The Bulgarian is the worst user in European Union. Its consumption is 51% below average, the data shows Eurostat. Even the Romanians are ahead of us, consuming 5% more than us.
It is logical, people in the poorest country in the EU, who receive the lowest wages, to consume the least.
The data does not just show how many products each of us buys, but what is his total consumption of goods and services paid for by him or by the state.
Real individual consumption is considered the most accurate measure of household material wealth. It takes into account all goods and services consumed, regardless of whether they are paid for by individuals, the state or non-governmental organizations.
Thus, the bill includes the costs of health and education, which are supposedly free in Bulgaria.
Residents of Luxembourg and Germany have the highest consumption. They are also among the leaders in the GDP ranking per person measured at purchasing power parity.
Bulgaria is last here as well, with the production being only 47% below the average level in the EU.
The data answers the question why the foreign investors do not come to our country, despite the record low for Europe corporate tax from 10%. The Bulgarian market is too small, and because of the negative demographic trends, too unpromising. Because of low incomes, much of the consumer demand is directed towards essential goods and services, while higher value-added products are a privilege.
The only way to change that is to increase incomes, but with a small market, the economy's only competitive advantage is low labor costs. How to get out of this vicious circle?
The described situation is not typically Bulgarian, not that we Bulgarians think of ourselves as unique. What is currently happening in Bulgaria has already happened in many countries around the world.
There are two key moments in the development of the economy. The first is when gross national income, distributed per capita, exceeded the poverty line, which can tentatively be defined as $1,000, weighted through purchasing power parity at 2005 prices. Then the economy turns from agrarian to developing.
The second moment is when gross national income per person jumps above the $10,000 mark and if it continues to grow and then the economy becomes developed. This is the path taken by countries like Germany, USA and Japan.
Passing through these two key moments of economic development is usually associated with crises and uncertainty.
There are many examples, mainly in Africa, from the second half of the 20th century, how countries remain agrarian and cannot enter the path of industrialization. That's it the low income trap.
The trap in which Bulgaria finds itself is that of middle incomes. When gross national income per person exceeded 10,000 dollars, this usually means that a middle class has formed in the country, that the share of agriculture in the economy has decreased at the expense of industry, and that the service sector is growing and developing at a rapid pace.
The middle income trap is very difficult to skip. In the 50s and 60s of the XX century, he also clicked for a number of countries in South America, none of which managed to skip him. At the moment, for example, Argentina is trying to tackle this challenge for the second time.
Argentina's prosperity was due to the export of raw materials needed during World War II and in the rebuilding of a devastated Europe afterward. But when commodity prices begin to fall, Argentina's economy collapses with them.
Against the background of the global financial crisis, shook the developed world in 2008, and thanks to the billions poured into the US by the Federal Reserve Bank, which cheapened capital and increased liquidity on a global scale, many developing economies fell into the middle-income trap. Among them are China and Turkey.
Greece also failed. For about a decade debt-financed and European funds public spending created the illusion that the country had overcome the middle-income trap. But the financial crisis revealed the truth, namely that Greece is still a developing economy.
Turkey is currently testing the middle income trap. In 2011, the gross national income per capita in our southern neighbor exceeded $10,000.
In China, this happened in 2010, and since then the world has been waiting for the hard landing of the Chinese economy.
The trap has to do with the fact that at some point labor costs reach levels where investment in productive capital becomes more profitable than investment in jobs. But most companies just move production are in another, cheaper, developing economy, or limit new capital investments and direct their investments to other markets. That's why having a local, functioning industry independent of foreign investors is key to jumping the trap.
If the jump fails, the economy usually goes into recession and a prolonged period of stagnation. During this time the income of the population is decreasing, the competitiveness of production increases, at some point the investors return and another attempt to jump the trap follows.
Bulgaria fell into it in 2008.
Then, according to the World Bank, gross national income per person exceeded $10,000. In 2009 the country's economy went into recession and has been in abeyance ever since. Latest data on the gross domestic product show growth of 1.2% in the first quarter of 2014, but if the effect of deflation is removed, the economy shrank by about half a percent.
Our country has already fallen into the middle income trap. This happened in the 1980s, when high wage costs at state-subsidized full employment led to an economic crisis and ultimately the collapse of communism throughout the Soviet bloc.
How do we get out of the trap we've fallen into? The truth is that the only way out is through the increase of the investments. And since an unpromising market like the Bulgarian one is not so interesting for private investors, the state must replace them by taking on debts, building infrastructure, investing in the economy.
Unfortunately, not only the Bulgarian economy, but also the Bulgarian democracy is semi-developed, according to the definition of Freedom House. While corruption accompanies any attempt by the state to support economic growth, and society has no control over the political class, which only plays in elections, the door to government investments it should be as tightly closed as possible.
But without state aid, getting out of the middle income trap will take the Bulgarian people a few more decades.
author: Nikolay Kirov