international conference on international business 22 ...

INTERNATIONAL CONFERENCE ON INTERNATIONAL BUSINESS www.icib.eu

22-23 MAY 2010

PROCEEDINGS EDITED BY VASILEIOS A. VLACHOS

INTERNATIONAL CONFERENCE ON INTERNATIONAL BUSINESS www.icib.eu

Thessaloniki, 22-23 May 2010

Proceedings edited by Vasileios A. Vlachos

ΠΑΝΕΠΙΣΤΗΜΙΟ ΜΑΚΕΔΟΝΙΑΣ UNIVERSITY OF MACEDONIA

© 2010 Πανεπιστήμιο Μακεδονίας, Θεσσαλονίκη Εγνατία 156, 540 06 Θεσσαλονίκη www.uom.gr Τμήμα Διεθνών και Ευρωπαϊκών Σπουδών Τηλ. 2310 891452 | Fax: 2310 891285

ISBN 978-960-8396-57-9

Απαγορεύεται η με οποιονδήποτε τρόπο αναπαραγωγή του συνόλου ή μέρους του παρόντος με οποιοδήποτε μέσο, μηχανικό, ηλεκτρονικό, φωτοτυπικό, ή άλλο, χωρίς την γραπτή άδεια του συγγραφέα, σύμφωνα με τον Νόμο 2121/1993 και τους κανόνες του Διεθνούς Δικαίου που ισχύουν στην Ελλάδα.

INTERNATIONAL CONFERENCE ON INTERNATIONAL BUSINESS

Organizers Department of international and European Studies, University of Macedonia (Thessaloniki, Greece). Faculty of Political Science, University of Messina (Messina, Italy). CRIISEA, University of Picardie (Amiens, France).

Chair Dr. Aristidis Bitzenis

Organizing Committee Dr. Aristidis Bitzenis, University of Macedonia (Thessaloniki, Greece). Dr. Konstantinos Hazakis, Democritus University of Thrace (Komotini, Greece). Mr. Charisios Kafteranis. Dr. John Marangos, University of Crete (Rethymno, Greece). Dr. Ioannis Papadopoulos, University of Macedonia (Thessaloniki, Greece). Ms. Christina Sakali, University of Macedonia (Thessaloniki, Greece). Dr. Ioannis Tampakoudis, University of Macedonia (Thessaloniki, Greece). Mr. Vasileios A. Vlachos, University of Macedonia (Thessaloniki, Greece).

Scientific Committee Dr. Aristidis Bitzenis, University of Macedonia (Thessaloniki, Greece). Dr. Mario Centorrino, University of Messina (Messina, Italy). Dr. Konstantinos Hazakis, Democritus University of Thrace (Komotini, Greece). Dr. Dimitrios Kalimeris, Alexander Technological Educational Institute of Thessaloniki (Thessaloniki, Greece). Dr. John Marangos, University of Crete (Rethymno, Greece). Dr. Darko Marinkovic, Megatrend University (Belgrade, Serbia). Dr. Ioannis Papadopoulos, University of Macedonia (Thessaloniki, Greece). Dr. Georgios Rizopoulos, Univeristy of Picardie (Amiens, Frence). Dr. Andrea Romano, University of Messina (Messina, Italy). Ms. Christina Sakali, University of Macedonia (Thessaloniki, Greece). Dr. Bruno Sergi, University of Messina (Messina, Italy). Dr. Ioannis Tampakoudis, University of Macedonia (Thessaloniki, Greece). Dr. Ljiljana Viducic, University of Split (Split, Croatia). Mr. Vasileios A. Vlachos, University of Macedonia (Thessaloniki, Greece).

ICIB 2010

Contents Page Preface

1

Budgetary Crisis and Recession The new budgetary architecture of the EU in the view of the financial and economic crisis.

3

Efficiency of budgetary crisis management by EU mechanisms: Lessons from the Greek case.

13

Eurozone crisis: Is Greece to blame alone?

14

Albania and the recent world crisis: Economic growth or political illusion?

21

Market/Sector Analysis Corporate governance, social responsibility and corporate reputation: An empirical analysis of the situation in the republic of Croatia.

34

Regulatory barriers to entry in industrial sectors.

36

Analysis of apple production of EU-Balkan states based on PC time series database.

57

The market for corporate control in Greece: A critical assessment of the wealth effects to bidding-companies' shareholders.

66

An accounting comparison of the post-merger economic performance of Greek acquiring listed firms in domestic vs. international M&As at south-east Europe.

67

The financial crisis and the prospects for investments in the energy sector in Bulgaria.

68

Crisis management: A contemporary constant need for business continuity in the tourism industry.

69

Increasing the managerial capabilities in Indonesia.

71

Human Resources Issues in International Business The influence of the human resource capacity on the level of foreign investments in countries in transition: The case of Serbia.

73

Wage system in Albania: An integral part of the human resources management system.

80

An exploratory comparison of intended behaviors in ethical business reporting situations between US and Bulgarian university students.

81

i

HR related ethics: US vs. Bulgaria.

83

Effects of European Union Membership The main determinants of inflation of the EU and the US economy: A panel timeseries analysis.

85

The macro-economic dimension of the future EU membership for Turkey in comparison with other CEE member countries.

86

Labour relations policies in Greece during the period 1974-2010: The developments in the European Union.

88

EU membership and transition: International business in Bulgaria.

105

Foreign Direct Investment FDI and cross border acquisition activities in emerging markets: Turkey as the case study.

106

What kind of theory for FDI in Bulgaria?

122

A stochastic frontier analysis of foreign direct investment and growth.

124

Foreign direct investments in western Balkans: The case of Albania.

127

Innovation and competitiveness of Asian companies in facing globalization.

128

The study of possible ways to attract foreign direct investment in order to promote exports in Imam Khomeini trade zone.

140

FDI determinants and its impact on economic growth: A comparative study between Kenya and Malaysia.

146

Competitiveness and FDI effects on development and GNP in Iran.

177

Pattern to capture FDI absorptive capacity.

178

Economic Development and International Trade

ii

Global competition, productivity, and trade: An alternative model of comparative advantage.

179

From market economics to institutional embeddedness of economic development: Key ethical issues for transition states.

181

International trade entrepreneurship in the context of price risk exposure.

182

The establishment and formulation of the D-8 preferential trade agreement; the strategies by developing eight of economic co-operation organization (D-8) amongst Muslim countries towards successful trade policy formulation and implementation process.

199

Papers in Greek Η αμοιβή ως μέσο παρακίνησης των εργαζομένων.

217

Η λήψη αποφάσεων και οι επιχειρησιακές συμπεριφορές στις ελληνικές επιχειρήσεις.

219

Η αντίληψη της νέας τεχνολογίας των ERP συστημάτων από τις επιχειρήσεις: Το κλειδί για την επιτυχία.

230

Αντιλήψεις σχετικά με την εφαρμογή συστημάτων περιβαλλοντικής διαχείρισης στις σύγχρονες ελληνικές επιχειρήσεις.

239

Ποιότητα υπηρεσιών και ικανοποίηση τραπεζικού πελάτη.

241

Η συναισθηματική νοημοσύνη στην πανεπιστημιακή διοίκηση.

251

Συστήματα ελέγχου και περιβαλλοντική πολιτική των ελληνικών επιχειρήσεων μεταποίησης.

261

Η Μεταβλητή της ικανοποίησης του δικαιοδόχου ως απόρροια της ενημέρωσης και της καθημερινής συνεργασίας με την εταιρεία Franchising.

277

Τυπικά και ουσιαστικά προσόντα στελεχών πληροφορικής στις ελληνικές επιχειρήσεις.

287

Η διάσταση της πρόσληψης ανωτάτων στελεχών στις επιχειρήσεις.

297

Οργανωσιακές αντιλήψεις και επίλυση προβλημάτων στη ελληνική τουριστική βιομηχανία.

298

Οι πρόσφατες δημοσιονομικές ανισορροπίες της Ελλάδος και τα μέτρα αντιμετώπισης αυτών.

308

H πολιτική οικονομία της παγκοσμιοποίησης: Η θεωρητική προσέγγιση του Αστερίξ και Οβελίξ.

309

Η διάδραση κράτους – αγοράς στις υπό μετάβαση οικονομίες των δυτικών Βαλκανίων.

317

Plenary Lectures Shadow Economies in Greece and other European Countries: What Do We (Not) Know?

327

Globalization and Governance for Sustainable Wealth Creation.

329

iii

Preface

Preface by Vasileios A. Vlachos The International Conference on International Business (ICIB) aims to bring together academics and practitioners in order to share ideas and methods for the exploration of foreign direct investment (FDI), the role of multinational corporations (MNCs) and the complexity of the globalized business environment. ICIB 2010 took place on 22-23 May 2010 and was organized in parallel sessions of English and Greek. The conference focused on – but not limited to – empirical research in the following fields: •

Entrepreneurship and international business environment;

•

Global crisis and financial management;

•

Global budgetary crisis management by the European Union (EU) institutions;

•

Global crisis and international business climate;

•

Global crisis and international policy agenda;

•

Globalization, MNCs, competitiveness and development;

•

MNCs and political strategies;

•

Mergers & Acquisitions;

•

Impact and determinants of FDI;

•

FDI and European economic integration;

•

FDI and transition;

•

FDI, trade and regional integration;

•

Prospects towards EU membership; ICIB is supported by a number of participating journals and follows a specific

publication procedure (for details the reader should refer to www.icib.eu). The papers included in the proceedings were presented at ICIB 2010 and have completed the final stage of the publication procedure. The papers are grouped according to the general themes of ICIB 2010 sessions. The pluralism of ICIB 2010 is reflected in the volume at hand, which covers major interlinked issues of international business: global recession, EU budgetary crisis, EU membership, market and sector analysis, human resources, FDI, international trade, economic development. Some papers do not appear in full text as their full versions (copyrights) are property of participating journals or edited volumes committed to ICIB. The organizing committee of ICIB 2010 would like to thank all participants – organizers, members of the scientific committee, presenters, keynote speakers, sponsors, etc. – and aims for an even more successful and stimulating ICIB 2011.

1

Budgetary Crisis and Recession

The new budgetary architecture of the EU in view of the financial and economic crisis Dr. Dimitrios V. Skiadas, LL.B (Athens), M.Jur, Ph.D (Durham)1 Summary: Usually the EU is accused of slow reflexes. However, the EU budgetary reaction on the global financial crisis indicated that there is scope, room and potential for improvement. The unprecedented economic and financial crisis experienced throughout the globe has created the need for integrated actions to meet the short-term and long–term challenges for the national financial, economic, social and political structures and systems. Within the EU framework, the most promising option, given the nature and the characteristics of the EU legal order, has been the re-structuring of the budgetary architecture of the Union, thus allowing for the modification of the overall cohesion policy developed and financed by the Union’s member states. This paper discusses the various parameters of this reaction and its importance in the EU budgetary architecture. Setting the new scenery It was the 15th of September 2008 when one of the biggest banks worldwide, Lehman Brothers Holdings Inc., filed for Chapter 11 bankruptcy protection, thus signifying the start of a – till then dormant – financial and economic turmoil, with enormous social and political implications. This has been the culmination of a dramatic situation developing since 2002, as the inflow of funds in the U.S. economy allowed for low interest rates, thus facilitating loans of various types with easy credit conditions, and “motivating” consumers to assume unprecedented debt loads. The U.S. housing market developed the scheme of mortgagebacked securities, deriving their value from mortgage payments and housing prices, which attracted investors from all over the world. But as housing prices declined, reaching values below those of the mortgage loans, those participating in such schemes suffered significant losses, causing a foreclosure wave, which hit both consumers and financial institutions. It was not difficult for the crisis to expand to other sectors of the economy throughout the world, reaching “pandemic” proportions. 2 EU Budgetary Architecture before the crisis 1

Assistant Professor at the Department of International and European Studies; University of Macedonia, Greece. 2 B. S. Bernanke, Four Questions about the financial crisis, Speech on April 14, 2009, Morehouse College, Atlanta, Georgia, http://www.federalreserve.gov/newsevents/speech/bernanke20090414a.htm, P. Krugman, (March 2, 2009), "Revenge of the Glut", New York Times, http://www.nytimes.com/2009/03/02/opinion/ 02krugman.html. 3

