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Saturday, 28 September 2013

Will the quickly growing void between the lowest and the higher incomes in The Netherlands turn the poorest people into the losers of the 21st century?

The buzzword in King Willem-Alexander’s Speech this year was: the participation society. As this speech is always written by the Prime Minister, it represents the opinion of the VVD/PvdA cabinet Mark Rutte II.

Concisely summarized, a participation society is a society in which anybody is ‘in play’ and uses his abilities to take all the chances that he is offered in life. People, who fail in taking their chances for any reason, should not automatically count on the Dutch government to supply an income to them, except for the most basical social benefit payments. Thus people are stimulated to stand on their own two feet.

It is the Dutch version of the American Dream: everybody is responsible for his own fate and the government must only be used as a financial backstop, when all else fails. You could call this a neoliberal concept.

Therefore, it is no wonder that this concept finds its biggest fans among the intermediate parties, which hover around the center of the political spectrum: VVD (liberal-conservative), PvdA (Dutch labour), CDA (Christian-Democrat), D66 (liberal party) and GroenLinks (liberal-progressive party). The parties at the outlines of the political spectrum, SP (socialist party) and PVV (Party for Freedom), despise the idea, because respectively “it doesn’t help the poor people” (SP) or “it doesn’t help the poor, old, native Dutch people” (PVV).   

During the last three decades not only the Christian religions in Western Europe lost many followers, but so did the “old school” social-democrat movements: especially after the Berlin Wall was brought down. Capitalism had won the war-of-the-ideologies, it seemed. Although the social-democrat movements eventually survived this change of heart and even learned to flourish from it again, their basic ideas had changed dramatically.

The traditional ‘pampering’ of the working class and the poor, handicapped and unemployed people was abolished and a pragmatic ‘new realism’ came in exchange for it. Striking and demonstrating was out and “polderen” (i.e. government, labour unions and employer’s organizations all talking and working together as social partners) was in fashion.

The message was: Exit for the old-school “Neil Kinnocks” within the social-democrat parties and welcome to the pragmatic technocrats with a leftish heart, but a right-ish wallet: Tony Blair (UK), Gerhard Schröder (Germany) and Wim Kok (The Netherlands) were their main representatives. Wouter Bos and Diederik Samsom, the most important of the recent political leaders of the PvdA in The Netherlands, are true heirs of Wim Kok, when it comes to their political flavour.

Many people consider the neoliberal mood change among the European social-democrats to be a logical move after the disappearance of international socialism. Nevertheless, you could justifiably argue that it has overshot a little. The participation society, which has been full-heartedly adopted by Diederik Samsom, is a concept that would send Joop den Uyl (the last true “old-school” social-democrat of the PvdA) and Neil Kinnock shivers down their spine; just like a horror movie. And for me the participation society is also a very hard nut to crack:

I think that many unemployed people should stop ‘whining’ about the hard economic times and instead could and should try harder to get a job: any job and not just the one that fits in their resumee perfectly.

During my life, I met a few people, who you could justifiably call ‘freeloaders’: people who messed up every job that they got, because it was not fancy or sexy enough (too little payment and perks !!!) or because they didn’t work hard enough and sometimes even overslept on their first two working days. Of course, in such a situation a third working day never arrived.

Strangely enough, these same people always used to know everything about their legal, financial and social rights, during negotiations with local officials, but very little about their societal duties, like ‘not sponging on society’. These people not only remembered the exact amounts of their social benefits, but they also knew every additional subsidy by heart and, on top of that, which rules could be bent or broken without financial consequences.

These were exactly the kind of people that made politicians consider to reduce social benefits and make it harder to acquire those. I really can’t blame those politicians.

Nevertheless, there are people that really had their share of bad luck in life:
  • People with fysical and mental handicaps, which scare away possible employers or even make it impossible to work;
  • People, who got an serious illness, which strongly diminished their working possibilities;
  • People, who – for some reason – always missed the boat in their careers, or who had an extremely bad start, due to economic hardship in the beginning of their career and never caught up with the rest anymore;
  • People (often women), who took always care of their children, but lost their partner and now are litterally on their own, without any working experience. 

I think that the national and local governments should always offer these kinds of people a helping hand, when it is needed most. And it should be a generous hand, not a stingy one….

In my opinion, you should not punish people and load them up with a feeling of guilt, when they missed the boat for a particular reason and are required to live from social benefits. On the other hand, you should also not be a push-over for people, of whom you know that they didn’t try hard enough in life. This is a very schizophrenic stance, but life is not black and white at all…

In theory, the aforementioned helping hand of the government is by no means hard to match with the ‘participation society’: a society with an efficient and strict, but fair government.

In practice, however, this is not what especially the liberal-conservative VVD has in mind. In their opinion, their helping hand should be frugal, perhaps even stingy, and not generous at all.

