Nova workboard

a blog from young economists at Nova SBE


A Constrained Financial System

In a text recently published in this exact platform, my colleague João Firmino [5] discussed the revisions made by Blanchard and Leigh[3]  regarding the fiscal multiplier in developed european countries, and in particular stated that “the 2008 crisis and the subsequent sovereign debt crisis severely affected the Portuguese financial system´s ability to allow agents to get access to credit and hence finance investment, and smooth consumption”. This would, as he supports, end up increasing the fiscal burden people will eventually suffer, bringing some uncertainty to the effectiveness of such austerity.

The aim of my comment is, however, a different one. I intend to briefly explain the mechanisms by which the portuguese financial system may be constrained, at the present time, and I´ll feed this statement with a few remarks from the quarterly Bank Lending Survey of the Bank of Portugal released in October 2012 [1].

To do so, let me recall Ben Bernanke [3] ´s paper “Non-monetary Effects of the Financial Crisis in the Propagation of the Great Depression”. In it, it´s argued that, as an outcome of a Banking Crisis, the Costs of Credit Intermediation (CCI´s), such as screening, monitoring and accounting increase for any given loan. The reason is quite straightforward: in a Banking Crisis, any given loan is riskier, and hence more information is required. As Banks increase interest rates, adverse selection arises, as only the riskier (the so commonly called “bad borrowers”) will stay in the market. So, and as Mishkin [6] argues, agency costs will assume a higher relevance, as it becomes more necessary to protect the “principal” from the “agent´s” risk-taking behavior. In other words, Financial Intermediaries (such as Banks) will demand a higher External Finance Premium, which, as we know will drag down the number of investments, giving rise to a “credit crunch” situation. A more detailed analysis (Mishkin [6]) may show that large corporations succeed in sustaining relatively robust growth rates in terms of total credit from alternative sources (i.e. bond sales to the public in international markets and loans obtained from banks abroad). In turn, smaller companies, whose disclosure of financial situation usually is less widespread (not being present in debt securities markets, for example), are not able to compensate the reduction in credit granted by residential financial institutions.By analyzing the situation for Portugal, we realize that the terms for approving loans have become more restrictive, which can be translated into an increase in spreads (most notably in the case of riskier loans), but also into a slight tightening of other conditions and terms. Also, it is said that overall demand for loans from enterprises shrank essentially due to decreases in fixed investment.

There are other effects on the Aggregate Demand, namely regarding consumption: for any given safe interest rate, borrowers face higher effective costs of credit, so liquidity constraints become tighter, and the share of Keynesians in our Economy increases ([4] Campbell and Mankiw). When we put this together with the degree of uncertainty agents share regarding their future, we may be confronted with a severe substitution effect (present for future consumption), that will keep on preventing us from coming back to our potential outpup. In the Survey, it´s stated that Banks expect this downward trend in consumption of both housing market and other goods to continue, which may now be connected to the recent announcements regarding the government´s budget for 2013.

Is there some sort of an expectations crisis then? It seems so. What we know for sure is that non-monetary effects can help explain the unusual length and depth of major Banking Crises, just like Bernanke argued about the Great Depression. We saw it before, and we´re seeing it now; as Banks confirm that the main reason for tightening in approval of loans and credit lines is the perception of risk, mainly regarding the general economic activity.

So, in conclusion, it´s quite likely that the current situation in Portugal may be characterized by contractions in both supply and demand for credit. One thing seems however to be certain: this crisis will not only have painful, but also protracted effects in the portuguese economy.

References:

[1] Bank of Portugal, 2002, Bank Lending Survey, Oct. 2012

[2] Blanchard and Leigh, 2012, World Economic Outlook

[3] Bernanke, B. , 1983Non-monetary Effects of the Financial Crisis in the Propagation of the Great Depression

[4] Campbell and Mankiw, 1989 International Evidence on the Persistence of Economic Fluctuations

[5] Firmino, J, 2012. The Portuguese Fiscal Multiplier, Blog Novaworkboard

[6] Mishkin, F. (2009) The Economics of Money, Banking and Financial Markets

 

Francisco Farto e Abreu

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RSI, the dangerous speech

The Portuguese RSI that stands for Rendimento Social de Inserção  – “Social Income for inclusion” – is a government transfer that is claimed by the poorest, by proving their poor condition by showing their income statement on a social security office.  It is, though, a conditional subsidy. Households that receive RSI are compelled to send their kids to school, if unemployed, they have to proof that they are continuously looking for a job, and, since August 2012, RSI receivers that have neither children nor elderly people in their household have to do 15 hours of community work per week, such as watching or cleaning the forest.

After this brief definition, is time to say that this kind of subsidy has suffered loads of critics coming from all sorts of social sectors. Particularly, from a political Portuguese party, that is now part of the coalition in government, and that by the time of the 2011 elections named the RSI “a subsidy for the laziness”.  Therefore, it’s important to discuss if the RSI is in fact a disincentive for people to work, and to live without government’s help, taking into account that this subsidy is already composed by several conditions that intend to promote the right incentives.

