Social Europe

politics, economy and employment & labour

  • Themes
    • Strategic autonomy
    • War in Ukraine
    • European digital sphere
    • Recovery and resilience
  • Publications
    • Books
    • Dossiers
    • Occasional Papers
    • Research Essays
    • Brexit Paper Series
  • Podcast
  • Videos
  • Newsletter

Europe’s Curse Of Wealth

Branko Milanovic 6th June 2018

Branko Milanovic

Branko Milanovic

I have already written before (in a tweet) that no one who travels through Western Europe, especially in Summer, can fail to be impressed by the wealth and beauty of the continent as well as by its quality of life. The latter is less obvious in the United States (despite its higher per capita income) in part because of the greater size of the country and lower population density: America thus does not present to the traveller the spectacle of an impeccably maintained countryside dotted with numerous castles, museums, excellent restaurants with Wi-Fi, that one sees in France, Italy or Spain.

I think one can reasonably argue that no people in the history of the world have lived so well as west Europeans today—and Italians in particular. Yet, as everybody knows, there is a deep malaise and dissatisfaction across the continent, not least in Italy: unhappiness with how European politics work, with immigration, with the prospects of the younger generation, precariousness of jobs, inability to compete with a cheaper labour force from Asia or to catch up with American IT giants and US start-up culture. But I will not write about this today. Instead I would like to focus on two “curses of wealth” which paradoxically European prosperity lays bare.

The first curse of wealth has to do with migration. The fact that the European Union is so prosperous and peaceful, compared both to its eastern neighbours (Ukraine, Moldova, the Balkans, Turkey) and, more importantly, to the Middle East and Africa means that it is an excellent emigration destination. Not only is the income gap between the “core” Europe of the former EU-15 and the Middle East and Africa huge, it has grown in size. Today, west European GDP per capita is just shy of $40,000; sub-Saharan Africa’s GDP per capita is $3,500 (or a gap of about 11 to 1). In 1970, western Europe’s GDP per capita was $18,000, sub-Saharan Africa’s $2,600 (a gap of 7 to 1). Since people in Africa can multiply their incomes tenfold by migrating to Europe, it is hardly surprising that, despite all the obstacles that Europe has recently begun placing in the way of migrants, they keep on coming. (Would, say, a Dutch citizen be indifferent to making 50,000 euro annually in the Netherlands compared to half-a-million in New Zealand?)

Inexorable movement

Given the size of the income gap, migration pressure will continue unabated or amplify for at least fifty or more years—even if Africa in this century begins to catch up with Europe (that is, to grow at rates higher than those of the EU). Nor is that pressure, in terms of the number of people who are banging on Europe’s doors, static. Since Africa is the continent with the highest expected population growth rate, the numbers of potential migrants will rise exponentially. While the population ratio between today’s sub-Saharan Africa and the EU is 1 billion vs. 500 million, in some 30 years, it will be more like 2.2bn to 500m.

But migration, as everybody knows, creates unsustainable political pressures on European countries. The entire political system is in a state of shock—as Italy’s cries of having been left to fend for itself by its European partners in dealing with migration, or Austria’s and Hungary’s decisions to erect border walls, illustrate. There is hardly a country in Europe whose political system has not been shaken by the question of migration: right-wing shifts in Sweden, the Netherlands, and Denmark; accession to parliament of AfD in Germany, the renewed appeal of Golden Dawn in Greece.


Our job is keeping you informed!


Subscribe to our free newsletter and stay up to date with the latest Social Europe content. We will never send you spam and you can unsubscribe anytime.

