceeded in mov­ing peo­ple out of poverty, the lives of many are still pre­car­i­ous. A small event – say, an ill­ness in the fam­ily – can push them back into des­ti­tu­tion. Down­ward mo­bil­ity is a real threat, while up­ward mo­bil­ity is limited.

In the US, up­ward mo­bil­ity is more myth than re­al­ity, whereas down­ward mo­bil­ity and vul­ner­a­bil­ity is a widely shared ex­pe­ri­ence. This is partly be­cause of Amer­ica’s health-care sys­tem, which still leaves poor Americans in a pre­car­i­ous po­si­tion, de­spite Pres­i­dent Barack Obama’s re­forms.

Those at the bot­tom are only a short step away from bank­ruptcy with all that that en­tails. Ill­ness, di­vorce, or the loss of a job of­ten is enough to push them over the brink.

The 2010 Pa­tient Pro­tec­tion and Af­ford­able Care Act (or “Oba­macare”) was in­tended to ame­lio­rate th­ese threats – and there are strong in­di­ca­tions that it is on its way to sig­nif­i­cantly re­duc­ing the num­ber of unin­sured Americans. But, partly owing to a Supreme Court decision and the ob­du­racy of Repub­li­can gover­nors and legislators, who in two dozen US states have re­fused to ex­pand Med­i­caid (in­surance for the poor) – even though the fed­eral gov­ern­ment pays almost the en­tire tab – 41 mln Americans re­main unin­sured. When eco­nomic in­equal­ity trans­lates into po­lit­i­cal in­equal­ity – as it has in large parts of the US – gov­ern­ments pay lit­tle at­ten­tion to the needs of those at the bot­tom.

Nei­ther GDP nor HDI re­flects changes over time or dif­fer­ences across coun­tries in vul­ner­a­bil­ity. But in Amer­ica and else­where, there has been a marked de­crease in se­cu­rity. Those with jobs worry whether they will be able to keep them; those with­out jobs worry whether they will get one.

The re­cent eco­nomic down­turn evis­cer­ated the wealth of many. In the US, even after the stock-mar­ket re­cov­ery, me­dian wealth fell more than 40% from 2007 to 2013. That means that many of the el­derly and those ap­proach­ing re­tire­ment worry about their stan­dards of liv­ing. Mil­lions of Americans have lost their homes; mil­lions more face the in­se­cu­rity of know­ing that they may lose theirs in the fu­ture.

Th­ese in­se­cu­ri­ties are in ad­di­tion to those that have long con­fronted Americans. In the coun­try’s in­ner ci­ties, mil­lions of young His­pan­ics and African-Americans face the in­se­cu­rity of a dys­func­tional and un­fair po­lice and ju­di­cial sys­tem; cross­ing the path of a po­lice­man who has had a bad night may lead to an un­war­ranted prison sen­tence – or worse.

Europe has tra­di­tion­ally un­der­stood the im­por­tance of ad­dress­ing vul­ner­a­bil­ity by pro­vid­ing a sys­tem of so­cial pro­tec­tion. Euro­peans have recog­nised that good sys­tems of so­cial pro­tec­tion can even lead to im­proved over­all eco­nomic per­for­mance, as in­di­vid­u­als are more will­ing to take the risks that lead to higher eco­nomic growth.

But in many parts of Europe to­day, high un­em­ploy­ment (12% on av­er­age, 25% in the worst-af­fected coun­tries), com­bined with aus­ter­ity-in­duced cut­backs in so­cial pro­tec­tion, has re­sulted in un­prece­dented in­creases in vul­ner­a­bil­ity. The im­pli­ca­tion is that the de­crease in so­ci­etal well­be­ing may be far larger than that in­di­cated by con­ven­tional GDP mea­sures – num­bers that al­ready are bleak enough, with most coun­tries show­ing that real (in­fla­tion-ad­justed) per capita in­come is lower to­day than be­fore the cri­sis – a lost half-decade.

The re­port by the In­ter­na­tional Com­mis­sion on the Mea­sure­ment of Eco­nomic Per­for­mance and So­cial Progress (which I chaired) em­pha­sised that GDP is not a good mea­sure of how well an econ­omy is per­form­ing. The US Cen­sus and UNDP re­ports re­mind us of the im­por­tance of this in­sight. Too much has al­ready been sac­ri­ficed on the al­tar of GDP fetishism.

Re­gard­less of how fast GDP grows, an eco­nomic sys­tem that fails to de­liver gains for most of its cit­i­zens, and in which a ris­ing share of the pop­u­la­tion faces in­creas­ing in­se­cu­rity, is, in a fun­da­men­tal sense, a failed eco­nomic sys­tem. And poli­cies, like aus­ter­ity, that in­crease in­se­cu­rity and lead to lower in­comes and stan­dards of liv­ing for large proportions of the pop­u­la­tion are, in a fun­da­men­tal sense, flawed poli­cies.

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