Weekly Briefing, Vol. 29, No. 2 (MK), May 2020
The trickle-down logic of the economic policy response to COVID-19
On may 17th, the government adopted a third economic package worth €355mn in response to the coronavirus (COVID-19) pandemic. Upon announcing the set of measures, Interim Prime-Minister Oliver Spasovski stated that its aim is to “revitalise the economy by stimulating private and public consumption”. Moreover, he added that the package is “based on the principles of solidarity and social security”.[1] The announcement however was met with disapproval by labour unions and other political organisations. They criticised the Government’s focus on one-off measures, the absence of any systemic reforms that can support average workers and vulnerable citizens as well as the trickle down logic of the broader economic policy response.
With the announcement of the third economic package of about €355mn, the total government assistance for citizens and companies during the coronavirus crisis amounts to €550mn or 5.5% of GDP. In comparison to the first two packages (of about €200mn), which were aimed at immediate relief towards saving jobs due to the lockdown measures, the third package has been described as “direct assistance to citizens and businesses to offset the consequences of the coronavirus (COVID-19) pandemic”.[2] Upon announcing this third set of measures on the interim Prime Minister Oliver Spasovski stated: “The new package represents a direct financial support for the increase of the consumption, the support of the agriculture, as well as rewarding the medical staff of the infectious clinics”. It is systematised in 3 main pillars: the distribution of means of payment to the population in order to encourage the consumption of local goods and services; a direct support for the economy; and an aid for the agrarian sector in the country.
A quick overview of the measures suggests that they focus on one-off financial assistance, which is likely to offer only a very temporary and insufficient financial support for regular citizens. For instance, as part of the package €16mn have been allocated for the issuing of one-off payment cards of MKD9,000 (€146 each) for the benefit of around 100,000 unemployed citizens or citizens who are beneficiaries of a minimum social assistance. The card can be used for the consumption on macedonian products and services during a set period of 30 days. Additional 100,000 citizens who receive a net salary of less than MKD15,000 per month and have no additional income, will receive a one-off payment card of MKD3000 (€50) and a voucher of 100 euros to use on domestic tourism. Students from low-income families will be given vouchers of MKD6,000 in total value of €12mn to cover costs for university fees or paying accommodation in student dormitories. Other measures include €50mn for the modernisation of the agricultural sector and €5mn are allocated for the support of SMEs that process agricultural products.
A group of trade unions and organisations issued a statement criticising the general approach of the Government and its focus on one-off ‘gifts’ instead of systemic reforms that can really make a difference in times of economic crisis:
“Reforms are needed in the social protections system (which needs to be expanded and increased) and in terms of worker protection (especially the protection of precarious workers and those on short-term contracts) as well as in terms of the functioning of state institutions (inspectorates, courts etc) and also in term of public finance (the introduction of progressive taxation).”[3]
Additionally, they emphasized the disproportionate favoring of businesses over regular citizens, noting that the third economic response package has allocated three times more funds to businesses compared to citizens, as well as the fact that interest-free loans are made available to businesses but not to individual citizens.
