Inštitut za ekonomsko demokracijo

For a Functioning Democracy, Stronger Focus on Economic Rights is Essential

Author: Erika Funa

For a Functioning Democracy, Stronger Focus on Economic Rights is Essential

Economic inequality in Europe has been on the rise since the mid-1980s, but since 2008, it has reached levels where it has become a threat to democracy. In 2019, before the Covid crisis, a little over 38% of the disposable income in the EU States could be attributed to people in the top 20% of the income distribution, while people in the bottom 20% of the income distribution received slightly less than 8%. Based on the 2018 Eurostat data, EU inequality can largely (80%) be attributed to within-country inequality, however, since Covid lockdown measures and their effect on employment, between-country inequality has been rising too, and within-country inequality is predicted to continue increasing due to employment income losses of lower-income groups such as the young, those on temporary contracts, and the low-paid self-employed.

By 2017, the indicator of socioeconomic equality had already dropped from 3.25, whereby a value of 3 indicates that while wealthy people have more political power than others, people of average income have almost as much influence and poor people have a significant degree of political power, – to nearing 2.5, whereby a value of 2 means that ‘wealthy people have a very strong hold on political power. People of average or poorer income have some degree of influence but only on issues that matter less for wealthy people.’ More than half of European countries registered notable deterioration of socioeconomic equality, meaning it is moving in the direction of wealthy people having significantly more power than the rest. Although the worsening of equality has since 1993 been most pronounced in socioeconomic conditions, it has since the 1980s also reflected in health and education, particularly noticeably in the last 5 years. In fact, Europe is close to a situation where healthcare access of at least 10% of citizens end education quality of 10% of children are so poor and low quality that their eventual ability to exercise basic rights as adult citizens is undermined.

European countries where inequalities have been growing have in the last decade also registered shrinking democratic space or a rise in protest and populist/nationalist movements. A simple correlational analysis of the change in liberal democracy scores from 1993 to 2017 and the corresponding changes in equality levels across education, health, and power by socioeconomic position aligns with this observation. For democracy to function, citizens need to be equally capable to participate in the governing process in the sense that they can influence governing outcomes. High resource inequality undermines this precondition. Not only are reasonable levels of socioeconomic equality necessary, but the decision to participate in the political system also expresses the system’s legitimacy.

Nobel Prize-winning economist Amartya Sen has highlighted the fact that economic freedom is only possible where citizens have the resources, competence, and capability to flourish. A sense of economic citizenship could provide all people with the resources and capabilities necessary to make meaningful life decisions. Access to and control of economic resources and decision-making can be rebalanced through democratic mechanisms. In line with this, economic democracy offers a democratic vision towards a more just and sustainable system that tackles inequality and opens the economy to wider public participation. The foundational requirements are the essential values of social justice and solidarity, and three interlocking pillars: individual economic rights, diverse forms of democratic collective ownership of companies, and the need for greater public participation in economic decision-making.

If you want to support the Institute for Economic Democracy in its mission to improve wealth inequality by making employees also owners of the companies, feel free to contact us.

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