[Gonbidatua] opinion
2014/07/03 00:40:00 GMT+2
(Guest post by Alexander Boto Bastegieta)

In how many conversations between friends have you heard the following comment: “for the first time in history our children’s generation will live worse than their parents’ ”. In order to shed some light on the issue, we have to analyse the behaviour of one of the essential components of the human development in a society: the income inequality.

There are many different ways to approach the inequality problem. In the United States it is considered highly important to ensure the equality of opportunities, regardless of the distribution of wealth. If, as a result, there are a few wealthy people (the ones that have achieved the American Dream) and many poor people, it’s because the last ones have not made enough effort. On the contrary, Europe has historically valued the redistribution of wealth as a pillar of the Welfare State, but the austerity policies seem to question this principle.

What both of them have in common is the belief that inequality brings important and negative consequences to the system, and that successful measures must be taken. Even the most conservative thinkers admit that income inequality slows economic growth and undermines the real competitivity of a country. Not the competitivity based on the cheap labour, but the one that is forged in knowledge and innovation. Germany’s competitivity level cannot be understood otherwise.

Furthermore, inequality generates weakness in demand, and could be the origin of economic crisis and a possible trigger for a deep social discontent. But by contrast, equal Access to public services is beneficiary and allows the development of entrepeneurial initiatives, whilst Access to equal education opportunities contribute to growth stimulation and competitivity. Take but a short look at the nordic countries, where investment in equality is not an expense but a productive investment.

Let’s take education, a neccesary albeit not sufficient condition for equality, as an example, in order to show the progress made in the Basque Country in the last few years – a situation that many people will feel identified with, I’m sure. How many of our parents, during the eighties and the nineties, made a financial, personal and familiar effort so that their children would have the opportunity they didn’t have to get to university? That effort, coupled with the sound politic decisions made by the Basque government, has paid off. We have gone from an 70% of workers with primary or no education in the early eighties to the current rate level under 6%.

For the past thirty years our per capita income has spectaculary increased, placing the Basque Country with an income level that is similar to advanced countries like Germany, Denmark or France. But, how has the income been divided? Has it been concentrated or equally distributed?

Between 1986 and 2012 the Basque Country has progressively improved income distribution, with a significant reduction of its Gini Index, the main inequality measurement index, going from 28 to 25 (the zero value would indicate a perfect equality). This is only surpassed in Europe by Sweden, which has 24.

Spain, in contrast, has been above the 30 index for the last fifteen years, and this has even increased in the last few years due to the recession. This serious rise in inequality is taking a huge toll on the spanish society and should be one of the long-term strategic goals for the country, in order to consolidate the path to the economic recovery. When you build a house, you start with the foundations. Let us not fool ourselves, the inequality is a result of policies and politics.

A relevant example is the diference between the incomes of the 20% of the wealthiest population and 20% of the poorest one. While in the Basque Country there is a 3.7% difference, in Spain this figure is near 7, one of the worst results in the whole European Union.

These results make clear that the Basque administration has been establishing successful redistribution policies, mainly through the Basque Income Guarantee System, which has a budget of more than €400 million a year, received exclusively by the 20% puplation with the lowest income.

Can we then relax and continue to maintain the current scenario of our tax system? The answer is clearly no. Without going in depth into the debate and controversy caused by the suggestions made by young French economist Piketty in his latest book “The Capital in the 21st Century”, such as the global tax on wealth, the Basque Country enjoys a high equality level, but our fiscal pressure is low compared to other countries close to us.

Our tax income hardly reaches the 32% of GDP. Only Ireland has lower results. The European average is about 40% and several countries exceed 45%, for instance France, Sweden, Belgium and Denmark. Professor Zubiri confirms that the current tax system is unfair and the necessary progressivity could be markedly improved. The renowned economist of the Basque Government Alberto Alberdi advocates tax reform that increases the fiscal pressure of 1.5% of GPD, in order to maintain the public sector the Basque Country needs.

To that end he suggests measures such as the alignment of rates in the corporate tax of the OECD countries, a decrease or the total elimination of the deductions with transfering of incentives for R+D with direct expenditure, an increase of the IRPF, the drastic reduction in deductions from pensions and an increase of the environmental tributation, due to its double dividend.

Let’s go back to the question at the beginning of the article. It is difficult to know if our children will live worse or better than us, but it will largely depend on the inequality policies. As Stiglitz says, in the United States, if you are poor and you live in a poor area, chances are that you won’t have the education that is necesary to ascend in the economic ladder. It doesn’t mean that you haven’t made enough effort.

The person writing this wouldn’t probably have had access to a university in the United Kingdom without the financial aid of the Basque Government. Without their help, my nephew, born with a language disability, wouldn’t have received the support he needs at his educational centre. The public policies aimed to reduce the economic inequalities are a differential factor which is anchored in the values of our small yet great country.

In the light of this thoughts, I would like to make a final contribution on the Basque Country Brand. We promote our entrepeneurial know-how, our culture and our language, the roots of the social economy, the transformations made in our production model and our advances in innovation, but we never stress enough our equal society model. And this sustainable human development model is precisely the fundamental reason why the Basque case receives a great amount of interest at an international level. The people, their capacities and their life projects must always go first: nobody must be left behind.