First of all, it’s fundamental to take look at how much on average a recipient of the RSI gets.  Below we can find the average monthly amount, in euros, received by each beneficiary from 2006 to 2011.

 

2006

2007

2008

2009

2010

2011

Average Monthly Amount

77,3

81,7

86,5

91,5

90,9

88,3

 

If we take into account these values, we can even doubt of the effect of RSI to end poverty. The values are quite small which do not corroborate the thesis of the disincentive to work, since nobody can live in Portugal with less than 100 euros per month.

Furthermore, only 23% of the RSI recipients can be expected to work since the other 77% are children, elderly or working adults. This data really points out the question on the danger of the speech on the laziness of RSI receivers. In the last years, they have felt too many times the strength of discrimination, either in their social relations on even when they are looking for a job. Employers may have the feeling that by hiring a RSI receiver are doing a risky choice.

It’s important to end up the myth that people that receive RSI can live comfortably without doing something else, and that the major part of them are part of the labor force. These are the myths that even a superficial analysis of data on RSI has the
power to tear apart.

 

Rui Rodrigues 556


The Canadian Dollar and the World Price of Oil

The Canadian economy is highly dependent on the export of domestic oil to countries with high demand, primarily the U.S. World prices of oil have a major impact on the economy of Canada, and further influences on the floating exchange rate of the Canadian Dollar (CAD) on international exchange markets. Many argue that the rising value of the CAD is attributed to a Dutch Disease scenario where increased revenue from natural resources damage other sectors (traditionally manufacturing) and increase the real exchange rate. Mark Carney, Governor of the Bank of Canada argued against the Dutch Disease case citing strong trade relationships and the multilateral depreciation of the U.S. Dollar (USD) accounting for 40 percent of the CAD appreciation since 2002. He argued that declines in Canada’s manufacturing sector came naturally rather than at the cost of increased revenues from natural resources in Canada.

Graph

Figure 1 highlights the relationship between West Texas Intermediate (WTI) world oil prices and the Canada to U.S. Dollar exchange rate, and suggests a relationship between the two. Both series follow similar trends, with the value of the CAD falling in the months following sharp drop in oil prices starting in 2008. Since Canada is an exporter of oil, increases in world oil prices (measured in USD) means the country would reap the benefits of higher nominal value of its oil deposits. Higher values of exports increase the terms of trade for the country, as defined by the value of exports as a ratio to the value of imports. The link is made between the higher value of exports of the country and the increased demand for the currency of the country. This increased demand in turn appreciates the value of the currency. The high correlation between the currency and price of oil has given the CAD a status of a commodity currency linked to oil.

Appreciation of a currency comes with a number of macroeconomic impacts. A stronger Canadian dollar relative to the U.S. means it is more expensive to buy commodities priced in CAD, increasing the cost of doing business in Canada. Further, the impact is not equal across all sectors of the economy with industries highly linked to oil (such as transportation and construction) becoming more expensive with higher input prices. Recent research has found however that not all oil prices have increased the same and a spread in prices is a detriment for Canada. It is estimated that the gap between the price of oil exported from western Canada and the price imported to central Canada is $30.50 a barrel, with annual estimated losses ranging from C$18 to C$19 Billion dollars [2].

Although there is a strong relationship between the price of oil and the value of the Canadian dollar, the final impacts that occur from higher oil prices are complex. It is difficult – if not impossible, to determine the true relationship between oil prices and the value of the CAD however the high correlation between the two carries significant policy implications for Canada’s macro-economy. The Bank of Canada concludes that [3]:

“high commodity prices, regardless of the cause, are good for Canada. Rather than debate their utility, we should focus on how we can minimise the pain of the inevitable adjustment and maximise the benefits of our resource economy for all Canadians.”

Jacob Macdonald
Nova SBE


[1] Dale Orr, “What is the Relationship Between the Exchange Rate and Oil Prices?”, May 2009, Economic Insights http://www.economicinsight.ca/economicpapers.htm

[2] Greg Quinn and Doug Alexander, “Canada Is World’s Biggest Oil Loser With Price Spread”,  May 8, 2012, Bloomberg http://www.bloomberg.com/news/2012-05-08/canada-is-world-s-biggest-oil-loser-with-price-spread.html

[3] Mark Carney, “Remarks on Dutch Disease”, September 7, 2012, Bank of Canada Spruce Meadows Roundtable


“Slumming” as a Way out of Poverty?

In Dharavi, the biggest slum of Asia located in Mumbai, it costs you about 11,40$ to find out how poor people live and to experience a poor life first hand. You can do so by booking a tour with Reality Tours, one of several agencies all over the world specializing in tours for tourists interested in seeing the life in a slum.

