POVERTY, AUSTERITY AND DEBT Paul Stubbs, The Institute of Economics, Zagreb pstubbs@eizg.hr Subversive Forum, 18 May 2013.

My recent obituary of Margaret Thatcher in Banka unbalanced, ultra leftist, morbid and culturally inappropriate for speaking ill of the dead as it was apparently included the argument that her role as an historical figure was largely based on her ability to translate the complex non-senses of neoliberal economic theory into a kind of populist commonsense and, moreover, to combine this with authoritarianism, nationalism and, crucially, a kind of 'moral underclass' discourse which saw poverty as, primarily, the fault of the poor themselves. Within this, and I think very pertinent to the panel, was her ability to get people to believe that there was a clear linkage between 'the good household' not spending more than it has i.e. not getting into debt - and the 'good state'. Turn this round and, now, just as an indebted state is the complete antithesis of the new mercantilist Merkalist commonsense, the extension of this is that 'household debt' is equally bad and that households themselves are to blame. What these axioms seek to achieve of course is to completely invert the real structural causes of poverty and indebtedness and to shift the blame away on to ordinary people who, of course, are pathological and therefore not ordinary at all. Since eljko Ivankovi, having argued with me that he had no conflict of interest in attacking Udruga Franak in print, then went on to accuse me of 'punk leftism' stating that, unlike him, I had never known poverty and exclusion, I feel I have the right to reply. Without wanting to tell the whole story, because I know the new left in Croatia finds the personal as opposed to the (Marxist) analytical mode deeply difficult, let me just touch on the impact of Thatcherism on my family. My mother, very much the boss of the household, and a solid member of the respectable working class, kept a tin divided into several compartments hidden in the sewing machine. When my father handed over his weekly wage packet, later turning to a monthly one as he sought to gain middle class acceptance as a 'time and motion supervisor', she would carefully fill each compartment with money towards the bills that were due. I guess we were lucky in having a frugal mother, and a father who, unlike most of his Liverpool working-class counterparts, did not drink half the salary on 'Sans faire rien' night before handing the rest over begrudgingly. Debt with a capital d had to be avoided at all costs. I remember my mum's horror when two years into a university course, the bank (the Cooperative bank as I had already quit Barclays' in protest over its support for apartheid) offered me a credit card which I readily accepted. By this time, Thatcher had offered them, and they had jumped at it, the chance to 'buy their own council house'. Overnight, they turned from council tenants into owner occupiers, paying a little more than the monthly rent but nothing they could not manage. They were the masters of their own destiny now, although my mother's frugality meant that none of my father's list of household changes and adaptations was ever allowed to come to fruition: for my mum, it was enough that the exterior of the house could be painted whenever, and whatever colour, we liked. And then she died, suddenly, just after he had taken early retirement and he embarked on all of those improvements, some quite lavish foreign holidays, and no doubt a few other things, financed by remortgaging the house against a value inflated by the post-Thatcher financial boom throughout Britain. Can you see why Thatcher is, at least in part, to blame for the fact that, old and immobile, living alone, he now