Sign up here

Other than migration, the second issue fuelling European political malaise is rising income and wealth inequality. European inequality is, in part, a “curse of wealth” too. The wealth of the countries whose annual income increases over several decades does not rise only in proportion to income but by even more. This is simply due to savings and the accumulation of wealth. Switzerland is not only richer than India in terms of annual production of goods and services (the ratio between the two countries’ GDP per capita at market exchange rates is about 50 to 1) but Switzerland is even “richer” in terms of wealth per adult (the ratio is almost 100 to 1).

download

The implication of the rising wealth/income ratio as countries grow more prosperous is that the amount of income from capital tends to increase faster than GDP. When wealth is heavily concentrated, as is the case in all rich countries, the rising capital share in total output almost automatically leads to an increase in inter-personal income inequality. To put it in simple terms: what is happening is that the income source that is very unequally distributed (profits, interest, dividends) is increasing faster than the source that is less unequally distributed (wages). Thus, if the very process of growth tends to produce higher inequality, it is clear that stronger measures to combat its rise are needed. But in Europe, as in the United States, there is lack of political will (and perhaps it is difficult to summon it in the era of globalization when capital is fully mobile) to increase taxes on high earners, to reintroduce in many countries inheritance tax, or to enact policies in favour of small, rather than big, investors. There is thus a policy paralysis in the face of political upheaval.

When one puts these two longer-term trends together – continued migratory pressure and a quasi-automatically rising inequality – or the two problems that today poison European political atmosphere, and one contrasts this with the difficulty of moving decisively towards solving either of them, it is not surprising that one might expect political convulsions to continue. They will not be done and dusted in a couple of years. Nor does it make sense to accuse “populists” of irresponsibility or to believe that people’s preferences have been distorted by “fake news”. The problems are real. They require real solutions.

This post originally appeared on the author’s blog.

Pics3
Branko Milanovic

Branko Milanovic is a Serbian-American economist. A development and inequality specialist, he is visiting presidential professor at the Graduate Center of City University of New York and an affiliated senior scholar at the Luxembourg Income Study. He was formerly lead economist in the World Bank's research department.

You are here: Home / Economy / Europe’s Curse Of Wealth

Most Popular Posts

Visentini,ITUC,Qatar,Fight Impunity,50,000 Visentini, ‘Fight Impunity’, the ITUC and QatarFrank Hoffer
Russian soldiers' mothers,war,Ukraine The Ukraine war and Russian soldiers’ mothersJennifer Mathers and Natasha Danilova
IGU,documents,International Gas Union,lobby,lobbying,sustainable finance taxonomy,green gas,EU,COP ‘Gaslighting’ Europe on fossil fuelsFaye Holder
Schengen,Fortress Europe,Romania,Bulgaria Romania and Bulgaria stuck in EU’s second tierMagdalena Ulceluse
income inequality,inequality,Gini,1 per cent,elephant chart,elephant Global income inequality: time to revise the elephantBranko Milanovic

Most Recent Posts

Pakistan,flooding,floods Flooded Pakistan, symbol of climate injusticeZareen Zahid Qureshi
reality check,EU foreign policy,Russia Russia’s invasion of Ukraine: a reality check for the EUHeidi Mauer, Richard Whitman and Nicholas Wright
permanent EU investment fund,Recovery and Resilience Facility,public investment,RRF Towards a permanent EU investment fundPhilipp Heimberger and Andreas Lichtenberger
sustainability,SDGs,Finland Embedding sustainability in a government programmeJohanna Juselius
social dialogue,social partners Social dialogue must be at the heart of Europe’s futureClaes-Mikael Ståhl

Other Social Europe Publications

front cover scaled Towards a social-democratic century?
Cover e1655225066994 National recovery and resilience plans
Untitled design The transatlantic relationship
Women Corona e1631700896969 500 Women and the coronavirus crisis
sere12 1 RE No. 12: Why No Economic Democracy in Sweden?

Foundation for European Progressive Studies Advertisement

The winter issue of the Progressive Post magazine from FEPS is out!

The sequence of recent catastrophes has thrust new words into our vocabulary—'polycrisis', for example, even 'permacrisis'. These challenges have multiple origins, reinforce each other and cannot be tackled individually. But could they also be opportunities for the EU?

This issue offers compelling analyses on the European health union, multilateralism and international co-operation, the state of the union, political alternatives to the narrative imposed by the right and much more!