But you can go „slumming“ not only in India but also in the famous favelas of Rio de Janeiro or South Africa´s townships, as shown in the picture above. But what are the effects of this for poor people and what are the motivations of people actually attending such tours?

Most tourists seem to be interested in another cultural experience in their holidays when booking a tour. They seek to understand how people live and consider it an adventurous event during their two weeks break of normal life. The results of those experiences for visitors of slums differ from a life-changing event to a new, relative view on the life of poor people considering it to be not as bad as expected. Thus the contrasting experience either raises awareness for poverty and encourages people to donate and help, or diminishes poverty to kind of a cultural identity.

The organizing agencies therefore try to contribute to the life in the slums and improve it by building for example schools or community centers – but critiques say that not much of the income actually gets to the place where it would be needed. Furthermore the tours may cause a loss of dignity for slum dwellers in order to provide tourists with great pictures. Even if tour organizers try to limit the group size and number of pictures taken we cannot deny that poverty tourism is an extreme form of showing off the differences between rich and poor people.

We can see this for example by looking at the prices of one trip. A tour of 2,5 hours in Dharavi is around 11$ which is equal to more than 12% of the average monthly income in India – thus not even closely reflecting the difference between the amount paid to the travel agency and the average income in Dharavi.

So, should we avoid and disregard poverty tourism? It is very difficult to find the right measure of interest in the life and for the situation of others without separating from them if the life of others is so extremely different. We have to be careful not to exclude poor people by watching them in their „natural habitat“ but participate in their experiences in order to understand their needs and help.

In this sense poverty tourism might be helpful even if only a small percentage of people visiting actually considers donating and helping. Nevertheless we have to question if this kind of help is sustainable and most of all efficient.

I personally think it can be if raising awareness means to strengthen international pressure on local governments to improve the living situation of poor people. But donating money to support the activities of a travel agency – even if it has more or less the form of a NGO – might probably not be a way out of poverty on the long run.

Written by Julia Seither


Inequality on the Verge of the (Fiscal) Cliff

The fiscal cliff in the US is the hot topic in any newspaper these days mostly due to the harmful impact it will have on both the American and Global Economies if not prevented. In this article I do not intend to discuss the economic consequences of such an event but rather the roots of the political gridlock that lead to it in the first place.

The quarrel over the Bush-era tax cuts for the wealthiest 1% of Americans is undeniably the issue that triggered the whole problem. In other words, one could claim that the performance of the Global Economy in the near future depends first and foremost on a debate concerning income redistribution and most importantly equality.

The Republican´s who support the tax cuts should be extended base their argument on the role that income plays in the development of incentives and arguing that the government does a poor job managing tax-payers´ money. In their view, a CEO of a big corporation being paid some million dollars per year will put less effort and devotion in his job if the government decides to increase the tax on his income by say 10%. In addition to this, it is their view that the money taxed by the Government could be better employed by the tax payers in profitable investments rather than being wasted in inefficient government programs.

From my point of view both arguments are fundamentally flawed. To present my counterargument I will make my own the words of John Roemer in the article “Ideological and Political Roots of American Inequality”. To begin with, despite the fact that “material incentives” are a relevant factor for most people they are certainly overvalued in what concerns the wealthiest or more capable individuals in a society. As Roemer points out, an individual pursues more than “material rewards” in his life, the recognition of his peers, power or fulfillment are as important in particular for this type of person. What is more, using a purely economic argument, if one believes that the utility brought by income is decreasing at the margin then it makes total sense to tax these individuals more heavily than the ones making few hundred bucks per month without a significant loss of economic efficiency.

            Regarding the inefficiency of the government my argument has two dimensions, one related to the role of public investment and other related to its role in tackling poverty and inequality. In relation to the first dimension, I recognize that there is certainly waste in the public sector, however it does certainly exit in the private sector as well and in some cases in a larger extent. Furthermore, some types of essential investments can only be done by the government, the current state of deterioration of public infrastructure in the US speak for itself. Concerning the second dimension, it is my belief that Ronald Dworkin was completely right in pointing out that an individual should be “held responsible” for his choices but not for his resources, this is the family in which one is born, the genetic characteristics one is endowed with or any other factor that depends on luck. If one believes this, the role of income redistribution is inalienable. From this point of view, it is unacceptable that a policymaker would rather cut on programs which play a vital role in the equalization of resources, like the Medicaid and Medicare in the US, than increase taxes for the wealthiest individuals of a society.

            I do not doubt that by the end of the year the political forces in the US will achieve a consensus to avoid the fiscal cliff. In what concerns the performance of the global economy the way this stalemate is solved is irrelevant, however for the average American and for the role that the state has to play in any developed democracy it will be at the very least a defining moment.