This crisis found Europe in a rather strange budgetary status. The balance achieved through the financial perspectives as agreed on December 15, 2005, was to be reassessed. 3 According to the agreement reached during the meeting of the European Council in Brussels, the total appropriations available to the EU budget, for the period 2007-2013, were set to 862 billion Euros, which represent 1.045% of EU GNI. Out of this sum, the Structural Funds were allocated 308 billion euros, while the Common Agricultural Policy, along with actions supporting the environment, were allocated 371 billion euros. 4 This agreement maintained the two major components of EU spending. The first is the cost of the Common Agricultural Policy. Although there was much criticism for this choice, the fact that most of the new Member States of the Union demonstrated a very high percentage of employment in the agricultural sector, did not allow for a reduction of CAP expenditure. This was reinforced by the international economic environment, as it had been demonstrated during the workings of the Doha Round, which indicated a tendency of increasing agricultural subsidies in the interest of development in poor countries. Furthermore, the protection of food sufficiency and quality calls for investment, especially in an age where food related health hazards are quickly spread across the globe. Consequently, it was deemed that there was not much scope for changing the 2002 agreement on agriculture, as reached by the European Council in Brussels, before the end of the current programming period. Alternatively, there were considerations of either changing the policy itself, i.e. reorienting the payments in a direction of rural development, in which all payments would not be direct but proportionate to the size of the farms, and the income capacity of the farmers, or even abolishing the entire common agricultural policy, in order to make room for free agricultural markets, in which any state subsidies would be monitored and evaluated closely. 5 The second largest part of EU expenditure refers to the support of cohesion and regional policies. Despite all efforts, there are still criticisms about the effectiveness of the support provided by the Structural Funds, a support which lead to an increase of income in some regions, but only through a redistribution of resources instead of the implementation of a more substantive structural policy. For the 2007-2013 period, the introduction of the Lisbon Strategy as an element of preparing the various intervention may result in more positive outcomes. 6 The result of the European Council’s summit on December 2005 has been a temporary solution, which created a tangled web of regulations and conditions, based 3

I. Begg, Fr. Heinemann, New Budget, Old Dilemmas, Centre for European Reform, Briefing Note, 22.2.2006, pp. 1-2. 4 European Council, Presidency Conclusions, Brussels 15-16 June 2005, Doc 15914/1/2005 and Doc 15915/2005 5 I. Begg, The 2008/9 EU Budget Review, EU-CONSENT, EU-Budget Working Paper No 3, March 2007, 1820. 6 I Begg, The 2008/9 EU Budget Review, EU-CONSENT, EU-Budget Working Paper No 3, March 2007, 20-21. 4

Budgetary Crisis and Recession mainly on agreements of previous programming periods. Even the European Parliament rejected it initially and it took six months of long negotiations before reaching the current Interinstitutional Agreement on budgetary discipline and sound financial management. 7 The final compromise has not been so radical, as it still gave relatively more weight to the financing of agriculture (CAP) and reduction of development disparities (cohesion policy) and less weight to the Lisbon strategy objectives (competitiveness policy), other internal

policies

(freedom,

security,

justice

and

citizenship)

and

external

policies

(enlargement and development aid to non-EU and non-candidate countries). 8 Reviewing the Architecture For some, the most important element of the new Financial Perspectives agreement, has been the commitment undertaken by the Union’s Institutions to reassess the financial framework of the 2007-2013 period, by reviewing all aspects of EU spending and resources, and prepare a relevant report in 2008/2009. This “review clause” allowed for mutual concessions to be made during the negotiations and it also demonstrated that the Member States have, at last, realised the need for further budget reform. 9 Others have adopted a more pessimist approach, noting that there have been in the past very well documented studies on reforming the European budget, without, however, resulting in an effective solution. 10 The financial crisis created a new scenery in which the EU had to operate in a method and spirit which would put its potential as a financial as well as political mechanism to the test. The European “cure” for the pandemic financial problem was to introduce a mixture of measures and policies, based on both the monetary approach inspired by Μilton Friedman’s ideas on reducing state action and consequently government expenditure, 11 and the interventionist approach inspired by John Maynard Keynes’s views on using taxation and public expenses in order to improve the demand in the market, thus controlling the effects of the crisis. 12 In that respect, the European Commission presented its proposal for a new architecture, as a recovery plan for Europe. This proposal is based on three pillars: a new

7

For the use and the importance of the Interistitutional Agreements see D. Skiadas, Reforming the European Budget: An Ongoing Tale, Karamanlis Working Paper No 5 in Hellenic and European Studies, May 2008, The Constantine Karamanlis Chair in Hellenic and Southeastern European Studies, The Fletcher School of Law and Diplomacy, Tufts University, 18-19. 8 M. Mrak, V. Rant, Financial Perspective 2007-2013: Domination of national interests, EU-CONSENT, EUBudget Working Paper No 1, July 2007, 5-6 9 I. Begg, Fr. Heinemann, New Budget, Old Dilemmas, Centre for European Reform, Briefing Note, 22.2.2006, 4 10 T. Szemler, EU Budget Milestones: From Fundamental Systemic Reforms to Organised Chaos, EUCONSENT Conference, Budapest 24.3.2006, 11 11 Μ. Friedman, Capitalism and Freedom, Chicago University Press - 40th Anniversary Edition, 2002. 12 J. M. Keynes, The General Theory of Employment, Interest and Money, Harourt, Brace & World, 1936. 5

financial market architecture at EU level, tackling the crisis’ impact on the real economy and providing a global response to the crisis. 13 Out of these three pillars, the third falls beyond the scope of this analysis. It entails an interactional approach and the need for action on behalf of international financial organisations, such as the International Monetary Fund, the World Trade Organisation, the Transatlantic Economic Council, as well as the renewal of bilateral negotiations between key players at world economic stage (i.e. USA, China, Brazil, India, Russia, etc). The first pillar, falls also beyond the scope of this analysis, as it refers to actions related to the banking and credit markets, at EU level and the role of the European Central Bank on this issue. However it is interesting to note that until May 2009 the governments of the member states has approved an overall amount of 3,7 trillion euros to support the banks in Europe, including 311,4 billion euros in capital aid, 2,92 trillion euros in guarantees, 33 billion euros for the acquisition of problematic assets and 505,6 billion euros for liquidity aid of the banks. In a relevant initiative, the EU has established a mechanism to provide financial support to its member states. On the 25th of March 2010, the Euro area member states established a package involving substantial International Monetary Fund (IMF) financing and a majority of European financing, through coordinated bilateral loans. This mechanism has to be considered ultima ratio, meaning in particular that market financing is insufficient. Any disbursement on the bilateral loans would be decided by the euro area member states by unanimity subject to strong conditionality and based on an assessment by the European Commission and the European Central Bank. The objective of this mechanism will not be to provide financing at average euro area interest rates, but to set incentives to return to market financing as soon as possible by risk adequate pricing. Interest rates will be nonconcessional, i.e. not contain any subsidy element. All decisions under this mechanism will be taken in full consistency with the Treaty framework and national laws. 14 This is the core of the so called European stabilisation mechanism. The mechanism is based on Art. 122 para 2 of the Treaty on the Functioning of the EU and the above mentioned intergovernmental agreement of euro area Member States. Its activation is subject to strong conditionality, in the context of a joint EU/IMF support, and will be on terms and conditions similar to the IMF. The overall amount made available through this mechanism will be 500 billion euros. 15 Another development in that respect was the proposal of the European Commission to establish a monitoring mechanism of the financial policies of the eurozone Member States, according to Art. 136 the Treaty on the Functioning of the EU, which will be in a position to

13

European Commission, From financial crisis to recovery: a European framework for action, COM (2008), 706 final, 29.10.2008 14 Statement by the Heads of State and Government of the Euro Area, Brussels, 25 March 2010. 15 Council of the European Union, Extraordinary Council Meeting, Economic and Financial Affairs, Brussels, 9/10 May 2010, Press Release, 9596/10 (Presse 108). The legal instrument for this mechanism is Regulation (EU) 407/2010, OJ 2010, L 118/1. 6

Budgetary Crisis and Recession analyse these policies and provided recommendations for improvement. 16 This monitoring mechanism will operate at a semester basis (called “European Semester”), during which the basis financial and economic policies of the Member States will be reviewed prior to their inclusion

in

the

national

budgets

and

the

EU

Institutions

will

prepare

relevant

recommendations which the national authorities must respect. 17 The obligatory nature of this mechanism and the sanctions to be imposed on those Member States that do not comply with the recommendations have been the object of several negotiating procedures. 18 The second pillar, i.e. supporting the real economy, entails the various budgetary measures for tackling the crisis. The assessment of this scheme is made at two levels: the procedural and the substantive. In terms of process, there has been severe criticism on the entire existing process of selecting a policy for funding. This process has been structured on certain stages which have become more of a formality, instead of substantive elaboration of political choices and opinions. The usual sequence, including initial debates on the objectives of the budgetary settlement, the Commission’s proposals and the Council’s reactions, the exchange of views which can never be reconciled, the intensive efforts of the various Presidencies of the Council in order to reach a complex political agreement in which nobody really understands what they have actually agreed upon, and the indifference of the peoples of Europe, in the name of which all these take place, effectively blocks any prospect of reform. 19 In dealing with the crisis, the institutions of the Union demonstrated a somewhat different approach and behaviour, being more result-oriented instead of process-focused. The Commission reacted immediately to the above mentioned events of September 2008 by presenting several consecutive proposals in October and in November 2008. The European Council, during its meeting in December 2008, approved these proposals, thus setting a new framework for action. It is noteworthy that perhaps for the first time in the long history of the EU and its budgetary and cohesion policy, the various decisions were adopted without the long delays caused by the various layers of consultation and the workings of the various bodies involved in such procedures. It is interesting to note that while the process for reaching agreement by all interested parties for the financial perspectives of the period 2007-2103 lasted for twenty seven (27) months (February 2004 - May 2006), the new budgetary architecture was agreed upon within only three months (October - December 2009).

16

European Commission, Reinforcing economic policy coordination, COM (2010) 250 final, 6-7. European Commission, Reinforcing economic policy coordination, COM (2010) 250 final, 8-9. 18 European Central Bank, Reinforcing Economic Governance in the Euro Area, June 2010, Council of the European Union, Economic and Financial Affairs, Brussels, 7 September 2010, Press Release, 13161/10 (Presse 229), European Council, Presidency Conclusions, Brussels 16 September 2010, EUCO 21/10. 19 I. Begg, The 2008/9 EU Budget Review, EU-CONSENT, EU-Budget Working Paper No 3, March 2007, 2425 17

7

In terms of substance, the contents of the new architecture have been set by the European Council. The measures referring to EU action entail •

an increase in intervention by the European Investment Bank of 30 billion Euros in 2009/2010, especially for small and medium-sized enterprises, for renewable energy and for clean transport,

•

the simplification of procedures and faster implementation of programmes financed by the Cohesion Fund, the Structural Funds and the European Agricultural Fund for Rural Development,

•

the mobilisation of the possibilities, in the context of the Community budget, for strengthening investment in sectors and geographical areas identified by the Commission,

•

the mobilisation of the European Globalisation Adjustment Fund in order to promote employment in key sectors of the European economy,

•

the possibility, for the Member States that so wish, of applying reduced VAT rates in certain sectors,

•

a temporary exemption of two years beyond the de minimis threshold for State aid in respect of an amount of up to 500.000 Euros,

•

the use for 2009 and 2010 of the accelerated procedures in the public procurement directives, which is justified by the exceptional nature of the current economic situation, in order to reduce from 87 to 30 days the length of the tendering process for the most commonly-used procedures for major public projects. These elements form a coherent framework for actions, which set a new, accelerated

rhythm for the Union’s budgetary policy. 20 The European Economic Recovery Plan has two aspects, one regarding measures financed by the national budgets of the Member States and one regarding measures cofinanced by the Union’s budget, through the cohesion financial instruments. While the former is to be conducted within the limits set by the Stability and Growth Pact, the latter is closely connected to the priority areas of the Lisbon Strategy (i.e. people, business, infrastructure, and energy, research and innovation). The combination of funds and policies is seen as a catalyst for actions meeting the challenges set by the crisis and improve the perspectives for future investments. 21 The new budgetary architecture described in the European Economic Recovery Plan has a very strong element of investment in human capital, in the form of a European Employment support initiative. This initiative aims at activating flexicurity strategies by promoting employment and long term employability rather than particular jobs through adaptation to change and easing transition between jobs while at the same time matching 20 21

8

European Council, Presidency Conclusions, Brussels 11-12 December 2008, Doc 17271/1/08 European Commission, A European Economic Recovery Plan, COM (2008), 800 final, 26.11.2008

