Cyprus Mail
Opinion

How MPs muddy the economic picture

TO AVOID misunderstandings, now that we are entering an election period, I would like to make it clear that no political party suit is cut to my measurements. And because in a democratic country we cannot have sayings without objections I would like first to mention  the CyBC show, ‘Edo ke tora’ (Here and now), of March 8, during which an AKEL deputy disputed the fact that Cyprus’ GDP had grown by 1.6 per cent, on the grounds that deflation had not been taken into account.

Fortunately, another deputy on the show intervened to explain that the rate of growth of GDP is calculated in real terms – that is it is adjusted to inflation – and not in nominal terms. I find it difficult to believe that the AKEL deputy did not know the difference between real and nominal GDP and the question remains, as to why he insisted on doubting the growth in real GDP. One thing is indisputable: the national cake of Cyprus in 2015 was 1.6 per cent bigger than it was in 2014.

On the same show, the AKEL deputy claimed that the current government was to blame for the unequal distribution of income after 2013. If we look at things objectively, we would agree that there is more inequality as a result of the increase in unemployment. When Demetris Christofias was elected president in 2008 the number of unemployed was 9,250 but a couple of months before his term was over at the end of 2012, the number was 39,000. The latest statistical data has raised the number to a little over 41,000. In short the dramatic increase in unemployment that led to greater income inequality took place during the term of Christofias and it is at him the folk of AKEL should direct their fire if they want to be 100 per cent fair.

Another claim we have been hearing ad nauseam is that we must not privatise any semi-governmental organisation (SGO) because they are “profitable”. Even a secondary school student that has economics lessons would be able to explain that an organisation, which enjoys the monopoly on a basic service for which demand is almost completely inelastic, can not only set the price but also its profit, in advance. In the final analysis, the so-called profits represent a heavy tax on the shoulders of working people, whom AKEL and the other parties claim they are protecting.

The truth, the bitter truth, is that inside the SGOs spreads an infectious disease that has been passed on by the parties and unions. The symptoms are well-known even to those who do not want to see them: absence of meritocracy, fat salaries, non-contributory pensions, assorted generous benefits, over-staffing, a manger for every 10 to 14 workers, low productivity, highly-priced services that strangle the economy, suspicious investments, corruption, rivalry for positions and titles, and money-wasting on limousines and other ostentatious goods. This is why unions, supported by most parties want to protect the joke profitability.

Another thing we have been hearing endlessly from deputies is that 40 per cent of Cypriots live below the poverty line. It is a figure that impresses at first, but it is a misleading assertion. Poverty as a measure has two sides – the absolute and the relative. Absolute poverty is the condition in which people do not have the basics for their survival such as food, water and shelter. Absolute poverty refers to large numbers of the population in developing countries but also appears in developed countries given that the homeless are a common feature of all the big Western cities.

What is defined as absolute poverty is living on a smaller income per day than what is set as an absolute minimum. The most commonly used statistical method (also used by the World Bank) is the percentage of the population that lives on less than one dollar per day at 1985 prices. In Cyprus there is no absolute poverty – the minimum guaranteed income is much higher than $30 a month at 1985 prices.

Relative poverty defines poverty in relation to the economic situation of other members of society. In the EU it is set by the percentage of residents of a country that live on an income less than 60 per cent of the median income (50 per cent of the population is below the median income and 50 per cent above it).

The overwhelming majority of economists and sociologists do not consider the way relative poverty is calculated as satisfactory. Low income is just one indicator of poverty. To have a full picture of poverty we should take into account other factors, for example, quality of housing, social benefits, and the assets of every ‘poor’ person because someone could own immovable property of great value (prime real estate) and zero income.

But even if we ignore these factors the definition is ridiculous. It means that if, for example, all real incomes of Cypriots increased 10-fold the same relative poverty would exist as the percentages of incomes, in relation to the median income, would remain exactly the same. Using this definition, in a report it prepared in 2014, UNICEF concluded that poverty in the Uinted States was greater than in Greece!

 

George Koumoullis is an economist and social scientist

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