João Morgado

References:

Roemer, John 2011. Ideological and Political Roots of American Inequality

http://www.gini-research.org/system/uploads/249/original/DP_8_-_Roemer.pdf?1308736281


The Portuguese Fiscal Multiplier

Recently, the Portuguese fiscal multiplier size got the attention of the country’s media. The origin was the release of a statement by Olivier Blanchard – IMF chief-economist – stating that the multiplier had been “underestimated” following the disclosure of the World Economic Outlook (WEO) for October 2012. But what does this mean? What impact has it for Portuguese people and policy makers?

First the interpretation of the multiplier: it tells by how much is real GDP affected when overall budget deficit varies. The staple idea about the size of the multiplier was the value 0.5, i.e. a 1 percentage point of fiscal consolidation (budget-deficit-to-GDP-ratio), thus of austerity, was statistically associated with a decrease of real GDP of about 0.5 percentage points. What Blanchard says is that value was not accurate for advanced economies in the beginning of the 2010’s. In truth he estimates that it was between 0.9 and 1.7 since the 2008 crisis.

The new estimation of the fiscal multiplier is about 2 to 3 times higher than what initially expected. In the study conducted by Blanchard and Leigh for the WEO they controlled for many factors, from the fact that simultaneous fiscal consolidations across Europe to financial systems stressed could be driving the previous result of higher than expected fiscal multiplier. They weren’t.

In my opinion the revised higher figure for that multiplier comes from the fact that the 2008 crisis and subsequent sovereign debt crisis in Europe affected severely the Portuguese financial system ability to allow agents to get access to credit necessary to smooth consumption and finance investment projects. And if today’s financing is shut down then agents are much more dependent of their available income. In turn, their available income being depressed by fiscal consolidation measures will result in a drastic contraction of consumption and investment. Lastly, increasing negative expectations enter in stage as agents see the depressed economic mood around them, thus cutting back even more consumption (to prevent lower available income in the future) and investment (less expected customers in the future). All in all it is no surprise that the final short-term impact of fiscal consolidation in the context of a stressed financial system is higher than 0.5.

Finally, the implications of a higher multiplier are twofold: on one hand, it means that Portuguese people will suffer more with the necessary fiscal consolidation to control the public debt-to-GDP ratio dynamic because this path will not be changed by the current authorities, so, for any level of necessary austerity, the negative impact on real GDP will be sharper, which is to say less available income and less consumption; on the other hand the very strategy of fiscal consolidation is now much more riskier. It is so because fiscal consolidation measures may act reversely: instead of decreasing the public deficit they may increase it: in face of a higher multiplier the more depressed the economy gets the much less revenues the Government raise and the much more expenditures with unemployment benefits and such it has to cope.

It is narrow the Portuguese future fiscal policy horizon.

João Firmino

References:

http://delong.typepad.com/sdj/2012/10/fiscal-multipliers-the-olivier-blanchard-daniel-leigh-nostra-culpa-box.html

http://expresso.sapo.pt/portugal-imf-issues-statement-on-fiscal-multipliers-revision-of-the-targets-and-imperative-adjustment-imf=f761063

http://expresso.sapo.pt/aumentos-de-impostos-agravam-a-contracao-da-economia=f763580

 


Poverty and Gender Discrimination

As a woman, I am very interested in gender discrimination related to poverty issues. According to many studies and statistics, on a world-wide scale, women are more likely to be poor than men. It is estimated that women represent 70% of the world’s poor. This is partly due to the fact that women face discrimination in education and employment, in both developing and developed countries. In fact, the average wage gap between men and women in 2008 was 17% (UN Women, 2012). In this blog post I wanted to write a little bit about the gender discrimination and wage differentials between men and women because I believe that wage equality would be an important step in reducing the overall inequality that still exists between men and women.

There are several reasons for why men on average earn more than women. Women traditionally work more often in positions that are poorly paid; these include for example nursing or teaching infants. In better paid environments women face discrimination in terms of the difficulty of reaching managerial and top positions. Furthermore, women tend to take unpaid breaks from work to take care of their children more often than men. (EAPN Ireland, 2010).

Even though the situation concerning the discrimination in the labour market for women in many developed countries is less severe than in developing countries, women still continue to face discrimination. Women earn on average 20 % less than men in similar positions in seven EU countries. This not only affects women during their working life but also leads to the fact that women receive smaller pensions. In fact, approximately 35% of women aged over 65 years face risk of being poor whereas the figure for men is only 16%. (EAPN Ireland, 2010).

According to a resent study, in Finland women earn on average 82,6% of that of the salary of men. Even though the pay gap between men and women in Finland has decreased somewhat during the recent years, the progress has been quite slow. (Smt, 2012a). This is why the Finnish government has established a programme in an attempt to try to decrease the difference in average income between men and women. The goal of the programme is to decrease the wage difference from 18% at the start of the programme in 2006 to less than 15% by 2015. The measures taken to achieve this goal include for example the establishment of different policies, the development of the wage system as well as supporting the career development of women. (Smt, 2012b). One practical action taken to achieve the objective has been mapping out the wages in different companies to discover unnecessary and hidden wage differentials between male and female workers. (Smt, 2012a).