Budgetary Crisis and Recession skills to labour market needs. These measures are supported financially by the European Social Fund (ESF) in the form of specialised training, personal job counselling, apprenticeship, subsidised employment, grants and credits for self–employment and business start ups. The funding criteria are being simplified and the advance payments have been accelerated. 22 Furthermore, new schemes for supporting entrepreneurship have been developed. Improving access to finance has been indentified as a major need, therefore there has been an increase of the leverage of EU investments for the 2007-21013 period, through launching new schemes such as JEREMIE (“Joint European Resources for Micro to Medium Enterprises”), which targets new business creation and SME expansion, and JASMINE (“Joint Action to Support Micro-Finance Institutions in Europe”) which channels various forms of technical and financial assistance to primarily help non-bank micro-credit providers to improve the quality of their operations, to expand and to become sustainable. Innovative cluster creation and maintenance has been selected also as a business support measure, especially by exploiting the potential of ICT applications, low carbon technologies and eco-friendly products, production techniques and energy efficient processes. Strengthening the institutional and administrative capacity of the EU member states has been identified as a major goal. The creation of a stable business environment will promote structural adjustments and foster growth and jobs, especially by reducing regulatory and administrative burdens on businesses (i.e. ensuring starting up a business anywhere in the EU within three days at zero costs and via a single access point) and thus contributing to increasing productivity and strengthening competitiveness. Special attention is paid to the areas of transport and energy as sources of sustainable development through new – environmentally friendly – infrastructure. In that respect two new instruments have been developed: JASPERS (“Joint Assistance in Supporting Projects in European Regions”) providing assistance to managing authorities in the new member states of the EU to prepare major projects in priority EU infrastructure investments, and JESSICA (“Joint European Support for Sustainable Investment in City Areas”) accelerating and enhancing sustainable investments in energy efficiency, urban transport, ICT infrastructures, regeneration, etc. in the urban context. 23 These new elements of the EU budgetary architecture necessitated the adoption of a new legislative framework, which has been included in a series of Regulations: •

Council Regulation (EC) 2008/1341 of 18 December 2008, OJ 2008, L 348/19 and Council Regulation (EC) 2009/284 of 7 April 2009, OJ 2009, L 94/10 amending Council Regulation (EC) 2006/1083 of 11 July 2006, OJ 2006 L 210/25, on general provisions on the European Regional Development Fund, the European Social Fund and the Cohesion Fund,

22 23

European Commission, Cohesion Policy: Investing in the real economy, COM (2008), 876/3 European Commission, Cohesion Policy: Investing in the real economy, COM (2008), 876/3. 9

•

Council Regulation (EC) 2009/397 of 6 May 2009, OJ 2009, L 348/19 amending Council Regulation (EC) 2006/1080 of 5 July 2006, OJ 2006 L 210/1 on the European Regional Development Fund,

•

Council Regulation (EC) 2009/396 of 6 May 2009, OJ 2009, L 126/1 amending Council Regulation (EC) 2006/1081, of 5 July 2006, OJ 2006, L 210/12 on the European Social Fund. These provisions include a) measures to improve cash flow of the public authorities

charged with delivering the national and regional programmes by allowing for an additional tranche of prefinancing in 2009 and accelerating the reimbursement of expenditure incurred under major projects and within the framework of state aid schemes, b) measures facilitating the launch of financial engineering instruments with a view to accelerating the use of access to finance measures, c) measures simplifying the use of flat rates and lump-sums costs to allow public authorities to more quickly prepare projects and measures and d) measures expanding the possibilities for support to investments in energy efficiency improvement and renewable energy in housing in favour of low income households in the EU 27. Putting the new Architecture to work If setting the new Architecture was considered to be a difficult task, the completion of which is still to be achieved, in some respects, putting this Architecture to work has been a real challenge. The Member States, in compliance with the European Economic Recovery Plan, prepared national recovery plans, in which they included targeted measures, at short and medium term perspectives. These measures focused on structural reforms, while at the same time they included the provision of financial support to sectors of the national economies that needed to be reinforced in order to underpin growth and employment. The provided European budgetary support is estimated at over 600 billion euros for 2009 and 2010. Furthermore, steps have been taken in order to simplify the business environment, especially for small and medium sized enterprises, by reducing social charges and administrative burdens. 24 It is interesting to note that out of the total budgetary support, a quarter was provided to help industry save and job creation or keeping workers in employment, by supporting short time working arrangements, investing in skills and retraining, etc. Half of the budgetary support has been used to support the unemployed, households and vulnerable social groups. The last quarter of the budgetary support was allocated towards investments of a more long term nature, such as infrastructure, energy efficiency, innovation, etc). 25 24

European Commission, Progress on the Implementation of the European Economic Recovery Plan, June 2009, 1-2. 25 European Commission, Progress on the Implementation of the European Economic Recovery Plan, June 2009, 3. 10

Budgetary Crisis and Recession The main structural reforms put forward by the Member States, within the framework of the European Economic Recovery Plan, have focused on three main objectives: i) easing labour

market

conditions

and

supporting

vulnerable

groups,

ii)

strengthening

competitiveness and the business environment, and iii) investing in a greener and more knowledge based economy. 26 In a preliminary effort to assess the impact of these measures, the European Commission noted that they had significant effect in limiting the rise in unemployment, at EU level. Involving the social partners in these schemes allowed the Member states to support flexible work organisations (especially with regard to short time working), equip people with skills and incentives to progress in their working lives, and facilitate transitions in employment. All these efforts prevented substantial falls in the incomes of those worst affected by the crisis. 27 OECD estimates that the various financial support schemes provided at world level have saved between 3.2 and 5.5 million jobs, with the EU accounting for over half of those. 28 In the field of business support, the measures adopted by the Member States facilitated access to finance at EU level, without resulting in protectionist tendencies. However restoring credit flows to the corporate sector is a conditio sine qua non for the recovery to take hold. 29 As for the infrastructure and the “greening” of the economy, there have been variations of performance, given that, despite isolated successful measures for energy efficiency, a lack of provision of strong incentives in various Member States was noted. This is not surprising as the impact of public investment in infrastructure will be felt only in the long term and does not have immediate results. The comforting aspect is that many existing projects have been accelerated and a rapid absorption of funds was realised. 30 With regard to innovation and research, the overall effort focused on supporting private spending on innovation, while the main concern is to make R&D spending an catalyst for an accelerated post crisis recovery, within the framework of continuing the implementation of the European Research Area. 31 In order to achieve these results, the EU made significant advance payments from the Structural Funds, allowing more money to be spent rapidly on priority projects. Total advance payments of 11.25 billion euros have been approved for 2009, including 5 billion euros of advance payments already foreseen for 2009, plus a further 6.25 billion euros as a

26 For a detailed overview of these measures, see European Commission, Progress on the Implementation of the European Economic Recovery Plan, June 2009, 4-9. 27 European Commission, Progress report on the Implementation of the European Economic Recovery Plan, December 2009, 6. 28 OECD Economic Outlook, No 85, OECD Paris, 2009. 29 European Commission, Progress report on the Implementation of the European Economic Recovery Plan, December 2009, 9. 30 European Commission, Progress report on the Implementation of the European Economic Recovery Plan, December 2009, 10. 31 European Commission, Progress report on the Implementation of the European Economic Recovery Plan, December 2009, 11.

11

crisis response measure. Of this total, ESF advances for 2009 amount to approximately 2.4 billion euros. 32 The European Parliament and the Council agreed to fund major energy and broadband infrastructure projects amounting to a total of 5 billion euros (4 billion for energy and 1 billion to help rural areas get broadband internet access, create new jobs and help businesses to grow). Disappointingly however, only around 35% of the available funding is currently devoted to high-speed internet investments. 33 Conclusion The global financial crisis has provided the impetus for a much needed re-appraisal of the budgetary architecture of the European Union. The speedy amendment of the relevant legislative provisions, as well as the establishment of new financial schemes within the EU Cohesion Policy and Lisbon Strategy frameworks, demonstrated that there is potential for change in the EU. The implementation of the new schemes, despite its teething problems, looks promising. Before the crisis it seemed that the Union could not decide whether it wanted a budget that redistributes money from one set of Member States to another or a budget that supports financially the implementation of certain EU-wide policies. Now there is an increased demand for budgetary efficiency. This efficiency can be described as the timely and flexible allocation of resources in order to ensure the appropriate provision of the main public goods required. The response to the crisis is an indication of such efficiency. It remains to be seen if the lessons learned from this process will be useful in the future attempts of the Union to set new financial perspectives and mechanisms of economic governance.

32

European Commission, Progress report on the Implementation of the European Economic Recovery Plan, December 2009, 12. 33 European Commission, Progress report on the Implementation of the European Economic Recovery Plan, December 2009, 13. 12

Budgetary Crisis and Recession

Efficiency of budgetary crisis management by EU mechanisms: Lessons from the Greek case Ioannis Papadopoulos1 Abstract: This paper deals with issues of economic governance in the European Union, and particularly with the structural problems of the EU Economic and Monetary Union, as these were revealed during the Greek sovereign debt crisis in 2010. To that effect, a comparison is made between the architecture of the Maastricht Treaty and the Stability and Growth Pact, on the hand, and federal systems’ instruments of budgetary crisis management, on the other. The main problems identified are the following: Lack of secondary economic rules allowing decision-makers to determine the true nature of a budgetary crisis and thus the type of rules that should apply; lack of sufficiently coordinated debt management mechanisms at EU level; deficient account of underlying comparative competitiveness problems between the EU member states; inchoate tools to obtain growth and jobs through the Lisbon Strategy. These are the most urgent problems the EU has to deal with in order to prevent, and if necessary to correct, similar crises in the future.

1

Department of International and European Studies, University of Macedonia; Thessaloniki, Greece. 13

Δημοσιονομική κατάσταση στην Ελλάδα: Φταίμε τελικά για όλα;1 Παπαδημητρίου Πύρρος2 και Γιάννης Χατζηγιαννάκης3 Εισαγωγή Την τελευταία περίοδο η χώρα μας διέρχεται τη μεγαλύτερη, ίσως, δημοσιονομική κρίση στην ιστορία της. Μία κρίση, που όπως προκύπτει από την ανάλυση του παρόντος άρθρου, η Ελλάδα θα έφτανε αργά ή γρήγορα, ανεξάρτητα από την παγκόσμια κρίση, λόγω της ουσιαστικής ανυπαρξίας δημοσιονομικών κανόνων και διαδικασιών και γενικότερα τρόπων αποτελεσματικής δημοσιονομικής διαχείρισης, όπως αυτές εφαρμόζονται πλέον σε πολλές άλλες χώρες. Σκοπός του παρόντος άρθρου αποτελεί να καταδείξει ότι για την δημοσιονομική κατάσταση στην οποία έχουμε περιέλθει και για την μη τήρηση μεθόδων και διαδικασιών αποτελεσματικής δημοσιονομικής διαχείρισης, φέρουν τεράστια ευθύνη οι κυβερνήσεις των τελευταίων τριάντα ετών. Παράλληλα όμως έχει μεγάλη ευθύνη και η ίδια η Ευρωπαϊκή Ένωση. Η δημιουργία μίας νομισματικής ένωσης χωρίς την καθιέρωση δημοσιονομικών κανόνων αργά ή γρήγορα θα οδηγούσε σε αυτά τα αποτελέσματα. Η εμμονή σε γενικούς ποσοτικούς στόχους, όπως αυτοί της Συνθήκης του Μάαστριχτ ή του Συμφώνου Σταθερότητας χωρίς διακρίσεις των επιμέρους κατηγοριών δαπανών και εσόδων και χωρίς σχεδιασμό διαδικασιών δικαιολόγησης και παρακολούθησης των δημοσιονομικών μεγεθών, ήταν αναπόφευκτο και προβλέψιμο ότι θα επέφερε αυτά τα αποτελέσματα. Στην πρώτη ενότητα του παρόντος άρθρου γίνεται επισκόπηση της διεθνούς βιβλιογραφίας σχετικά με τη σημασία ύπαρξης κανόνων στην δημοσιονομική διαχείριση και ιδιαίτερα διαδικασιών στην σύνταξη, κύρωση και υλοποίηση του προϋπολογισμού. Στη δεύτερη ενότητα παρουσιάζεται η ελληνική εμπειρία στο ζήτημα αυτό και παρουσιάζονται τα εμπειρικά αποτελέσματα έρευνας ως προς τις αποκλίσεις κατά υπουργείο στην υλοποίηση των προϋπολογισμών της χώρας την περίοδο 2002-08. Στην τρίτη ενότητα διερευνάται η επίδραση των όρων του συμφώνου δημοσιονομικής σταθερότητας, στα δημοσιονομικά των επιμέρους κρατών μελών της ΟΝΕ. Τέλος, στην τέταρτη ενότητα παρουσιάζονται τα συμπεράσματα της παρούσας μελέτης καθώς και προτάσεις για περαιτέρω έρευνα.