Today, the results of a very interesting investigation by the Amsterdam Institute of labour Studies (AIAS) have been published in the press: about the growing inequality between income groups in The Netherlands, during the last four decades.

Unfortunately, the end report of this study was not yet available on the website of AIAS. Therefore I used an article in the Volkskrant as a source. Here are the pertinent snips of this article:

In The Netherlands, the void between rich and poor has grown faster than expected. The bottom of the income pyramid, the 10% least earning households, has lost 30% in real income, since 1977. All other income groups have received more real income since that period.

The main cause for the income deterioration of the bottom 10%, is the retrenching of social benefits and subsidies. This became clear from an investigation by the Amsterdam Institute of Labour Studies into income inequality, between 1977 and 2011.

These data are remarkable, as the common and standardized gauge for income inequality, the Gini coefficient, showed a fairly level image since the nineties.

In much more detail than the Gini-coefficient, the AIAS study showed the consequences of policies for the incomes in various income groups. It became clear that the poorest 10% lost an additional 10% in real income, between 1990 and 2011, on top of the 20% deterioration in the years before that period.This 20% was the result of the economic crisis in the 1980’s.

Households in the higher income groups did see their incomes rise between 1977 and 2011: from 6% for the then-poorest group until 23% for the richest group.

In 1977, the richest 10% in the income pyramid earned  5.1 times as much as the bottom 10% of the households; in 2011 this void had grown to 8.2 times as much. The void grew the quickest in the 1980’s (to factor 7 from factor 5), when the minimum wage and the coupled social benefits had been frozen after the crisis in the first half of the decade.

According to professor and investigator Wiemer Salverda, the main cause for the deterioration of income of the bottom 10% is the retrenching of social benefits and subsidies. The bottom 10%, represented by approximately 700,000 households, mainly exists of adults with a social benefit, next to freelancers (ZZP’ers) with little income and singles with poorly paid jobs. Other causes for the deterioration of the lowest income group are the growing inequality in hourly fees and the fact that more and more people are dependent on temporary jobs, which on top of that are often parttime.

An extra cause for anxiety is the debt position of the lowest income group. In 1993, the bottom 10% of the income pyramid had twice as much debt as income. In 2011, this debt to income ratio had soared to 5.5 times. The richest 10% of the Dutch households owns 70% of total capital, while the bottom half of the households has no capital at all and often only debt.

I cannot wait until the whole investigation report is put on the website of AIAS ( and I truly hope that the institute does not hesitate to do so.

Raising taxes for the highest income groups (i.e. leveling or ‘nivelleren’ in Dutch) is neither popular among rich people in The Netherlands nor anywhere else in the world. The arguments of the richest people for decreasing taxes and (financially) stimulating entrepreneurship and venture capitalism through adapted policies are, that high taxes put a brake on risk-taking and entrepreneurship and thus cost jobs, while lowering taxes spurs the creation of jobs.

That might be true indeed, as some entrepreneurs and executive managers are really only in business for becoming rich and retiring early. Some people do indeed only work for money, as they don’t have any other goals in life. These people fit neatly in the upcoming political trend (see the aforementioned link in this paragraph), in which entrepreneurs, venture capitalists and executive managers are the superheroes of society, while the workers are ‘mainly a drag’: “people, who ask too much money for too little labour capacity”. One of the worst examples of this species is the CEO of DE Master Blenders, Jan Bennink.

However, in my opinion this is a very slanted and distorted view on reality. Fortunately, many true entrepreneurs, venture capitalists and executive managers (especially the ones, who are very closely attached to their companies) have other inspirations and reasons to do what they do, than becoming rich. They both cherish their personnel and love their own innovative processes and products. And although nobody really likes to pay taxes, most people in The Netherlands fortunately understand that it is necessary to keep a society alive.

Another consequence of an increasing void between rich and poor is that it distorts the cohesion in society:

  • Ask for instance in the USA, how a single mother with three poorly paid part-time jobs and no time for her children, thinks about the fortune of Facebook’s Mark Zuckerberg;
  • Or ask how an unemployed guy, living on foodstamps, thinks about ‘those fat cat bankers on Wall Street’ with their 10+ million dollar incomes per year. Make sure that he doesn’t have a gun, when you ask him this question;
  • And try to convince an American rich guy that it is good and decent behaviour to pay taxes. He will look at you as if you are a Borg, coming from the starship Enterprise. 

The poorest and richest people in the United States live in the same land, but in totally different universes, in which they never really meet eachother anymore.

Therefore this investigation by Wiemer Salverda of AIAS is extremely important. In The Netherlands, the income inequality has not yet grown too big. However, this might change at the end of this crisis, if the cabinet of Mark Rutte stays on the path of increasing the void.

Then the poorest people might indeed become the losers of the 21st century, who lost any connection to the rest of society.

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