 

Isa Kokoi.

Sources:

EAPN Ireland, 2010. Women in Europe face Greater Risk of Poverty and Social Exclusion. [online] (8 March 2010) Available at: http://www.eapn.ie/eapn/women-in-europe-deserve-a-better-deal [Accessed 13 November 2012]

Sosiaali- ja terveysministeriö (Ministry of Social Affairs and Health), 2012a. Miesten ja naisten välinen palkkaero kaventunut, mutta lisäponnistuksia tarvitaan (The income gap between men and women decreased but more efforts are needed). [online] Helsinki: Ministry of Social Affairs and Health. Available at: http://www.stm.fi/tiedotteet/tiedote/-/view/1809357 [Accessed 13 November 2012]

Sosiaali- ja terveysministeriö (Ministry of Social Affairs and Health), 2012b. Samanpalkkaisuusohjelmalla kurotaan palkkaeroja (The programme for equal income is set to decrease income inequality). [online] Helsinki: Ministry of Social Affairs and Health. Available at: http://www.stm.fi/tasa-arvo/samapalkkaisuus [Accessed 13 November 2012]

UN Women, 2012. Women, Poverty & Economics, [online] Available at: http://www.unifem.org/gender_issues/women_poverty_economics/[Accessed 13 November 2012]


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Roma poverty – a major issue for the European Union

With 10-12 million Roma living on the continent they are the Roma are the largest minority in Europe. In difference to other people, they do not have a home country and are very diverse with multiple subgroups. Most Roma communities are living in Eastern Europe and are often judged as Europeans biggest social problem.

Among the Roma there are more people poor than among any other ethnic group in Europe. Roma often experience problems in accessing rights and services in many areas of life. There are many Roma that are not just facing relative but also absolute and extreme poverty. In some cases Roma poverty rates are 10 times higher than of the non-Roma population. (1)

                                                           

Recently the European Union Agency for Fundamental Rights (FRA) conducted a survey in around 84.000 households (Roma and Non-Roma) across Europe.

This survey confirms that the situation of the Roma is still characterized as prevailing discrimination and social exclusion while living in marginalized and extremely poor socio-economic conditions. For instance, the survey shows that only 15% of young Roma adults surveyed upper-secondary general or vocational education in comparison to 70% of the majority population living close by. According to the survey, less than 30% of Roma are in paid employment and on average about 90% of the Roma live in households with an equivalised income below national poverty lines. (2)

Reducing the gap between Roma and non-Roma, strategies and policies need to be developed and implemented more effectively. Policymakers on European, national, regional and local level should take into account strategies that pay greater attention to school participation as well as school completion, social inclusion, improvement of skills and education of Roma jobseekers and an overall implementation of policies to stop the inheritance of poverty from generation to generation. With the ever-growing emphasis on formal skills in today’s society the gap between those who come from educationally rich and educationally poor backgrounds will increase.

Unfortunately there are currently not really strong and proportionate measures in place to manage the deep-rooted problems regarding the majority of EU’s Roma population.

 

Carola Knott

 

References:

(1)http://siteresources.worldbank.org/EXTROMA/Resources/roma_in_expanding_europe.pdf

(2)http://fra.europa.eu/sites/default/files/fra_uploads/2099-FRA-2012-Roma-at-a-glance_EN.pdf


Tackling in-work poverty: Living Wage

The discussion around the concept of the Living Wage is more alive than ever. Supporters are stepping up their campaign and there’s a growing interest from employers. What started as a local campaign is now becoming a national movement.

The Living Wage is the hourly wage needed for a family to afford basic everyday expenses such as housing, food, clothing, utility bills and child care, thus achieving an acceptable standard of living. It is calculated based on what it costs to live in a specific community and it is updated every year. Also, it is entirely voluntary for employers to adopt it.   

In the United Kingdom it is now occurring the living wage week (4-11 November), part of a campaign led by the Living Wage Foundation. And recently, Ed Miliband, the labour party leader who actively supports the living wage, has announced its intentions to address the issue through legislation if the party wins the next general election.[1] That would mean a living wage of at least £7.45 per hour when 20% of all workers are paid above that level and the national minimum wage is at £6.19.[2]

In 2011 Citizens UK, a community organizer who aims at connecting people and rebuilding citizenship launched the Living Wage Foundation and the Living Wage Employer mark which recognizes, celebrates and supports employers that pay the living wage. As a result of this campaign, over 140 employers are paying a living wage and 15,000 families have been lifted out of working poverty.[3] Living wage employers now include big names such as Barclays, HSBS and KPMG.