1

"Eurozone Crisis: Is Greece to Blame Alone?" is not available in the proceedings. A similar version in Greek is available instead. 2 Ο Πύρρος Παπαδημητρίου είναι Επίκουρος Καθηγητής στις Διεθνείς Οικονομικές Σχέσεις, στο τμήμα Πολιτικής Επιστήμης και Διεθνών Σχέσεων στο Πανεπιστήμιο Πελοποννήσου. 3 Ο Γιάννης Χατζηγιαννάκης είναι Οικονομολόγος, Σύμβουλος σε θέματα Διαχείρισης Δημοσίων Οικονομικών. 14

Budgetary Crisis and Recession 1. Προϋπολογισμός και αποτελεσματική δημοσιονομική διαχείριση: Επισκόπηση της βιβλιογραφίας Το σύνολο των κανόνων και των διαδικασιών που εφαρμόζονται σε μία χώρα προκειμένου να γίνει αποτελεσματική διαχείριση των εσόδων, των δαπανών και του δανεισμού, ορίζουν το βαθμό αποτελεσματικής δημοσιονομικής διαχείρισης. Κεντρικό στοιχείο στην όλη διαδικασία έχει ο τρόπος σύνταξης, κύρωσης και παρακολούθησης των επιμέρους στοιχείων του Προϋπολογισμού. Στην διεθνή βιβλιογραφία υπάρχουν επαρκείς εμπειρικές ενδείξεις που δείχνουν ότι η δημοσιονομική αποτελεσματικότητα ενισχύεται σημαντικά όταν τηρούνται διαδικασίες στη σύνταξη, κύρωση και παρακολούθηση του προϋπολογισμού (βλ. SchiavoCampo και Tommasi 1999, Von Hagen 1992, Gleich 2003 και Ylaoutinen 2004). Παράλληλα υπάρχουν επίσης επαρκείς εμπειρικές ενδείξεις που δείχνουν ότι

η δημοσιονομική

αποτελεσματικότητα ενισχύεται όταν το Υπουργείο των Οικονομικών ασκεί πραγματική εποπτεία επί των δαπανών των άλλων υπουργείων και όταν η δυνατότητα τροποποιήσεων στην εκτέλεση του προϋπολογισμού ακόμη και μέσω της Βουλής είναι περιορισμένη (βλ. Von Hagen 1992 και Baldwin, Gros and Laeven, 2010). Για τις περισσότερες χώρες που ακολουθούν τρόπους αποτελεσματικής και πειθαρχημένης δημοσιονομικής διαχείρισης, ο Προϋπολογισμός αποτελεί το απόλυτο εργαλείο

πολιτικής.

O

Προϋπολογισμός

που

αποτελεί

σύνθεση

των

επί

μέρους

προϋπολογισμών όλων των υπουργείων και φορέων της γενικής κυβέρνησης, πρέπει να αναφέρει τους στόχους, για τη μέτρηση της αξιοποίησης των χρημάτων του φορολογούμενου πολίτη, ξεκάθαρη μέθοδο για την κοστολόγηση των δράσεων σε σχέση με τους δημοσιονομικούς περιορισμούς, παρακολούθηση των παρεκκλίσεων κατά τη διάρκεια του οικονομικού έτους κλπ. (βλ. Lee, 2005, Marr, 2008). 2. Η κατάρτιση και υλοποίηση του προϋπολογισμού στην Ελλάδα: Εμπειρικές ενδείξεις Η σημασία του προϋπολογισμού ως «απόλυτου» εργαλείου πολιτικής δεν έγινε ποτέ αντιληπτή στην Ελλάδα, όπου όλη η συζήτηση εξαντλείται στην πολιτική συζήτηση κύρωσης του Προϋπολογισμού και χωρίς ουσιαστικά κανείς να ασχολείται με την ορθότητα της κατάρτισής του και με τον τρόπο υλοποίησής του. Οι περισσότεροι από τους κυρωθέντες προϋπολογισμούς της χώρας μας, τα τελευταία χρόνια, ήταν στην ουσία μία απλή αποτύπωση προσδοκώμενων εσόδων – εξόδων, δεν είχαν δεσμευτικό χαρακτήρα και συνεπώς σε μεγάλο βαθμό ήταν ενδεικτικοί. Σε πολλές περιπτώσεις το ύψος των επιμέρους δαπανών προσδιοριζόταν απολογιστικά με βάση τις αποφάσεις της πολιτικής ηγεσίας για επιπλέον παροχές ή τα ελλείμματα που κάθε φορά δημιουργούνταν στις επιμέρους υπηρεσίες και στους επιχορηγούμενους φορείς. Στο Πίνακα 1, παρουσιάζονται οι αποκλίσεις στην εκτέλεση των προϋπολογισμών την περίοδο 2002-08, ανά υπουργείο, στη χώρα μας. Για την εκτίμηση των αποκλίσεων αναζητήθηκαν στοιχεία από τους εγκριθέντες από τη Βουλή προϋπολογισμούς κάθε έτους και 15

συγκρίθηκαν με τα απολογιστικά στοιχεία, δηλαδή τις ετήσιες εκταμιεύσεις όπως αυτές αναγράφονται στα Δελτία Εκτέλεσης του Προϋπολογισμού που εκδίδονται από το Γενικό Λογιστήριο του Κράτους και συγκεκριμένα τη Γενική Διεύθυνση Θησαυροφυλακίου & Προϋπολογισμού. Με θετικό πρόσημο προσδιορίζονται οι υπερβάσεις στην εκτέλεση του Προϋπολογισμού ανά υπουργείο ενώ με αρνητικό πρόσημο παρουσιάζονται οι περιπτώσεις που τα δαπανηθέντα ποσά ήταν τελικά λιγότερα από τα προϋπολογισθέντα. Από τα στοιχεία του Πίνακα 1 προκύπτουν ισχυρές ενδείξεις για το επιχείρημα της ενδεικτικότητας των προϋπολογισμών της χώρας μας. Χαρακτηριστικά αναφέρεται η περίπτωση του Υπουργείου Μεταφορών και Επικοινωνιών που καθ’ όλη την περίοδο 2002-07 οι δαπάνες του υπερέβησαν σημαντικά τις προϋπολογισθείσες. ΠΙΝΑΚΑΣ 1: ΑΠΟΚΛΙΣΕΙΣ ΜΕΤΑΞΥ ΠΡΟΫΠΟΛΟΓΙΣΘΕΝΤΩΝ ΚΑΙ ΚΑΤΑΒΛΗΘΕΝΤΩΝ ΔΑΠΑΝΩΝ Φορείς Προεδρία ∆ηµοκρατίας Βουλή Υπ. Εσωτερικών Δημόσιας Διοίκησης και Αποκέντρωσης Υπ. Εξωτερικών Υπ. Εθνικής Άμυνας Υπ. Δικαιοσύνης Υπ. Παιδείας και Θρησκευμάτων Υπ. Υγείας Υπ. Πολιτισμού Υπ. Οικονομίας και Οικονομικών πλην Γεν. Κρατικών Δαπανών Υπ. Οικονομίας και Οικονομικών – Γενικές Κρατικές Δαπάνες Μακεδονίας Θράκης ΥΠΕΧΩΔΕ Υπ. Μεταφορών Επικοινωνίας Υπ. Εμπορικής Ναυτιλίας Υπ. Επικοινωνίας και Ενημέρωσης Υπ. Απασχόλησης και Κοινωνικής Προστασίας Υπ. Ανάπτυξης Υπ. Δημόσιας Τάξης

2002

2003

2004

2005

2006

2007

2008

-3%

-7%

+5%

-4%

-2%

-3%

-4.9%

+3%

0%

+8%

-1%

0%

+2%

-3%

+16%

+12%

+11%

+1%

+2%

+2%

-1.5%

+23% +8% 0% +2% +4% +8%

+6% +9% 0% +3% +8% +6%

-8% +4% 0% +10% +5% +8%

+4% -5% -2% +3% +59% 4 +4%

-3% +9% -4% -1% -1% +13%

-11% +2% -4% 0% +3% +14%

-13.9% -0.2% -1.9% +1,6% +1.4% +3.4%

-3%

+18%

+19%

+7%

+13%

+1%

+1%

+11%

-3%

-2%

-4%

-3.9

-1% +8% +31% +1% +5%

+19% +6% +31% +10% +19%

-2% +12% +53% +25% +62%

-10% +2% +32% +5% +18%

-8% -3% +25% +3% +13%

-7% -3% +27% +7% +13%

-12.8% +3.5% -0.5%

-3%

+2%

+12%

+5%

+6%

-3%

-1.6%

+5% +3%

+12% +3%

+16% +21%

+16% -1%

+18% -3%

+45% 5 +2%

+3,1%

+6.2%

-4.5%

Πηγή: Ανάλυση στοιχείων από τους ψηφισθέντες προϋπολογισμούς κάθε έτους και τα Δελτία Εκτέλεσης του Προϋπολογισμού που εκδίδονται από το Γενικό Λογιστήριο του Κράτους / Γενική Διεύθυνση Θησαυροφυλακίου & Προϋπολογισμού.

Είναι σαφές ότι για να μπορεί κανείς να εξάγει ασφαλέστερα συμπεράσματα, ως προς τις υπερβάσεις του προϋπολογισμού, τους λόγους της υπέρβασής τους και κατά πόσο αυτή

4

€

Περιλαμβάνονται και οι δαπάνες για την προεξόφληση νοσοκομείων προηγούμενων ετών ύψους 25760 εκατ.

5

Περιλαμβάνονται στις πληρωμές και οι δαπάνες του Ενιαίου Προγράμματος Προμηθειών όλων των Υπουργείων

16

Budgetary Crisis and Recession ήταν ήδη από την περίοδο κατάρτισης του προϋπολογισμού σε επίγνωση των σχεδιαστών του, πρέπει να αναλύσει σε πολύ πιο βάθος τα στοιχεία. Ενδεικτικά αναφέρεται η περίπτωση των αμοιβών προσωπικού με σχέση εργασίας ιδιωτικού δικαίου ορισμένου χρόνου (Κωδικοί 0342 και 0352) την περίοδο 2006-09. Από τα στοιχεία του Πίνακα 2 είναι εμφανές ότι οι δαπάνες για εποχικό προσωπικό συστηματικά υποεκτιμώντο. Πίνακας 2: Αμοιβές προσωπικού (συμπεριλαμβάνεται και το εποχικό προσωπικό) Αμοιβές προσωπικού με σχέση εργασίας ιδιωτικού δικαίου ορισμένου χρόνου (Κωδικός 0342) Προβλέψεις Διαμόρφωση Καταβολές 2009 177.000,00 8.797.062,00 2008 214.100,00 12.559.912,00 10.752.449,70 2007 342.300,00 14.467.120,00 10.234.218,21 2006 249.500,00 8.463.449,00 7.566.314,69 Εισφορές σε ασφαλιστικούς οργανισμούς προσωπικού με σχέση εργασίας ιδιωτικού δικαίου ορισμένου χρόνου (Κωδικός 0352) Προβλέψεις Διαμόρφωση Καταβολές 2009 63.000,00 2.421.288,00 2008 71.000,00 3.466.210,00 2.814.224,94 2007 103.800,00 4.083.132,00 2.645.484,28 2006 75.000,00 2.359.860,00 1 .943.959,47 Πηγή: Τακτικοί Προϋπολογισμοί, Περιφέρεις, Διάφορα Έτη

Με τέτοιες μεθόδους είναι προφανές ότι έχουμε φτάσει στο σημείο να μη ξέρουμε τι δαπανά το κράτος, πως κρίνει και αξιολογεί μια δαπάνη ειδικά σε σχέση με το κόστος ευκαιρίας (δηλαδή τη δυνατότητα να χρησιμοποιήσει τα χρήματα αυτά με άλλο τρόπο για την ίδια ή άλλη δραστηριότητα), και εν τέλει γιατί ξοδεύει αυτά που ξοδεύει εκεί που τα ξοδεύει. Είχε άραγε ανάγκη η χώρα μας να προσλάβει 155.000 νέους εργαζόμενους στον ευρύτερο δημόσιο τομέα μεταξύ των ετών 2001 και 2009 (αύξηση 18,1%, από 858.762 σε 1.014.047 άτομα σύμφωνα με την ΕΣΥΕ) αυξάνοντας έτσι το κόστος μισθοδοσίας από 15,2 δισ. ευρώ το 2001 σε 30,6 δισ. ευρώ το 2009 6. Ήταν άραγε ορθολογική η απόφαση του υπερτριπλασιασμού της επιχορήγησης των ασφαλιστικών ταμείων από τον τακτικό προϋπολογισμό το 2009 (ύψους 13,6 δισ. ευρώ ή 5,7% του ΑΕΠ) σε σχέση με το 2002 (3,93 δισ. ευρώ ή 2,5% του ΑΕΠ) χωρίς ουσιαστικά μέτρα αντιμετώπισης της εισφοροδιαφυγής, όταν όλη τη δεκαετία του 2000 σημειώθηκε εντυπωσιακή αύξηση (μέση ετήσια αύξηση 9,2%) των εισφορών, λόγω της αύξησης των ασφαλισμένων στα ταμεία, με τη νομιμοποίηση περισσοτέρων των 500.000 μεταναστών 7. Τα παραπάνω παραδείγματα είναι ενδεικτικά μίας γενικότερης αντι-οικονομικής διαχείρισης των δημοσίων οικονομικών. Η ελληνική κυβέρνηση δεν έχει ουσιαστικά καθιερώσει καμία διαδικασία μελέτης του κόστους ευκαιρίας κάθε δαπάνης που αναλαμβάνει ούτε κάποια διαδικασία που θα παρουσιάζεται στο κοινό και θα αξιολογείται η σκοπιμότητά της. Αντίθετα,