DOWNLOAD HERE

Hans Böckler Stiftung Advertisement

The macroeconomic effects of re-applying the EU fiscal rules

Against the background of the European Commission's reform plans for the Stability and Growth Pact (SGP), this policy brief uses the macroeconometric multi-country model NiGEM to simulate the macroeconomic implications of the most relevant reform options from 2024 onwards. Next to a return to the existing and unreformed rules, the most prominent options include an expenditure rule linked to a debt anchor.

Our results for the euro area and its four biggest economies—France, Italy, Germany and Spain—indicate that returning to the rules of the SGP would lead to severe cuts in public spending, particularly if the SGP rules were interpreted as in the past. A more flexible interpretation would only somewhat ease the fiscal-adjustment burden. An expenditure rule along the lines of the European Fiscal Board would, however, not necessarily alleviate that burden in and of itself.

Our simulations show great care must be taken to specify the expenditure rule, such that fiscal consolidation is achieved in a growth-friendly way. Raising the debt ceiling to 90 per cent of gross domestic product and applying less demanding fiscal adjustments, as proposed by the IMK, would go a long way.


DOWNLOAD HERE

ILO advertisement

Global Wage Report 2022-23: The impact of inflation and COVID-19 on wages and purchasing power

The International Labour Organization's Global Wage Report is a key reference on wages and wage inequality for the academic community and policy-makers around the world.

This eighth edition of the report, The Impact of inflation and COVID-19 on wages and purchasing power, examines the evolution of real wages, giving a unique picture of wage trends globally and by region. The report includes evidence on how wages have evolved through the COVID-19 crisis as well as how the current inflationary context is biting into real wage growth in most regions of the world. The report shows that for the first time in the 21st century real wage growth has fallen to negative values while, at the same time, the gap between real productivity growth and real wage growth continues to widen.

The report analysis the evolution of the real total wage bill from 2019 to 2022 to show how its different components—employment, nominal wages and inflation—have changed during the COVID-19 crisis and, more recently, during the cost-of-living crisis. The decomposition of the total wage bill, and its evolution, is shown for all wage employees and distinguishes between women and men. The report also looks at changes in wage inequality and the gender pay gap to reveal how COVID-19 may have contributed to increasing income inequality in different regions of the world. Together, the empirical evidence in the report becomes the backbone of a policy discussion that could play a key role in a human-centred recovery from the different ongoing crises.


DOWNLOAD HERE

ETUI advertisement

The EU recovery strategy: a blueprint for a more Social Europe or a house of cards?

This new ETUI paper explores the European Union recovery strategy, with a focus on its potentially transformative aspects vis-à-vis European integration and its implications for the social dimension of the EU’s socio-economic governance. In particular, it reflects on whether the agreed measures provide sufficient safeguards against the spectre of austerity and whether these constitute steps away from treating social and labour policies as mere ‘variables’ of economic growth.


DOWNLOAD HERE

Eurofound advertisement

Eurofound webinar: Making telework work for everyone

Since 2020 more European workers and managers have enjoyed greater flexibility and autonomy in work and are reporting their preference for hybrid working. Also driven by technological developments and structural changes in employment, organisations are now integrating telework more permanently into their workplace.

To reflect on these shifts, on 6 December Eurofound researchers Oscar Vargas and John Hurley explored the challenges and opportunities of the surge in telework, as well as the overall growth of telework and teleworkable jobs in the EU and what this means for workers, managers, companies and policymakers.


WATCH THE WEBINAR HERE

About Social Europe

Our Mission

Article Submission

Membership

Advertisements

Legal Disclosure

Privacy Policy

Copyright

Social Europe ISSN 2628-7641

Social Europe Archives

Search Social Europe

Themes Archive

Politics Archive

Economy Archive

Society Archive

Ecology Archive

Follow us

RSS Feed

Follow us on Facebook

Follow us on Twitter

Follow us on LinkedIn

Follow us on YouTube