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18 April, 2016

Bulgaria in the trap of neoliberalism

In 1989 the Berlin Wall fell and the so-called “transition period” for Central and Eastern Europe began. The goal pursued was a radical change of society at economic, political and social level. In relation to this, Bulgaria endorsed a variety of development programs, which were manipulated by the two supranational institutions – the World Bank and the International Monetary Fund. The country was quickly encompassed by a wide network of non-governmental organizations (NGOs) whose number amounts nowadays to 38,000. The UN agencies, supranational authorities and NGOs organized and coordinated Bulgaria’s transition through the same methods, ideas and language, which were being used for the Third World Countries by that time.

by Daniela Penkova

PART 4 - What kind of improvement? GDP is losing calories

Too much and for too long, we seemed to have surrendered personal excellence and community values in the mere accumulation of material things. … Gross National Product counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl. It counts napalm and counts nuclear warheads and armored cars for the police to fight the riots in our cities … and the television programs which glorify violence in order to sell toys to our children … it measures everything in short, except that which makes life worthwhile. - Robert Kennedy

The adopted index measuring development is the Gross Domestic Product (GDP) – the market value of the produced end products and services in a country in the course of one year. But the GDP has never been able to describe the real prosperity of a certain society. Many researches show that economic growth is not lastingly accompanied by an improvement of the people’s well-being.

GDP was adopted by the World Bank and the International Monetary Fund in 1990 replacing the index Gross National Product (GNP). The difference between the two indexes is important and explains the reason for the substitution: GDP measures the production within a territory and GNP considers the citizenship. When a privatization is carried out, the production is being performed on a country’s territory (and thus is being reported as GDP) but a great part of the profit from this production is being exported abroad thanks to the movement of the capital. For example, if a foreign citizen buys the rights to exploitation of a mine, he will pay only a small fee to the state (in Bulgaria the Canadian company Dundee Precious Metals pays only 1% royalties), exporting abroad a big part of the profit. When the mine’s profits increase, the GDP is going to rise, while GNP will show a drop in the state’s income because the company is Canadian. The Bulgarian national product is decreasing while at the same time Canada’ GNP is increasing.

There are lots of other problems with the acceptance of the economic growth as a measure of prosperity. For example, GDP includes expenses made because of natural and human caused catastrophes which in turn are considered to be good for the economy while in fact these catastrophes are tragic for the society. An example of this could be the ecological catastrophe in the Mexican Gulf in 2010 when 11 people died in the ocean and over a billion liters of petrol were poured into the sea: this raised the GDP with tens of millions of dollars. Each flood in Bulgaria during the last years has lead to expenses for rescuing and restoration activities, which make the GDP rise. This might sound unbelievable but each natural catastrophe is highly welcome for the economic growth. The same way the increase of illnesses among the population leads to more expenses for drugs and hospital services which is again registered as economic growth.

The way GDP is being calculated is also debatable. Since 1953 countries adopt the methods recommended by the SNA – The System for National Accounts adopted by the United Nations Statistical Commission. By the end of the 1980s only the end products produced in the real economy were measured. In 1987 Italy was the first European country that followed the new recommendations by the SNA and included in its GDP the estimated production of the grey sector and thus registering a raise of 18% literally for a day. Since then other countries gradually include in their calculations the “estimates” of the undeclared activity. To what extend are they real, no one could say. It is a real scandal that from September 2014 the European Union started registering even the black sector activity. Drugs, contraband, prostitution and corruption officially became part of the measure for economic growth and hence for the “development”. Until then the weapons production was considered an “intermediate product” while since September 2014 it became an “investment”. It is a rhetorical question whether these activities really create welfare for the society.

I would like to complete my critic at the index for economic growth and development by emphasizing that it does not show in any way how the wealth is being distributed within the society and how it is being used. A country with a strong social inequality may register the same GDP as another country in which wealth is distributed more uniformly.

In 1989 the wealth in Bulgaria was distributed comparatively uniformly – there were no proprietors of big capital and poverty was practically non-existent. But since many services were free of charge (public health, education, textbooks, transportation of students and pensioners) and other services and goods were sold at state-fixed prices which sometimes did not exceed the costs for their production (groceries, transportation, electricity, water-supply and so on), the GDP was comparatively low then. After the privatization and price liberalization they increased beyond measure thus increasing the GDP as well. That is why GDP is hardly the measure helping us depict correctly the condition of any economy.

The witnesses to the economic catastrophe in Bulgaria, observing the spreading poverty stifling the country, are probably deeply confused by the claims of the economists of development according to whom the life in Bulgaria is nowadays much better than that in 1989 because the GDP has almost tripled (from 2449 dollars to 7498 dollars per capita).

But which index could be used in order to make a correct comparison between the economic condition of the people in 1989 and the one today? While examining the international statistics we come upon one very interesting index used by FAO for decades – the consumption of groceries per capita, measured in kilocalories per day. This seems a very appropriate measure especially having in mind that no one could consume kilocalories greatly exceeding the daily consumption because of the simple physiological restriction itself. From the FAO data we can see that in 1989 in Bulgaria were consumed 3623 kilocalories per capita daily and the country was fourth in the world before all the Western countries (France was 8th, Italy – 9th, Austria – 11th, USA – 14th, and the average daily consumption of the world was 2635 kilocalories per capita). FAO’s last available data are from 2011, from which is seen that Bulgaria has fallen from 4th to the 81st position with an average daily consumption of 2877 – which is 25% less (the survival minimum is 2400 kilocalories). In comparison, Ghana is on 65th position.

Source and references:

[1] [2] [3] [5] [6]

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