There are clear and proven benefits to local communities, the individual and businesses too. Feedback by employers[4] and a piece of research by Queen Mary, University of London, highlight these benefits.[5] People have more money to spend and they spend it locally. But it’s not just about making sure people earn enough, it’s about a life worth living. Employees feel more positive about their workplace and it benefits their family life. As for employers, evidence shows that paying the living wage increases motivation, cuts absenteeism and labor turnover and raises productivity. Also, companies benefit from reputational effects, being able to attract new business, customers and employees.

In-work poverty is not a single solution problem and the current though economic climate makes it harder to address pay concerns. The impacts of the Living Wage are well known today, thus making it an important weapon to fight it. Pressure and campaigning will be needed to persist. Making reluctant employers aware of the gains they can rip will help with progress as well.  

 Inês Cordeiro


[1] Living Wage: Ed Miliband pledge over government contracts http://www.bbc.co.uk/news/uk-politics-20202005

[3] The Living Wage Foundation http://www.livingwage.org.uk

[5] The costs and benefits of the London living wage http://www.geog.qmul.ac.uk/livingwage/


Child poverty in Germany, chances to escape and the Government’s approach to face it

Melanie Rathmann (Student number 1129)

The Federal Statistical Office stated that 15% of the German population is threatened by poverty (2012)[1] and over 2.5 Million children live in income poverty.[2] The used poverty line is set at 60% of the national median equivalized household income per capita.

Children from parents who are considered as poor have relatively low chances from escaping poverty since they have less money, less books and other materials for education. And many of those children have less time to learn because they have to work besides school to get some pocket money or they have to take over the duties of their parents. That is why people keep saying: “Once you are poor, you’ll stay poor.”

A long term study (over 15 years) examined the chances of children, who grew up in poor families, to escape from poverty and the determinants of poverty exits or entries. The result is that they are able to exit poverty if parents, kindergartens and schools work together very closely. In the study 43% of the respondents were able to escape from poverty but in the long run 20% of them fell back into poverty. The reason in most cases was that the continuous support was missing. Another result was that the origin of the parents was even less important for the chances of a child than the social background. To judge people with a migrant background as a problematic social group is just a prejudice.

According to the study children have to take part in the social life, they need enough time to learn for school and they need support from their parents, the kindergarten and the school throughout the whole educational process to achieve sustainable successes.

The support from the kindergarten used to start when the children were 3 years old. But nowadays parents want to get back to work as soon as possible and therefore the German politicians decided to enlarge the childcare facilities so that kindergartens will also be able to take care of small children from 1 to 3 years old. The plan was to have sufficient places in child care by August 2013.

But due to the fact that the development is going too slow there will be not enough places for small children in kindergartens next year. The problem the politicians are facing is that everybody will be entitled to receive a child care place next summer. Their solution to this dilemma is care benefits. Parents will be able to raise their children at home and get rewarded for it by receiving 150€ per month.[3] This law will come into force in August 2013. This is the opposite of the study’s advice because it keeps children away from social life and thereby the chance of getting support of the kindergarten cannot be taken.


One Child Policy’s effort on eliminating Poverty in China

From last week study, the professor mentioned that working families are not exempted from poverty, partly because the unstable job caused by the low education, partly because of the composition of the family. Too many children are risking the family to be poor. This reminds me of Chinese One Child Policy which, I believe, could be regarded as a remedy for eliminating China’s poverty.  

China Current Population and Comparison with world

As you all know, China had and still has the largest population in the world. There are in total 1,317,442,552 people including China Hong Kong, Macaw, and Taiwan, (according to the 6th national population census in 2011), accounting for nearly 21 percent of the world whole population which is 6,302,309,691. A more close example is that China’s population is more or less 124 times than Portugal’s which is 10,637,000 , based on a report revealed by World Bank in 2012.According to some data, if there was no policy related birth control, till 2005, Chinese population would have exceeded 1.5billion.

China’s success in reducing poverty

Across China, there were over 400 million fewer people living in extreme poverty in 2001 than 20 years previously. By 2001, China had met the foremost of the Millennium Development Goals of reducing the 1990 incidence of poverty by half — and it had done so 14 years ahead of the 2015 target date for the developing world as a whole. (1)

The World Bank attributes China’s success in reducing poverty to the reform in 1987, and no mentioning of the One Child Policy, due to the fact that, to some extent, this policy violates human right. However, at eliminating poverty degree, I believe it has made a lot of contribution.

Different from some developed countries, China was under control of 5 thousand years of feudal system during which agriculture was the mainstay in this country. Even after founded of the People’s Republic of China, a large part of the workforce was employed in agriculture. Nowadays, China has transferred and become the largest labor-intensive manufacturing however, this manufacture is low profitable since there is no core-tech included. (2) No matter mainly relied on farming or non-core technology manufacture, they are all labor-intensive economy.