6 7

Πηγή: Τακτικοί Προϋπολογισμοί, Διάφορα Έτη Πηγή: ΙΚΑ 17

αντί της καθιέρωσης τέτοιων διαδικασιών, στην πολιτική απόφαση ανάληψης κάθε δαπάνης, επισυνάπτεται μία γενικόλογη και προαποφασισμένα να υποστηρίξει τη συγκεκριμένη δαπάνη, έκθεση σκοπιμότητας, που υποβάλλεται στο Γενικό Λογιστήριο του Κράτους. Σε ένα τέτοιο πλαίσιο. έχει ουσιαστικά περιορισμένη σημασία να συζητάμε που πήγαν τα λεφτά αφού οι προϋπολογισμοί υπήρξαν πάντα πρόχειροι και “ενδεικτικοί”, εκτός αν πρόκειται για περιπτώσεις εξόφθαλμης διαφθοράς και νομικού καταλογισμού. Ζητούμενο είναι το αν σχεδιάστηκε ποτέ ξεκάθαρα το που θα πάνε τα λεφτά. Γιατί αν δεν υπάρχει σχεδιασμός είναι ξεκάθαρο ότι ακόμα και όταν δεν συντρέχει κακοδιαχείριση, τα λεφτά θα χανόταν, με την έννοια ότι η επίπτωση της δαπάνης στην οικονομική ανάπτυξη και στην κοινωνική ευημερία θα είναι πολύ λιγότερη από αυτή που θα μπορούσε να ήταν. Κατά την άποψη μας η ανυπαρξία σχεδιασμού και η απόλυτη προχειρότητα, και όχι τόσο η διαφθορά, έχουν τη μεγαλύτερη ευθύνη για το σημερινό κατάντημα. Άλλωστε η διαφθορά κατά κανόνα ευδοκιμεί σε ένα περιβάλλον ανυπαρξίας κανόνων και διαδικασιών. 3. Το σύμφωνο δημοσιονομικής σταθερότητας: Κίνητρα και αντικίνητρα για τα κράτη μέλη της ΟΝΕ Για τη μη δημιουργία ενός πλαισίου αποτελεσματικής δημοσιονομικής διαχείρισης και διαχείρισης δαπανών είναι προφανές ότι ευθύνεται η χώρα μας. Αποτελεί όμως τουλάχιστον υπερβολή να αποδίδεται στην Ελλάδα - ή οιαδήποτε άλλη χώρα της ευρωζώνης - η ευθύνη για το αδιέξοδο που τείνει να δημιουργήσει το δημοσιονομικό αλαλούμ στην Ευρωπαϊκή Ένωση. Η απουσία δημοσιονομικών κανόνων, πολύ πιο συγκεκριμένων από τις γενικότητες της προευρώ Συνθήκης του Maastricht και του Συμφώνου Σταθερότητας, σε μία νομισματική ένωση αναπόφευκτα οδηγεί σε παρεκκλίσεις. Οι εμπνευστές της νομισματικής ένωσης, πιθανώς λόγω συγκυρίας, δεν άκουσαν ή δεν ήθελαν να ακούσουν, τις προειδοποιήσεις σημαντικών οικονομολόγων για την ανάγκη θέσπισης δημοσιονομικών κανόνων για τις χώρες του ευρώ (βλ. Eichengreen and Wyplosz, 1997, Easterly, 1999, Wyplosz, 2002). Οι φωνές αυτές υποστήριζαν, πολύ ορθά όπως φαίνεται πλέον ξεκάθαρα πως το καθεστώς νομισματικής ένωσης δεν θα μπορούσε να είναι βιώσιμο χωρίς ουσιαστικούς δημοσιονομικούς κανόνες. Από τη στιγμή που πλήρης δημοσιονομική ένωση ήταν πρακτικά αδύνατο να εφαρμοστεί, το ζητούμενο ήταν πως θα μπορούσε να διατηρηθεί η ισορροπία στην ευρωζώνη δεδομένων των ασυμμετριών μεταξύ χωρών με μεγάλες διαφορές στην ανταγωνιστικότητα των οικονομιών τους αλλά και στις αντιλήψεις ως προς τι συνιστά δημοσιονομική πειθαρχία. Ήδη από το 1999 ο W.Easterly, προειδοποιούσε ότι η εξωγενής επιβολή των γενικών στόχων σύγκλισης ( 3% για το έλλειμμα και 60% για το χρέος) σε χώρες που οι κυβερνήσεις δεν είναι σε θέση να φερθούν δημοσιονομικά υπεύθυνα θα δημιουργούσε λάθος κίνητρα. Οι γενικοί αυτοί στόχοι αποτελούσαν, και εξακολουθούν να αποτελούν, επιφανειακή και επικίνδυνη προσέγγιση λόγω των κινήτρων που έχουν οι κυβερνήσεις χωρών με περιορισμένη 18

Budgetary Crisis and Recession παράδοση σε θέματα δημοσιονομικής πειθαρχίας να προκρίνουν υψηλότερα επίπεδα τρέχουσας κατανάλωσης εις βάρος αυτής των επόμενων γενεών ή εις βάρος των επενδύσεων της τρέχουσας περιόδου. Επίσης η έλλειψη τυποποιημένων λογιστικών προτύπων για τα δημόσια οικονομικά, όπως αυτά υπάρχουν για τις ιδιωτικές επιχειρήσεις, συνιστούσε ακόμα πιο επιτακτική την θέσπιση κανόνων για την ουσιαστική δημοσιονομική παρακολούθηση των χωρών μελών της ευρωζώνης. Ο Easterly αποδεικνύει, μελετώντας τη συμπεριφορά των χωρών που βρίσκονταν στο προθάλαμο του ευρώ, ότι για να πετύχουν τους στόχους της σύγκλισης, η πλειονότητα των χωρών μείωσε συστηματικά τις αναπτυξιακές δαπάνες μειώνοντας έτσι την αναπτυξιακή προοπτική και τα μελλοντικά έσοδα για το δημόσιο, προέβη σε σημαντικές περικοπές απαραιτήτων

δαπανών

λειτουργίας

και

συντήρησης,

διογκώνοντας

τις

μελλοντικές

υποχρεώσεις που αναπόφευκτα απορρέουν όταν περιουσιακά στοιχεία κακοσυντηρούνται, και υλοποίησαν ιδιωτικοποιήσεις για εισπρακτικούς απλά λόγους. Αυτή η πρακτική δεν είχε κανένα αντίκτυπο στον περιορισμό περιττών λειτουργικών δαπανών (και κατά συνέπεια του δομικού ελλείμματος), συσσώρευε δαπάνες για τα επόμενα χρόνια και διόγκωνε το χρέος. Τα κριτήρια σύγκλισης του Maastricht είχαν ακριβώς το αντίθετο αποτέλεσμα από αυτό που προσδοκούσαν να έχουν, και αυτό συνεχίστηκε και με το Σύμφωνο Σταθερότητας. 4. Συμπεράσματα Η σημερινή κατάσταση στην Ελλάδα αποδεικνύει περίτρανα την πρόβλεψη του Easterly. Η δημοσιονομική προσαρμογή της χώρα μας θα περάσει μόνο μέσα από μία διαφορετική θεώρηση του τρόπου σύνταξης, κύρωσης και παρακολούθησης του Προϋπολογισμού. Ο Έλληνας

πολίτης

έχει

«χορτάσει»

από

μεγάλα

λόγια

για

διαθρωτικές

αλλαγές,

εκσυγχρονισμούς, προγράμματα μεταρρυθμίσεων και επανίδρυση του κράτους, όταν στην πραγματικότητα έχουμε ένα Υπουργείο Οικονομικών το οποίο ουσιαστικά δεν λειτουργεί. Η ιστορία έχει δείξει ότι οι πραγματικές αλλαγές βασίστηκαν στην απλότητα. Η λύση βρίσκεται στην ορθολογική διαχείριση των δαπανών-εσόδων του κράτους, στην αξιολόγηση κάθε επιμέρους δαπάνης και στον καθορισμό μιας ξεκάθαρης δημοσιονομικής πολιτικής. Μία ενδελεχής μελέτη ως προς το κόστος ευκαιρίας κάθε επιμέρους δαπάνης για κάθε επιμέρους κωδικό του προϋπολογισμού, αναμφίβολα θα αποκάλυπτε μία άλλη διάσταση του προβλήματος στην Ελλάδα. Και στο βαθμό που αυτό δεν υλοποιείται από τους σχεδιαστές της οικονομικής πολιτικής στη χώρα μας, η συμβολή της ακαδημαϊκής έρευνας, σε όποιο βαθμό αυτό είναι δυνατό να επιτευχθεί, θα είναι καθοριστική. Παράλληλα, σημαντικό πεδίο έρευνας υπάρχει ως προς το είδος, το περιεχόμενο και το βαθμό αυστηρότητας που θα πρέπει να περιβάλλει τους όποιους δημοσιονομικούς κανόνες και τις όποιες διαδικασίες θα πρέπει να εφαρμόσουν οι χώρες - μέλη της ευρωζώνης 8. Η ιστορία έχει δείξει ότι κατά κανόνα τα 8

Για μία επισκόπηση της βιβλιογραφίας στο ζήτημα αυτό βλ. Von Hagen and Harden (1995), Wyplosz (2002) και Baldwin, Gros and Laeven (2010) 19

διαφορετικά χαρακτηριστικά των επιμέρους κρατών απαιτούν διαφορετικές λύσεις. Σε ένα τέτοιο πλαίσιο μία μεγαλύτερη έμφαση στις διαδικασίες και στη θεσμούς σε σχέση με τους κανόνες ίσως αποτελεί καλύτερη λύση για το ευρωπαϊκό οικοδόμημα. Βιβλιογραφία Baldwin Richard, Daniel Gros and Luc Laeven, (2010), Completing the Eurozone Rescue: What More Needs to Be Done, Centre for Economic Policy Research. Gleich, H. (2003) Budget Institutions and Fiscal Performance in Cental and Eastern European Countries, ECB Working Paper, 215. Easterly, W. (1999), Fiscal Illusion: Taking the Bite Out of Budget Cuts, Economic Policy, April 1999. Eichengreen Barry and Charles Wyplosz, (1997), The Stability Pact: Minor Nuisance, Major Diversion? Economic Policy, 26, pp. 65-114. Hagen, von J. (1992), Budgeting Procedures and Fiscal Performance in the European Communities, European Economy Economic Papers, 96, European Commission, Directorate – general for Economic and Financial Affairs (DG ECFIN). Hagen, von J. and Ian Harden (1995), Budget Processes and Commitment to Fiscal Discipline, European Economic Review, 39 (3), pp. 771-779. Lee Mordecai, (2005) Public Reporting, in Encyclopedia of Public Administration and Public Policy, edited by Jack Rabin, Taylor and Francis Group. Marr Bernard, (2008), Managing and Delivering Performance – How Government, Public Sector and Not For Profit Organisations Can Measure and Manage What Really Matters, Elsevier. Schiavo-Campo Salvatore and Daniel Tommasi, (1999), Managing Government Expenditure, Manila: Asian Development Bank (ADB). Wyplosz Charles (2002), The Stability and Growth Pact: Time to Rethink, Briefing Notes to the Committee for Monetary and Economic Affairs, European Parliament. Ylaoutinen, S. (2004) Fiscal Frameworks in the Central and Eastern European Countries, Finnish Ministry of Finance, Discussion Paper 72.

