Murat Şenol: As the state withdraws from the economy, income distribution deteriorates

Since the 1980s, the efficiency of the market economy has been increased by reducing the presence of the state in the economy with neoliberal right-wing policies around the world. Thus, market actors began to act more freely in the economy, accelerating the exploitative order and increasing inequality in the world. While privatizations have taken place rapidly, especially in developing countries like ours, under pressure from international institutions such as the IMF and the World Bank, privatizations have not taken place at the same pace in developed Western countries. Hence, while the share of public expenditure in the economy is around 50% in developed Western countries and almost resembles a mixed economy model, this share is almost 30% in developing countries. and underdeveloped like our country.

According to OECD data at the end of 2020, the shares of public expenditure in the Gross Domestic Product are given in the table below.

Source: data.oecd.org

Due to the fact that the population of developed countries is older than that of developing countries, the lion’s share of government expenditure goes to social security expenditure. As our population ages, the number of retirees and the number of people living on the poverty and hunger line increase, the real value of social spending decreases because the shrinking state in the economy does not create more income opportunities and social support is needed for more people.

Source: oecd.org, social expenditure database (socx)

As a result of neo-liberalization policies around the world, the state’s share in the economy was reduced with privatizations between 1980 and 2020. the influence of trade unions has been greatly diminished and their bargaining power destroyed Consequently, fixed incomes were paid less wages and their incomes were reduced, so most people found it difficult to support themselves for their survival, privatizations accelerated in our country especially in the 2000s , and as income distribution deteriorated, fixed incomes became dependent on consumer loans and credit cards.

When we look at the recent period, while the share of employees in the net product was 43.3% in 2016, this share fell to 36.5% at the end of 2021, with the presidential regime making people talk. As national income grew by a total of 27.2% between 2016 and 2021, impoverishing growth began to be discussed as the share of fixed earners declined rapidly. As the economy grows, the share of fixed earners is shrinking, especially those in the top 10% in terms of income and wealth distribution have received a larger share of the growing pie and have also received an employee share in real terms.

Source: 04.03.2022 Article by Korkut Boratav published on haber.sol.org.tr

The CPI, which has accelerated since the end of 2021, is announced by ENAG at 142%, while TURKSTAT explains it at 61%, and people on fixed incomes receive a maximum increase of 50% according to the announced rates by TÜİK. Thus, the purchasing power of fixed income securities continues to decline rapidly. To give an example of the construction sector, in February 2022, the materials index increased by 113.27%, while the labor index increased by 41.38%. This example alone illustrates the oppression of employees despite rising inflation.

Within the framework of Social Security, there are about 25 million people (about 14 million employees), about 14 million pensioners, 500,000 farmers. If we consider their spouses and children, 70 to 80 million people are rapidly becoming poorer. while the economy is growing, inequalities are widening and income distribution is beginning to deteriorate. While 10% of the country is getting richer, 90% continues to get poorer.

Because of the neoliberal policies of globalization which have become widespread in the world since the beginning of the 1980s; privatizations were not as extensive in developed countries as in developing countries and the share of the public sector in the economy was high. However, in developing countries like ours, privatization has accelerated and the share of the public in the economy, and therefore the share of public expenditure, has declined, and the share of social expenditure in public budgets has remained weak. On the other hand, as the share of fixed employees in economic growth was low due to the inflationary environment and the weakening of trade unions, inequalities widened and income distribution deteriorated further. If there is no change in the policies implemented, even tougher days lie ahead for fixed income holders in the coming days as the deterioration in income distribution will continue.

Murat SENOL – The Economist www.bankavitrini.com

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