Chinese people are famous for diligent and hardworking, but they were still living under the poverty line. Why? We have to think about the population and family composition. Back before 1971 when the One Child Policy was issued, almost every Chinese family had more than 5 children. A family with 10 children was not abnormal because most of them relied on farming or worked on labor-intensive industries. More population means more workforces. More children in the family, less opportunity to offer them better education. Less educational background made them hard to work on some technology-intensive field, so they still work hard with low income and then tried to make more children to ensure their future workforces in the family. This leads to a vicious circle. This one child policy was aiming to limit the quantity of children but increase the quantity. Through the subsidy from the government, a family can give the only child better living environment and better education. More and more children go to university, find a better job and then they dispose the ingrained idea that having more children is the way to ensure the family income. They would like to have one child offering better education environment rather five with low living standard.
He Yanan

http://factsanddetails.com/china.php?itemid=359&catid=9&subcatid=61

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http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/0,,contentMDK:20634060~pagePK:64165401~piPK:64165026~theSitePK:469382,00.html


Child poverty – Tackling the problems of tomorrow

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It doesn’t require much attention to realize that child poverty has been around the Portuguese press and has again started shaking people minds. “Pobreza infantil [em Portugal] permanece bastante elevada” “Mais de 10 mil alunos com fome, metade toma pequeno-almoço na escola” are just some of the headlines that occupied this week’s national newspapers and that are result of the increasing concerns around the topic.

If we go quickly through the last UNICEF publication about child poverty, dating from 2009, we can analyze 2 different indicators: Child deprivation –  the % of children lacking two or more items of 14 items considered normal and necessary for a children in an economically advanced country (ex: 2 meals a day; freshfruit and vegetables everyday, quite place to do homework or internet connection) – and Relative child poverty – defined by UNICEF as the % of children living in relative poverty (living in a household whose income, when adjusted for family size and composition, is less than 50% of the median income for the country). On both indicators Portugal is in a bad situation comparing to the other “economically advanced countries” being in both rankings on the last positions.[1]

Unfortunately, child poverty awareness is turning back to discussion in our country and that’s probably explained by the crisis scenario where we are living and the increase of poverty in developed countries like Portugal. (Not only) research supports the belief that growing in a poor family can influence in many ways the children development – the health, the education and consequently, the likelihood of being poor. Poverty as next generation heritage should be the principal battle of policy makers, trying to tackle the effects of a poor family on the growth of the children. But if that doesn’t happen, we can probably guess that when we are looking to nowadays child poverty problems we are talking about the next generation poverty problems.

Leonor Souto Miranda – 1327

Sources:

http://www.unicef-irc.org/publications/pdf/rc10_eng.pdf

http://economico.sapo.pt/noticias/taxa-de-pobreza-na-regiao-lisboa-subiu-80-em-20-anos_154174.html

http://sicnoticias.sapo.pt/pais/2012/11/08/mais-de-10-mil-alunos-com-fome-metade-toma-pequeno-almoco-na-escola


[1] There are two things that we should keep in mind when considering this data: 1st is that it’s not updated and does not yet reflect the crisis effects; 2nd is that we are considering completely different indicators (both with strengths and weaknesses), therefore we should be careful when analyzing this data and taking conclusions from it.


Alternative financing sources

Education is said to be the key to a more or less stable future in times like these. Unfortunately increasing inequalities in income and poverty among Europe are contributing to an unequal access to education. This distortion in chances created from the earliest years of education on, leads to a future without a positive outlook and, in the extreme point of view, governmental social transfers and unemployment being the only solution to some parts of the society. The state plays a significant role in this scenario as it is expected to create and enable equal access to aspects such as education and provide support for the less benefitted. The problem here is naturally the financing source, which in times of the European crisis seems to be drying out ultimately and thus aggravating current situations.

An alternative approach to state financed social programs are privately or churchly financed projects. These ones represent a big part in the social sector of most European societies and are of a great significance in trying to maintain a social balance.  Their dependence on private capital and donations is the crucial part of the story and often limits those initiatives in utilizing their real abilities. New ways of financing and a broader access to capital markets could be one way to reduce this problem. New arising non-profit organizations and internet platforms such as betterpalce.org started tackling this issue through trying to turn donation processes more transparent and centralizing projects on their platforms. Providing thus an easier access to social projects and increasing incentives to donate.

Another example are social stock exchanges, which in my opinion are a intelligent way of exploiting the benefits of our “capitalistic system” for the good. The integration of a highly profit oriented institution with a social constant creates benefits for both sides. On the one hand it broadens immensely the access to capital, as aspects such as credibility and transparency are enforced by creating a social stock exchange that is linked to the common stock exchange. It ensures investors that projects are evaluated properly from a competent team and it centralizes projects such that smaller and less known NGOs have a fair chance of financing their projects.  On the other hand it gives an institution, which nowadays is often negatively perceived, the chance to allay its reputation of the negative burden and opens the access to investors to finance projects that were unknown to them before.