20

Budgetary Crisis and Recession

Albania and the recent world crisis: Economic growth or political illusion? Lindita Rova, Alketa Bejko & Ilirjana Zyberi1 Abstract: The recent economic crisis which started in USA in the year 2008 was rapidly spread in almost the whole world. Over the last decade many countries around the world were hit painfully by such events, but global economy was not affected by such crisis since 1929 (The Great Depression). The early examples of financial crisis are Mexico (1973-1982) and Argentina (1973-1981). Few years later several countries in Europe (1992-1993), Mexico again (1994-1995), East Asia and Russia (1998) followed by Brazil (1999). The years after Turkey suffer a financial crisis (2000-2001) and Argentina (2001-2002). The nature and the characteristics of this crisis due to the major developments in the last decades and the high globalization level make it different from all previous world ones. All the countries in the world which were affected or threatened by it, took immediate actions in order to avoid the bankruptcy of their financial institutions, particularly the second level banks (despite their accepted limits concerning state interference in the countries’ economy). During the transformation of the financial crisis into economic crisis, the question “weather Albania has been affected by this crisis or not?” still remains unanswered. For as long as the Albanian economy is organically connected to the economy of other European Countries (more than ¾ of Albanian foreign trade is made with European Union countries), for as long as the Albanian economy has not yet clearly defined the main development axes (there is a Strategy for National Development and Integration but it is far from its implementation), for as long as 1/3 of Albanians live and work abroad the Albanian economy is absolutely vulnerable to the world economic crisis. Some of the consequences of this crisis on the Albanian economy could probably be: a decrease in GDP, a decline in export and import activity, increase in the inflation rate, decline in FDI level, decrease in emigrant remittances, increase in the bad loans level, decrease in the level of bank deposits, decline in the mortgage level etc. The aim of this paper is to study the economic situation in Albania based on the figures released by Albanian institutions and answer to the question “is Albania suffering from the recent world economic crisis?” Financial crisis and Albania The economic crisis was officially accepted on 14 September 2008, in USA, in the house mortgage sector, and its impact was rapidly spread in many parts of the world such as 1

Economics Department, University of Gjirokastra, Albania. 21

Europe, Asia etc. Global economy has not been affected by such a crisis since 1929 (Great Depression). The nature and the characteristics of this crisis due to the major developments in the last decades and the high globalization level make it different from all previous crises. All the countries in the world which were affected or threatened by it, took immediate actions in order to avoid the bankruptcy of their financial institutions, particularly the second level banks (despite their accepted limits concerning state interference in the countries’ economy). Table 1 - The GDP real growth in some countries of the world for 2008 and 2009. Countries USA China Japan UK Germany France Italy Greece European Union

The GDP real growth in 2008 (%) 2.0 11.4 2.0 2.9 2.6 1.8 1.9 3.7 3.0

The GDP real growth in 2009 (%) 1.3 9.8 -0.4 0.7 1.3 0.7 -0.7 2.8 1.0

Unemployment rate in 2008 (%) 4.6 6.1 3.8 5.4 9.1 8.0 6.7 8.4 8.5

Unemployment rate in 2009 (%) 7.2 4.0 4.2 5.5 7.9 7.4 6.8 8.0 7.5

Graph 1 - Real GDP growth in some countries of the world.

9 4 -1

Year 2008

Year 2009

The beginning of 2009 shows very negative indices for all developed countries, but some improvements of the situations were noticed in the second half of the year, as shown in table nr 1. Albanian economy was not affected by the financial crisis, owing to the fact that the financial market in Albania is virtually inexistent (in Albania there operates only a crude and rudimentary form of the financial market were only treasure bonds are marketed). Financial operations of the banks of the second level are limited to offering credit to individuals, businesses and the Government. During the transformation of the financial crisis into economic crisis, the question “weather Albania has been affected by this crisis or not?” still remains unanswered. Regarding the answer to this question there are two approaches, which surprisingly are not based on concrete economic evidence or official data, but on political attitudes of the political force in office (which does not accept that Albania has been affected by the economic crisis) as well as the opposition forces (which not being part

22

Budgetary Crisis and Recession of the decision making institution overemphasizes the negative effects of this crisis that has gripped Albania). Judging from real economic indices and referring to indisputable figures standing above any political attitude 2 we can openly admit that the resent world economic crisis has expanded its impact on Albanian economy as well. At the outset of the crisis, Albania faced a decline in the individual and institutional faith towards the banking system. This resulted in deposits withdrawal from the banks causing liquidity difficulties in the fourth quarter of 2008, a situation which was normalized in the following months. For as long as the Albanian economy is organically connected to the economy of other European Countries (more than ¾ of Albanian foreign trade is made with European Union countries), for as long as the Albanian economy has not yet clearly defined the main development axes (there is a Strategy for National Development and Integration but it is far from its implementation 3), for as long as 1/3 of Albanians live and work abroad the Albanian economy is absolutely vulnerable to the world economic crisis. Some of the consequences of this crisis on the Albanian economy could probably by: a decrease in GDP, a decline in export and import activity, increase in the inflation rate, decline in FDI level, decrease in emigrant remittances, increase in the bad loans level, decrease in the level of bank deposits, decline in the mortgage level etc. The aim of this paper is to study the macroeconomic indices of the Albanian economy, on the bases of official data released by national institutions. A detailed study of these indicators will give us a clear overall picture of the economic situation in Albania and the impact the recent world crisis upon it. Accepting the fact that the Albanian economy is facing a crisis is the first major step towards finding the best ways to overcome the difficulties arising from it. Our research is based on data provided by Bank of Albania and Albanian Institute of Statistics up to the third quarter of the year 2009. This is due to the fact that these official institutions have not released figures for the period that goes beyond that point in time. The analysis of some macroeconomic indices In our paper we have analyzed those macroeconomic indicators that are impacted more quickly and more seriously from the economic crisis. We couldn’t include all the indices in our paper but we think that certainly the indices we choose to study can give us an evaluation about the economic situation in Albania. Bank deposits

2

The figures released by the official institutions in Albanian are in discordance with the same figures released by the international institutions. All this make you come to the conclusion that political attitudes have interfered with official data. 3 Ministry of trade, economy and energy: “Inter-sector strategy for regional development, final draft, September, 2007. 23

The beginning of the crisis was immediately reflected in the decrease in the level of bank deposits. The Albanian authorities did not take immediate action to protect the level of deposits and as a result of this the last quarter of 2008 saw a serious decline in the deposit level. Comparing the deposit accounts in domestic and foreign currency at the end of September with their level at the end of December, the result shows a decline of more than 10%. The USA authorities reacted immediately to this phenomenon by increasing deposits insurance limit from 100 thousand dollars to 250 thousand dollars whereas the European Commission increased it up to 100 thousand euro in October 2008. Six months later the Albanian authorities increase the deposits insurance limit from 700 thousand leks in 2.5 million leks (approximately 19.000 euro), which was a decision taken later than the proper time and resulting in negative consequences in their level. The year 2008 saw an increase in the total deposit amounts both in domestic and foreign currency. However if we compare the growth in the level of deposits with the previous year (2006-2007) it results to be 21.42% whereas in the period 2007-2008 the figure is only 3.4%.

This slight growth is attributed to capital inflows during summer time. In the last

quarter of the year 2008 the rate of deposit growth decreased by half compared with the same period of the year 2007.

This situation clearly reflects the panic caused by the world

crisis. Table 2 - Current and deposit accounts level in foreign and domestic currency. Source: Bank of Albania, annual report 2008 Period September 2008 October 2008 November 2008 December 2008

Current accounts million leks) 75.306

Deposits in domestic currency (in million leks) 294.711

Deposits in foreign currency (in million leks) 297.638

74.413 76.833

284.651 277.657

282.284 272.635

87.045

272.055

260.690

(in

The money supply structure during 2008 had a tendency towards long term financial means; with the exception of the fourth quarter where there was a clear tendency towards the short term ones, a fact which once more confirms the crisis effects i.e. in the presence of a crisis the individual tends to shift from long term financial means into short term ones. If we analyze the rate of the deposit and current accounts from September 2008 to December 2008 we notice that the current accounts increased by 15.6%, while the deposit accounts decreased by 10%. On average, the proportion of current accounts to deposits accounts in the fourth quarter of 2008 was 30.7% that is 1% higher compared with the previous months of the same

24

Budgetary Crisis and Recession year. The proportion of the total amount of deposits to M3 in 2008 appears to be on the increase by 2% compared with 2007. The rapid decline in the amount of deposits came because of the increase in the public sensitivity to the safety of their savings, resulting from international developments in the financial markets. This unfavorable situation showed the first signs of improvement in December 2008. The decline in the amount of deposits was moderate during the first half of 2009. In the first quarter of 2009 the total amount of deposits was reduced on average by 3.6% annually. The proportion of the total amount of deposits to the money supply was 75% at the end of May 2009, which was a slight decline by 7% compared to the end of September 2008. The second quarter of the same year was marked by a deceleration in the deposit withdrawal phenomenon. In monthly terms, the total deposit amount in April was finally increased, after months of continuous reduction. The credit for this goes to the increase of the business deposit accounts, mainly those in foreign currency. Individual deposits continued to show a slight decrease despite the deceleration in the serious declining tendency manifested in the previous period 4. The monthly developments concerning the deposit level in the following month was marked by improvements. The passing of the law, according to which, the deposit insurance limit was extended to 2.5 million leks should have had its impact on the situation improvement.

The total deposit amount in the period

between April and May rose by 11 billion leks. The deposits in domestic currency were the ones that dominated the total amount increase of 6.5 billion leks in absolute value. Foreign trade During the transition period the foreign trade sector has been the most problematic sector of the Albanian economy. In the year 2007 the imports were 3.7 times higher than the exports and the figures remain unchanged during the year 2008. According to the Bank of Albania the value of import of goods was 3.3 billion euro, while export of goods reached the figure 900 million euro. Thus, the trade balance deficit reached 2.4 billion euro i.e. 28% of GDP.

Imports and exports in their total amount have increased by approximately 17%.

Despite this tendency the figure is apparently lower than last year figure (i.e. in 2007 exports increased by 24.7% and imports by 26.2%). Graph 2 - The imports, the exports and the trade balance level during years. Source: Bank of Albania Balance of Payments bulletin 2008

4

Bank of Albania: Monetary Policies Statement for the first half of 2009. 25

Table 3 - Data regarding the level of imports, exports and trade balance for 2007 and 2008. Source: Bank of Albania, annually report 2008 Indicator Exports Imports Trade balance Exports/GDP Imports/GDP Trade balance/GDP

Unit Million euro Ml euro Ml euro % % %

Year 2007 786.3 (2,890.4) (2,104.0) 9.9 36.5 -26.5

Year 2008 917.5 (3,348.9) (2,431.5) 10.6 38.7 -28.1

As it can be seen in the analysis of the import-export level in Albania during the third and fourth quarters of 2008, the figures are almost the same as those forecasted by most economy analysts. Thus, a considerable decline is noticed in the export level from 242 million euro in the third quarter to 208.6 million in the fourth. This phenomenon, which alongside with an increase in the import level with almost 100 million euro, deepened the trade balance deficit with 140 million euro (Graph 3). Graph 3 - The level of imports and exports in 2008 and 2009 in million euro. Source: Bank of Albania, Balance of Payments bulletin 2008

The situation continues to worsen over the first quarter of 2009. In the second and third quarter of the year 2009 a slight improvement is noticed in the export level. However this does not reach the level of the fourth quarter of the year 2008. The level of imports has also

26

Budgetary Crisis and Recession begun to increase gradually still being far from the figure of the fourth quarter of the year 2008. Following a decrease of 150 million euro in the first quarter of 2009 the third quarter saw an increase with 100 million euro (from the first to the third quarter). In order to understand these changes let’s analyze table nr 4 which compares import and export levels in the first quarter of several successive years. Table 4 - The first quarter level of trade balance and current account for few successive years. Source: Bank of Albania Trade balance Imports Exports Current account

Q1 2006 (364.2) (508.6) 114.4 (117.9)

Q1 2007 (443.0) (625.0) 182.0 (178.0)

Q1 2008 (527.3) (733.9) 206.5 (267.3)

Q1 2009 (516.4) (692.5) 176.1 (334.2)

The current account deficit for the first quarter of the year reach the cumulative value of 334.2 million euro, showing an increase of 25% compared with the same period of the previous year. This high level of the current account deficit was brought about by: •

A high level of trade balance deficit (29% of GDP),

•

A decrease in the current account transfer surplus (12% annually)

•

A marked shift in the income account balance from surplus to deficit

•

A sharp increase in the service account balance (from 3.3 to 26.8 million euro). As it can be noticed from the table nr 4 there is a significant difference in the export

level, thus confirming once again the impact of the economic crisis on the weakest point of the Albanian economy. This goes to show the low level of commercial competitiveness for the Albanian products. The most important countries which Albania is involved in international trade with are Greece and Italy. In the year 2008 the level of exports with these countries was respectively 8.8% and 61.8% of the total export amount. During the period 2007-2008 the amount of exports with Italy has dropped off by 9% whereas the amount of exports with Greece has gone up by 6%. The level of import-export in 2009 is almost the same as that of the previous year. Emigrant remittances Labor force is the major export of Albanian economy and the main compensation for this export are remittances. Remittances have had a very significant effect, maybe even greater than traditional foreign aid, towards the alleviation of household poverty in developing countries (Nicas 1991). Remittances appear to be less vulnerable to economic fluctuation than other sources of external funding to developing countries such as foreign direct investments or official development assistance (Buch and Kuckulenz, 2004).Is very difficult to make a realistic assessment to the remittance flows in Albania for a lot of reasons. Sixty percent of Albanian remittances are made by informal channels and Bank of Albania

27

use to register only remittances transferred by the official networks, when the other part is only estimated. This means that the data about remittance flows in Albania are for a large part estimates. Emigrant remittances have been huge both in absolute and relative terms. Their dimension could be compared with that of an economic sector, practically three times higher than the FDI amount in Albania. Graph 4 - Emigrant remittances amount during years. Source: Bank of Albania, INSTAT

Up to the year 2007 emigrant remittances have been on the increase, specifically the year 2007 saw a slight increase of 1.3% compared with the previous year. As it was expected, there has been a steep fall in the emigrant remittances, both in absolute and relative terms in the year 2008, 16% less than the year before (in 2007 the emigrant remittances were equal to 12% of GDP while in 2008 there level was only 9.2% of GDP). Graph nr 4 shows the amount of emigrant remittances during 2008. The emigrant remittances have fluctuated wildly during 2008 plummeting down in April and August, but showing a tendency toward stabilization in the last two months of the year. Graph 5 - Emigrant remittances during 2008. Source: Bank of Albania, Balance of Payments bulletins, INSTAT

Graph 6 - Emigrant remittance as percentage of GDP Source: Bank of Albania, Balance of Payments bulletins, INSTAT

28

Budgetary Crisis and Recession

The decrease of emigrant remittances in the year 2008 is brought about by two main factors: •

Financial and economic crisis in the countries where the emigrants live and work.