Unconditional state support for big businesses
According to trickle down theory financial benefits given to big business eventually pass down to smaller businesses and consumers. Although it has often been disproven in practice, its logic is visible in the macedonian economic policy response to the COVID-19 pandemic. This became especially conspicuous following revelations of how state support funds had been allocated. Namely, the biggest beneficiaries of public funds seem to have been big firms which had reported relatively large net profits in recent years. This showed a discrepancy between the conditions for supporting individual citizens and firms, favoring the latter. For instance, only citizens who can prove that they receive a net salary of less than MKD15,000 per month can receive a one-off payment of MKD3000 (€50). In contrast to this, firms’ previous earnings played no apparent role in their eligibility for state support of hundreds of thousands of euros. What is more, the state seems to have imposed no conditionally on the beneficiaries of such public funds.[4]
A grant of 1,2 million euros of public funds has been allocated to support “Kromberg & Schubert”, a foreign company operating in Macedonia as part of a global industrial grouping.[5] At the end of March, the left-wing political party “Levica” reported that the firm had laid off 2000 workers,[6] even though upon announcing the economic measures the Government stated they would be made available only to companies which haven’t laid off workers during the crisis. What is more, in 2018 the company reported net earnings of 3,9 million euros and was also tax exempt. A similar example is “Acibadem Sistina”, a private hospital part of a global healthcare groupation. It received 142.000 euros of state support funds, although in 2018 it had reported net profit of 4.1 million euros. The fact that one of the owners of the hospital is implicated in a large corruption scandal has been no obstacle to the provision of the funds.[7] The third example is the company ““Braco” owned by Koco Angjusev, former Deputy Prime Minister responsible for economic affairs and coordination with the economic sectors. His company gained 106.000 euros, although it reported net revenue of 1,3 million euros in 2018, and it pays an average salary of 280 euros per worker. This specific case has also been severely criticised due to its apparent conflict of interests. Namely, not only is the company’s director Koco Angjusev the former Deputy Prime Minister. He is also an acting member of the Council for Fiscal Measures, which devices the specific support measures in response to Covid 19.[8] Thus, he has been able to influence both the drafting of the financial support measures and to be their beneficiary. Finally, a recipient of public funds has been the transport company “Durmo Tours” which has become publicly known for a bus accident in 2019 which claimed the lives of 15 passengers, whilst another 40 were severely injured.[9] The company has been a recipient of state support funds in spite of being part of an ongoing investigation by the Public Prosecutors Office.
With a GINI index of 36.1% in 2018, Macedonia already has the highest income inequality in Europe. 5.2% of the population is estimated to live below the national poverty line.[10] The IMF estimates an increase of unemployment up to 20.4% in 2020 and slight decrease to 19% in 2021. According to the National Agency for Employment, more than 8000 people have already lost their jobs between 11 march and 30 april.[11] These figures are likely to deteriorate further in the coming months, as the pandemic is continuing and the economic after-shocks are starting to take effect. It is in such a context that the Government has focused on one-off measures failing to introduce systemic reforms that can support average workers and vulnerable citizens. It has chosen to offer preferential and unconditional support for big businesses following the trickle down logic that ‘If you feed the horse enough oats, some will pass through to the road for the sparrows.’ This approach rooted in the interlocking between politics and private business interests is likely to contribute towards rising inequality in the country, and to serve as another practical invalidation of the trickle down logic of neoliberal economics.
[1] https://vlada.mk/node/21424
[2] Ibid
[3] https://mhc.org.mk/news/zdruzheni-sindikati-i-organizacii-tretiot-paket-merki-e-potvrda-deka-vladata-ne-gi-pochituva-rabotnicite-i-sindikatite/
[4] https://levica.mk/2020/05/25/sdsm-povtorno-pokaza-deka-se-grizi-samo-za-profitot/
[5] https://telma.com.mk/telma-doznava-kaj-koi-firmi-legnale-parite-od-drzhavna-pomosh-za-isplata-na-plati-od-14-500-denari/
[6] https://rabotnik.com.mk/%D0%BB%D0%B5%D0%B2%D0%B8%D1%86%D0%B0-%D0%BE%D0%BA%D0%BE%D0%BB%D1%83-2000-%D1%80%D0%B0%D0%B1%D0%BE%D1%82%D0%BD%D0%B8%D1%86%D0%B8-%D0%BE%D0%B4-%D0%BA%D1%80%D0%BE%D0%BC%D0%B1%D0%B5%D1%80%D0%B3/
[7] https://www.rferl.org/a/north-macedonia-president-orders-action-on-corruption-scandal/30106351.html
[8] https://www.24.mk/details/kocho-an-ushev-chlen-na-sovetot-za-fiskalni-merki-za-kovid-19
[9] https://levica.mk/2020/05/25/sdsm-povtorno-pokaza-deka-se-grizi-samo-za-profitot/
[10] https://www.lloydsbanktrade.com/en/market-potential/north-macedonia/economical-context
[11] https://www.lloydsbanktrade.com/en/market-potential/north-macedonia/economical-context