has debts that he cannot repay, living in a house which he cannot sell, not merely because 'the bottom has dropped out of the market' but because the remortgaging over-inflated the true value by a considerable amount. What has any of this got to do with contemporary Croatia? The transition, in part masked by war and authoritarian nationalism, from clientelistic neo-pluralist socialism to clientelistic neo-liberal capitalism created an extraordinary boom and bust. The first long wave of consumption driven, jobless, unsustainable, eco-threatening, and inequality producing growth was followed by a deep, structural recession raising poverty, inequality and unemployment alarmingly. In the same period, home ownership became almost universal with any idea of social or not-for-profit housing being, at best, marginalised and, at worst, almost obliterated. Croatia has one of the highest owner-occupied rates in the EU, with a very tiny rental sector. At the same time, up to 2010 at least, it had a relatively high level of owner occupiers with no outstanding mortgage or loan. Run this alongside a highly oligopolistic banking sector which, in the boom period, offered mortgages to many who could barely afford to pay them back and, instead of an insurance-based system in the event of job loss or sudden crisis, insisted on other people's property as collateral. Risk was not shared, therefore, between the banks and their clients but, rather, between those taking a loan and their relatives and friends who owned property. The tendency to use increased book value of property for remortgaging was also gaining ground, of course, before the crisis set in motion capital flight and a new wave of restricted credit arrangements, creating overnight a new sector of informal loan sharks and, now, those who will literally buy at knockdown prices the family's gold and silver. The result, in the recession, of course, is that many lost their jobs, more will do so even if and when the first seeds of recovery occur, and banks continue to be very reluctant to offer more flexible arrangements. And yet, all this is largely hidden from view. Croatia is a high social spending country, with relatively low levels of real or extreme poverty and exclusion and a pretty decent social protection system, helped by extended family systems and neighbours who care, as well as humanitarian, Christian and non-governmental organisations who fill the gaps. The biggest problem is that there are too many social benefits, and too many chances to cheat the system, so that too much money goes to those who do not need it. Or is it? This might be the picture you would get from Jutarnji list last Saturday (4 May 2013) announcing that the Government has decided not to pursue the most important reform- simplifying the system of social benefits, so that the rich continue to be able to claim social assistance. The true picture would take too long to outline here. Suffice it to say that, for the years 2010 and 2011, we finally have statistics on poverty and social exclusion and on social expenditure which are comparable with those of EU member states. In terms of risk of poverty and social exclusion, Croatia is the fifth worst in the EU, after Bulgaria, Latvia, Romania and Lithuania, and slightly worse than Greece. 1,380,000 people or 32.7% of the population was at risk on at least one of the indicators in 2011. There has been an increase of 61,000 people since 2010, mostly those in 'low work intensity households', a direct impact of unemployment and the fact that a smaller proportion of the unemployed than ever before are receiving unemployment benefits. And by the way, in its Economic Programme for 2013, Croatia has set its target, as its contribution to Europe 2020, to reduce this by 100,000 over nine years, an insulting figure made worse by the fact that the overall population is set to shrink by about 80,000 in the same period.

In 2010, Croatia spent 20.8% of GDP on social expenditure. Only the Czech Republic, Malta, Lithuania,Slovakia,Poland, Bulgaria, Estonia, Latvia, and Romania spent less. It does not take a genius to see the correlations between low social spending and high risk of poverty and social exclusion. The one anomaly in the Croatian case, however, is the fact that Croatia spends 51.5% of social protection expenditure (or 10.7% of GDP) on Sickness/healthcare and disability, the highest in the entire EU, around 50% higher than the EU-27 average, and mostly on working aged veterans diagnosed with PTSP. What happens, however, is that demands to reduce social expenditures rarely mentions this but instead cuts benefits which are already low and with insufficient coverage or, irony or ironies, focuses on fraud which is, probably, minimal and certainly would cost more to eliminate than would be saved. So, to conclude, it is time that there was a study on indebtedness in Croatia using EU comparable methodology a study insisted on by the European Commission under the JIM process was little more than farcical; it is time to expand social housing which was noted in the JIM and then ignored; there is a real need to bridge the gap between low rates of receiving unemployment benefits and low rates of taking up social assistance; the idea of a social pension needs to be revisited for the 10s of thousands of people, mainly women, receiving neither a pension nor social assistance, and banks need to be persuaded or forced to share risks more equitably, to introduce insurance schemes to protect those who become unemployed, to agree to repayment pauses, and so on. But above all, and I do think this is an issue for the new left which finds 'social' issues just as boring as the right, there needs to be a more discussion of issues of poverty and social exclusion, and social spending, based on facts, and which attempts to develop a more universal, equitable set of welfare arrangements in Croatia. It is to the credit of Udruga Franak that, by focusing on indebtedness in the way they have, wider discussions of the structural nature of poverty and inequality are finally emerging in Croatia.

Paul Stubbs 11 May 2013.