•

The naturalization process of these emigrants. The same situation can be noticed even in the first quarter of the year 2009. Emigrant

remittances marked a decline of 7.7% per year. Emigrant remittances equalled to 196 million in the first quarter of 2009 and this declining tendency is going to continue in the following months due to the difficult economic situation in Greece and Italy, countries which host the majority of Albanian emigrants. Thus emigrant remittances in the third quarter of 2009 amounted 188 million euro, showing an annual decrease of 6% compared with 200 million euro in the preceding year. Inflation rate and exchange rate The performance of the inflation rate over the years in Albania is positive demonstrating the success of the Inflation Targeting Regime (inflation between 2-4%) implemented by Bank of Albania. From 2001 until 2008 inflation rate has been between 1.7 and 3.7%. The year 2008 reflected mainly the effect of the global price rise in primary commodities (foods and fuels). Annual inflation oscillated sharply throughout the year. In the first half of the year, it marked rates above the upper limit of the tolerance band set by the Bank of Albania, reaching 4.6 percent in May, the highest rate in the last five years. In the second half of 2008, annual inflation eased to low rates in all items that fuelled the sharp price rise over August 2007 to June 2008. Subsequently, at end 2008, the inflation rate stood close to the lower limit of the tolerance band. Relative to the first quarter of 2008, average inflation rate for the last quarter was 1.2 percentage points lower. The fall in food prices -triggered by the performance of domestic agricultural production and grain prices in the global market- and fuel prices gave rise to the shift in the annual inflation rate trend in the second half of 2008. At the end of the year 2008 inflation rate was 2.2%. In the first three quarters of 2009 the inflation rate was from 1.9 to 2.1% Table 5 - Inflation rate in Albania during the years.

29

Period Inflation rate

2001 3.5

2002 1.7

2003 3.3

2004 2.2

2005 2.0

2006 2.5

2007 3.1

2008 2.2

Table 6 - Inflation rate in Albania in three quarters on 2008 and 2009 Period Inflation rate

Q2 2008 4.2

Q3 2008 3.0

Q4 2008 2.5

Q1 2009 1.9

Q2 2009 2.1

Q3 2009 2.1

Graph 7 - Exchange rate during the years (ALL/USD, ALL/EUR)

Analyzing the exchange rate dynamics in the domestic market, it comes out that in the last decade (1999 – 2008) Albanian lek is appreciated against the two main currencies, the US dollar and euro. The exchange rate ALL/USD in 1999 was 137.7 when in 2008 was 88, a depreciation of the UDS with 36%. The exchange rate ALL/EUR in 1999 was 147 leks when in 2008 was 123.8, a depreciation of the euro with 16%. In the year 2009 the situation is different: Albanian lek is depreciating against both currencies. Thus, the USD costs now 96 leks (14.4% higher than in 2008) when euro costs 138.21 (12.5% higher than in 2008). Foreign Direct Investments The Albanian Government seeks to attract foreign investments as they have an important impact on the economic growth of a country. Albania's economic freedom score in 2009 was 63.7, making Albanian economy the 62nd freest in the 2009 Index5. Its level of economic freedom increased by 1.3 points during the past year, and it has improved in three of the 10 freedoms. Albania is ranked 27th freest among the 43 countries in the Europe region. Comparatively, Albania's freedom level is on par with that of other developing Balkan countries like Croatia and Macedonia. Fiscal freedom, investment freedom, and financial freedom all rate significantly higher than the typical country's levels. Nevertheless FDI in Albania are the lowest in the region. “Albania ignored by foreign investors” is an article published on March 2008 by Premier global property news service. Until 2005 Albania was the

5

www.heritage.org/Index/Country/Albania

30

Budgetary Crisis and Recession country with the lowest cumulative foreign direct investment flows in SEE region. The situation has been on the improve the years later. According to the World Investment Report 2008, the Albania country sheet in 2007 Albania had $656 million (454.2 million euro) FDI inward flows, and 2264 FDI inward stock or 12.3% of gross fixed capital formation and the FDI stock in 2007 is just 21.3% of GDP. Graph 8 - FDI level in Albania from 2004 to 2008. Source: Bank of Albania, World Investment Report 2008.

The level of FDI in the year 2007 and 2008 is high because the large part of FDI comes from privatization. In 2007 the privatization of Albtelekom raises the level of FDI and not the “favorable investment climate for foreign investors in the country”. The same situation is even the following year due to the privatization of OSSH and ARMO. During the half year of 2009 the FDI have been 123.6 million euro. Almost all of this income flows are due to the privatization process 6. This shows ones more the effect that the global crisis has upon Albania. Gross Domestic Product Albania is one of the post communist countries facing high levels of GDP growth. From 2000 until 2008 the average growth of GDP was 6%. In the first half of 2009 according to the data provided by the INSTAT, the GDP grew by an average annual growth rate of 5.35 percent, relative to about 6.8 percent the previous year. In the first and second quarter of 2009, the GDP grew 5.4 and 5.3 percent, respectively, in annual terms, down by 1.3 and 1.6 percentage points from the same period the previous year. Quarterly growth rates featured a similar tendency, attesting to the slower economic activity during January to June 2009. Albanian Government release 6% the growth of 2009 but international institutions do not agree. IMF estimates that Albania has grown by some 3 percent in 2009. It is quite a high level if we compare it with other European economies. Graph 9 - Albanian GDP real growth during the years.

6

Bank of Albania: Monetary Policies Statement for the first half of 2009. 31

But despite the good outlook there were many risks, including external ones, developments in other countries, including Albania's neighbor Greece, and financial markets. The budget-supported demand had resulted in a large decline in revenue and also a major expenditure increase and as a result of this, the budget deficit swung from 3 percent of GDP in 2007 to 7 percent of GPD in 2009. That was one fact that was driving public debt now up to almost 60 percent of GDP and current accounts balance of up to 15 percent. The Albanian government stimulated growth by focusing on public projects, mainly road building and has spent more than billion euros. These trends and levels are fairly high and they risk, if not corrected, to crowd out private investment, but also to undermine future debt and macroeconomic stability. Conclusions and recommendations. Judging from the macroeconomic indicators it can be clearly seen that the economic crisis that has affected almost the whole world has extended its influence upon the Albanian economy. In the conditions of limited official statistics (the Bank of Albania has released official data up to the third quarter of 2009 and Albanian Institute of Statistics up to 2008 and in some cases 2007) we could not provide a full picture of the situation, which would even include the beginning of 2010. However, we have managed to demonstrate that the progression of macroeconomic indices is a clear indicator of a situation of crisis. According to a survey we conducted in the Southern Region of Albania based on 200 questionnaires, the answer to the question “Do you think Albania is facing a crisis?” 84% of the interviewees answered positively. Only 12% of them think that Albania is not influenced by the recent economic world crisis. This demonstrates ones more that the ordinary citizens are filling the crisis. As to the questions: “Is this crisis going to develop into depression”, “How long is it going to last”, “What will its financial cost be” very few people could have been able to give an adequate answer. What is our most immediate and serious concern here has to do with the question: “How should the decision making and financial authorities react in order to minimize as much as possible the consequences of the economic crisis to the Albanian economy and ordinary Albanian citizens”.

32

Budgetary Crisis and Recession At a time when almost all the countries in the world have been bringing forward policies to keep the crisis under control in their respective countries, Albanian authorities are far from introducing such policies. We arrived at this conclusion based on the reason analyzed in this paper: the Albanian Government has not yet accepted the fact that Albania has been affected by the recent world crisis. Under such circumstances we suggest that the Albanian financial and decision making authorities take into consideration the following recommendations: •

The Albanian government should accept the unfavorable economic situation despite the willingness to name it a crisis or otherwise.

•

The official institutions should release more transparent and realistic figures; they should avoid delays and political interference with them as factors which both result in releasing misleading data.

•

The Albanian authorities should take immediate action to introduce new economic and social policies which would be able to prevent the further deterioration of the economic situation.

•

The Albanian government should increase the level of cooperation with the international institutions such as: IMF, World Bank and the like.

References Albanian Human Development Report, 2000 Bank of Albania, Annual Reports 2005, 2006, 2007, 2008 Bank of Albania, Economic Bulletin, September 2009 Bank of Albania: Monetary Policies Statement for the first half of 2009. Fullani A, 2005: “Key policy issues for remittances in transition economies - a view point from a recipient country” Fullani A, 2006: “Remittances: An opportunity for growth - the Albanian migration to Italy as a case study” “Inter-sector strategy for regional development, final draft, September, 2007, Albania Ministry of Trade, Economy and Energy. King R. (2003) “Across the sea and over the mountains: documenting Albanian Migration”, School of Europian Studies, University of Sussex Press, Kring T, (2007) “Rritja e ndikimit te remitancave te emigranteve ne Shqiperi”. Shahollari L. (2009) “Ndikimi i krizës financiare botërore në treguesit makroekonomikë të Shqipërisë”.

33

Corporate

governance,

social

responsibility

and

corporate reputation: An empirical analysis of the situation in the republic of Croatia Golja Tea & Morena Paulisic 1 SUMMARY The world we live in is rapidly changing. In this kind of environment, companies are faced with the necessity for further and deeper adjustment to the challenges brought upon by globalization forces - dynamic population growth, growing emission of greenhouse gases, global climate change, biodiversity loss, and poverty. The ever so big difference in development between the North and the South, with almost 3 billion people living on less that 2 USD a day has also very strongly influenced the change in ordinary behaviour of each and every responsible actor in the global domain. Bearing in mind that there should be some cause of the huge difference in wealth and per capita income, some things have to be changed. The above mentioned are unintended consequences of the wrong global governance and bad business practice as well as a call for global action to bring the world on a more sustainable pathway. New balance between businesses, governments and society should be formed in order to reach decent human conditions in the future within the limits of the planet. The contribution from the business side to the achievement of sustainable development should go through responsible business practices. Responsible business behaviour becomes a must in the everyday business practice not only because of the business will to contribute to the achievement of sustainable development, but more because of the huge pressures from different stakeholders in the society, as well as of the need to successfully compete on the global market. Products and their quality could no longer be considered main competitors. Main competitors are becoming companies and their brands, and more importantly their reputation. The company is operating in the society and thus directly and indirectly under the influence of different stakeholders and vice versa. That is why it has a number of reputations because of different perceptions of different stakeholders. Companies should strive to build good reputation but this is not an easy task as it has to conform to the expectations of different stakeholders. Reputation is not only financials success but the whole spectrum of activities which company performs. One 1

Department of Economics and Tourism "Dr.Mijo Mirković", Juraj Dobrila University of Pula, Croatia.

34

Market/Sector Analysis important aspect of the reputation is its behaviour, especially in the developmental moments as the one we are facing today. Corporate social responsibility influences on the company’s reputation as it involves a huge array of activities difficult and hard to imitate. CSR contributing to enhancement of company’s reputation is a source of competitive advantage. The purpose of the paper is to offer an explanation how social responsibility influences corporation’s reputation. The theoretical aspect of corporate governance, social responsibility and corporate reputation is provided. Furthermore, as a result of our theoretically research, we created questionnaire and conducted an empirical analysis in the Republic of Croatia (within a corporate governance context) with the aim to enlighten the current state of corporate social responsibility as one of the aspects of corporate governance in the Republic of Croatia and managers’ perception regarding the importance of CSR in building better reputation and hence competitive advantage. The sample covered Croatian corporations regardless of the size. This paper demonstrates the relevance of including social responsibility in leading and corporate governance on any organization in today’s economy.

