Sunday, July 25, 2010

Rising inequality in a declining country

Italy is no doubt a rich country. It is probably among the richest economies in the world, mostly concentrated in North America and the core Europe. But Italy is a country where exists a large part of the population living in poverty conditions, not only in the southern part as well as intolerable disparities in individual incomes and wealth.

The main feature is that there is no social mobility between the rich, upper classes and the poor, low income groups. The wealth produced by the economy is not redistributed, flows in the system and feeds the perverse logic of making the richest even richer. Over the last decade, the Gini coefficient - a measure of income inequality- rose from 0.29 in 1990 to 0.35 in 2005, following the rising trend in OECD countries. According to ISTAT, the national statistical office, relative poverty rose to 10,9% of the population in 2009 and absolute poverty to 4.7%; the respective figures for the Mezzogiorno- where more than two thirds of the poor live- are 22,7% and 7,7%. Furthermore, it notes a worsening of economic conditions among the blue collars and the elderly.

Fig.1: Growth of GDP in Italy 2000-2011

The main difference with other rich nations is that Italy has performed poorly over the last two decades (see Fig.1). Growth has remained sluggish from 2001 until now, with a dramatic drop in GDP in 2009 due to the global crisis. Yet, low growth does not allow any durable narrowing of income gaps, also given the magnitude of public debt.

Policies inspired by values of social justice should be pursued in order to dismantle the perverse logic of enriching the rich and to restore a virtuous circle in the distribution of income. The thrust is to act quickly through tax reforms which should benefit primarily the low and middle classes. But, it requires, above all, an effective partnership between the government and social parties as it was the case in 1993 under the Ciampi government.

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