It is obvious that these social projects and NGOs are not an alternative to state financed social welfare programs because essential social areas are of the state´s responsibility. However for private social initiatives these mechanisms represent an efficient way of financing and enabling more social programs to help easing aspects such as unequal access to education and a lack of support and thereby leading maybe to a future for some people that is less futureless.

Friederike Strate


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Inequality: The Ugly Duckling

One interesting topic that seems to be some sort of neglected in our public opinion is the fact that in the past 30 years inequalities have raised in the major part of western societies and even in some developing countries. For instance, if we look to the 10 most powerful economies of the world, in terms of nominal GDP, only Brazil was able to decrease its income inequalities. Countries such as China and India, that are facing enormous economic growth rates, were incapable to decrease their income disparities.       

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 Given this, it’s surprising that income inequalities were never an integrant part of the political and economical leaders’ speech for the past 30 years. The role of inequalities in economical and social public policies leaded by the political rulers was totally subordinated to other issues such as economic growth, unemployment and price control, particularly in 90s, and to subjects such as fiscal balances and public debt shrinking, in these recent years after the 2008 financial crisis.

 Why income inequalities are not approached as an economic and social setback by political and social interveners is quite a surprising fact to me.

 In a book published in 2009, The Spirit Level, Richard Wilkinson and Kate Pickett, two British professors, try to proof through statistical evidence that income inequality is negatively correlated with a wide range of social problems, such as mental illness, imprisonment, violence, drug abuse and social mobility. One of their most impressive results was the connection that they made between the level of trust within a society and income gaps:

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When asked, “Do you think most people can be trusted?” people  from more unequal societies, such as Portugal or the US, tend to say no, while more equal societies like the Scandinavians tend to answer yes.

The outcomes of this situation of distrust are quite straightforward if we think in the importance of trust in terms of social relations or its impact in something that is very discuss nowadays which is the social capital, despite its difficult measurability, it’s an grand feature of a country’s economic potential. Lack of trust within a society leads to segregation by increasing physical distances between rich and poor people, widening the living conditions and the lifestyles between the two groups.

The impact of inequality diminishing policies on economic growth is still under though economical discussion. Although, orthodox economists tend to tell us that such policies have a negative impact on a country’s economical performance. This may or may not be true, nevertheless one think we have to realize, perhaps, economic growth is not the same thing as economical, social and human development.

PS. For more information about the link between income inequality and social problems go to equalitytrust.org.uk

Rui Rodrigues


Praga Północ – poor but beautiful

Praga Północ is one of the poorest district of Warsaw. This is the area that was not completely destroyed during second World War. That is why there are a lot of old buildings and it has its own special atmosphere. It is situated next to the centre of the city, on the left site of the Vistula river. A lot of investments were planned for this district and Polish National Stadium was built exactly there.

However, since years there is the highest crime rate and unemployment rate there. In the report concerning health of Warsaw habitants we can notice that in other, reacher districts like Wilanów or Ursynów the average life expectancy is 15 years longer than in Praga Północ. The co‑creator of the report, dr. Bogdan Wojtyniak explains, that it is difficult to say why it is like that. The difference of the average life expectancy in different districts of the city is huge. Women in Praga live 4 years shorter than in Warsaw in average. Men live even 8 years shorter.

We can speculate about the reasons of that, but there is no data on this topic. Such discrepancies are observed in different districts of metropolises all around the world.  This is the specificity of metropolitan cities like London or Glasgow. Americans were the first who pointed out this problem. They took a deeper look at their poverty ghettos in which minorities live. It turned out that their health is in really bad condition.

There can be a lot of factors. According to Marc Lalonde, Minister of National Health and Welfare, the lifestyle significantly affects the health of the population. Another important thing is education. Those two factors are definitely reasons of previously mentioned statistics. The poverty is seen on the streets of Praga Północ district. Old neglected buildings are only the background of the really serious problem. The majority of housing in poor condition, there is no basic amenities such as gas, hot water or central heating system. For many years, the Warsaw authorities did not take any actions regarding modernization. Poor families from communities affected by pathology were rehoused there from all over Warsaw. Current situation of the district is a direct result of that. Bad housing and demographic situation causes social problems with a number of negative effects. The most important are: poverty, pathologies such as: alcoholism, drug addiction, crime, domestic violence or unemployment and many others.

In my opinion the situation in Praga Północ is slowly improving. Due to Euro 2012 the neighbourhood of the National Stadium was renovated. There is a lot of Centres for Social Welfare that are helping people. Old Praga starts new life but supervision and special treatment of local authorities is necessary.

Angelika Ojdana, 988

 

Sources:

http://www.warsawproperties.pl/pl/dzielnice_warszawy

http://www.mmwarszawa.pl/408491/2012/4/2/bieda-sie-ukrywa-i-jest-ukrywana?category=biznes

http://warszawa.gazeta.pl/warszawa/1,86775,9051951,Na_Pradze_Polnoc_zyje_sie_15_lat_krocej__Dlaczego_.html