35

Regulatory barriers to entry in industrial sectors Panayotis Kotsios1 Abstract: The entry of new competitors has been recognized as a balancing force against high levels of industrial concentration and the abuse of dominant position by firms with large market shares. Entry increases supply, lowers prices, intensifies innovation and brings equilibrium to the markets that don’t operate in a socially desirable manner. This paper examines the impact of regulatory restrictions to the entry of new competitors in industrial sectors. It provides a short description of the 13 most important sources of regulatory barriers and assesses their role and importance as entry barriers. The conclusion is that regulatory restrictions can be a very important, almost insurmountable barrier to the entry of new competitors, but their role is not always socially harmful. The use of certain sources of regulatory barriers is effective in protecting social welfare instead of harming it. Barriers that promote new competition or are applied in order to protect consumer welfare are socially useful, while barriers that restrict competition and limit new competitor entry, in cases other than natural monopolies, are socially harmful. Introduction This paper’s goal is to examine the impact of regulatory restrictions to the entry of new competitors in industrial sectors. Firstly barriers to entry and then regulatory barriers to entry are defined. Following is a description of the most important sources of regulatory barriers and next there is an analysis of the various arguments for and against their application in relation to social efficiency. Next is a brief outline of empirical studies on the topic. Policy recommendations regarding each source of regulatory barriers are made in the final part of the study. Definition of a barrier to entry The entry of new competitors relates with the appearance of a new producer in a market (OECD, 2005) and can take many forms such as foreign direct investment, trade licenses, joint ventures, strategic alliances, acquisitions, direct export or greenfield investments in new industrial facilities. The entry of new competitors operates as a balancing force against high levels of industrial concentration and the abuse of dominant position by firms with large market shares. Entry increases supply, lowers prices, intensifies innovation and brings equilibrium to the markets that don’t operate in a socially desirable manner. The ease of entry is adjusted according to the number and height of barriers to entry. Various 1

Economist, Ph.D.; [email protected].

36

Market/Sector Analysis definitions of barriers to entry have been proposed in the economic literature, as the ones from Bain (1956), Stigler (1968), Caves & Porter (1977), VonWeizsacker (1980), Demsetz (1982), Baumol & Willig (1981), Gilbert (1989) and McAfee et al (2004). The definition adopted in the present study is a mixture of the definitions proposed by Fisher (1979) and OECD (2005). A barrier to entry is defined as anything that restricts competition in a sector, when competition would be socially beneficial. This definition can include a large number of possible barriers to entry, covers intra- and extra-sector mobility situations and clearly points out the aim of the analysis, which is social welfare enhancement. In regard to the categorization of barriers to entry, the most practical separation that has been proposed in the literature is the one from Geroski et al (1990), followed also by Oustapasidis (2003) and OECD (2005). They distinguish between structural and strategic barriers to entry. Structural barriers arise from the exogenous demand, cost and technology conditions of an industry and are the same for all firms, new or incumbent, while strategic barriers are created from the actions and strategic choices of incumbent firms. Even though this separation is far from perfect, as many barriers fall in both categories, however it is a good starting point for a thorough analysis of the barrier to entry theory. Examples of structural barriers are economies of scale, sunk costs, capital costs, product differentiation and diversification, while examples of strategic barriers are limit pricing, predatory pricing, investments in capacity, patent hoarding and collusion. The present study will focus on regulatory barriers to entry. Regulatory barriers belong to the category of structural barriers to entry, but they could as well be treated as strategic barriers. They belong to structural barriers because they constitute a part of the fixed, exogenously determined conditions that a new firm will have to face during it’s entry in an industry. However, they also belong to strategic barriers because their height is sometimes strategically affected by firms’ actions. Incumbent firms can raise the power and influence to affect government policies and regulations in their favor. Definition of regulatory barriers Regulatory barriers are considered by many authors (such as Geroski, 1991; Parker & Stead, 1991; Church & Ware, 2000; European Commission, 2004; OECD, 2005; Bitzenis, 2009) as very important barriers to the entry of new competitors, mainly due to the fact that they are created from government action and they have the support of the law for their application. Regulatory barriers include laws and regulations as well as the state industrial policy. These two are mentioned together because they both derive from a country’s government. The difference between legal restrictions and economic policies that are applied by a government lies mainly on their time duration: laws usually have long time duration, while economic policies can be adjusted relatively quickly according to the general economic environment. 37

A distinction that has to be made is according to the effects that regulatory barriers have to various types of entrants. The number and height of entry barriers that a foreign firm will face while trying to enter in a national industrial sector, may be more compared to those that will be faced by a new domestic firm that wishes to carry out entry in the same sector. This is why regulatory barriers are one of the factors that affect the choice of foreign firm entry mode. The sources of legal barriers to entry are many and these will be mentioned in the following part. Sources of regulatory barriers to entry The most important sources of regulatory barriers to entry are the following: i.

Natural monopolies, monopoly rights and licenses

In many cases governments grant monopoly rights in certain firms though legislation. These firms acquire exclusive rights in the supply of products or services for a limited or unlimited period of time. This situation is met more frequently in industries known as natural monopolies. A natural monopoly exists when the attainment of the minimum efficient scale of production is achieved only if the entire production of an industry is concentrated in the hands of a single firm. In these sectors the minimum efficient scale is equal or almost equal to the size of the entire market and the long run average cost curve decreases significantly as production quantity increases. The presence of other competitors in sectors that constitute natural monopolies is not considered useful, on the contrary it is considered as a waste of economic resources. In other cases governments intervene legally in sectors through the issuing of licenses. This occurs when the number of those that provide a good or service is regulated externally by the government. The entry of new competitors is allowed only with the purchase of an existing license or through an increase in the number of licenses by the government (eg taxis). ii.

Tariffs

Legal restrictions in imports can be observed from tariffs. A tariff is the most usual protective barrier imposed by a state in the import of products of foreign origin. It consists in the collection, by the border authorities responsible for the custom clearance, of a percentage on the value of the imported quantity of products (Gklavinis, 2009). The height of the tariff differs from product to product depending on the degree of protection that the government wants to offer in the domestic industry (Krugman & Obstfeld, 1994). The tariff raises the costs of imported products and automatically renders them less competitive from the domestic ones, since it increases their final prices to the consumers. The main objectives of tariffs are the increase of state revenues and the protection of domestic industries and products against foreign competitors. 38

Market/Sector Analysis iii.

Quotas

Quotas are limitations imposed by a state in the imported quantities of a product. The most usual way of imposing quotas is the obligation of the importer to receive a special permit by the government. This permit allows the import of specific quantities of a product during its valid period and restricts the import of further quantities during that period. Quotas, however, can also be imposed in the exports of a domestic product by blocking a producer to expand in foreign markets where he could possibly earn higher profits. Moreover, in many cases quotas are used by governments as a means of pressure, with embargos being the most characteristic example of trade restrictions of this kind. Embargos in trade are forced between countries with political, financial, territorial or security disputes (Gklavinis, 2009). iv.

Subsidies

The term subsidy refers to the state financial allowance of public organizations or private firms in order to support their operation and competitiveness. Subsidies can take many forms, such as the payment of sums in the form of donations, loans or shares, the elimination of debts, the granting of credit in the payment of taxes and the granting of energy, water, or telecommunication services in prices lower than normal market prices. A separation has to be made between two subsidies schemes, the general and the specific subsidies schemes (Carlsson, 1983). In general subsidy schemes all the companies of a sector, new or incumbent, can be subsidized, while in the specific ones only particular companies or persons are subsidized. v.

Taxes

A state’s taxation can also affect the entry of new competitors. The height of taxes like income tax, property tax, profit tax and value added tax increase the operating cost of a firm and can play an important role in the final entry decision of a possible newcomer. Taxation can also determine the structure of a sector, since the differences in tax rates can affect concentration levels. A low tax rate in high profits, for example, can lead in merger waves among small firms. Very important is also the issue of double taxation. Double taxation occurs when a firm has to pay taxes both in its country of origin as well as in the foreign markets that it operates. Double taxation raises firms’ costs and can have a negative impact on the viability and profitability of companies that enter new geographical sectors. Also important is the issue of special consumption taxes, which again can negatively affect competition in a sector. vi.

Loans

Governments can also intervene in the structure of an industrial sector through the loans that they administer to firms. The term loan refers to the lending of monetary sums on interest. Government intervention can play a role in the process of a loan’s approval, in the 39

size of the loan, as well as in the height of the paying off interest and time duration. In other cases the role of governments is limited in providing the guarantees for the approval of the loan. vii.

Government procurement

Many authors (such as Geroski et al, 1990; Scherer & Ross, 1990; Geroski, 1991; Kovacic, 1992; Duggan & Scott-Morton, 2006) claim that government procurement can also play a role in the determination of market structure and consequently in the ability of new firms entry. The contracts that accrue from government procurement agreements – taking under consideration the fact that the government is usually the largest domestic consumer – can provide incumbent firms the financial resources they need in order to achieve economies of scale in production and survive for a long period of time. These companies can win large market shares in the industries that they operate. Important is also the fact that foreign companies are in many cases excluded from these contracts for national security (etc defence industries) or state revenue reasons. viii.

Intellectual property rights

Another form of legal barriers to entry are intellectual property rights. Intellectual property rights are administered by governments in the creators of new ideas in order to protect them from imitation and competition (Church & Ware, 2000). The three most important types of protection for intellectual property are patents, copyrights and trademarks. The three types of protection differ in their content and valid time period. A patent provides an inventor with exclusive rights for a new product, process, substance or design. New products include machines (mechanisms with moving parts) or manufactured objects (without moving parts) such as tools. New processes or methods include chemical processes for metals or for the manufacturing of drugs, mechanical processes for the manufacture of goods or electric processes. New substances include chemical compounds and mixtures, but can also include species of animals and plants. New designs include the shapes of products that serve a functional purpose. Moreover, improvements in products, processes, and substances can also be granted with a patent, as well as computer software inventions (Carlton & Perloff, 2000). With the issuing of patent rights the law grants a legal monopoly in the company that has received the patent, as it protects the company from copying and competition in production for a constant period of years. The years of patent validity differ from country to country, although patents are not accepted in all the countries around the globe. Copyrights give their creators the exclusive production, publication and sale rights to artistic, dramatic, literary or musical works. Examples are articles, books, drawings, maps, musical compositions, distinctly designed items and photographs. Copyright law also covers

40

Market/Sector Analysis the original "work of the author's profession" provided that they are “fixed" in a "tangible medium" such as a book (Carlton & Perloff, 2000). While patents protect the function and the purpose (ideas, appliances, mechanisms, methods, and means), copyrights cover artistic expression. An important distinction between patents and copyrights is that copyrights protect the particular expression of an idea, while the patents protect any tangible incorporation of that idea. Trademarks are words, symbols or other marks that are used in order to distinguish a company’s product or service from those that are provided by other firms. A commercial trademark is a mark as a word or a logo that represents a product. A service trademark is a mark for a service. A common law trademark is a mark that is not registered formally, but has acquired minimal rights through use. The state registration of a trademark or service trademark provides better protection than the common law, but is only useful in the state of issuance. A trade name is the name that a company uses in order to do business. Contrary to copyrights and patents, brand names do not expire after a predetermined period, although a company can lose the protection of its brand name, if its name ends up stating all the products in the industry (Carlton & Perloff, 2000). ix.

Sanitary and phytosanitary protection measures and measures for the

environment The term sanitary and phytosanitary protection measures refers to every measure that is imposed by the law of a state in relation to the attributes of a product but also concerning the conditions of its production, storage, transport, maintenance and consumption. The aim of these measures is the protection of the life and health of the population, of animal and plant production and more generally the flora and fauna, from the spreading of illnesses or pollution (Gklavinis, 2009). The application of these measures must be based on scientific principles and their usefulness must be proved by scientific data. In most cases countries comply in their requirements with international specifications and recommendations, it is however likely for certain countries to issue stricter measures, provided that such measures are justified scientifically or constitute a consequence of the level of sanitary or phytosanitary protection that the state considers suitable. These measures also include measures for the protection of air and water from industrial facilities, as well as measures for employee safety. x.

Technical Barriers

Technical barriers refer to barriers that result from the adoption and application of “technical regulations”, that determine the technical characteristics of a product or the processes of its production (Jacobson & Andreosso - O' Callaghan, 1996; EC, 2009). A technical regulation can also concern the nomenclature, the symbols, the labeling or the packaging of product. Technical barriers can also result from the use of technical

41

specifications (standards) that are published by recognized certification organizations, and contain rules, guidelines, directives and characteristics of common and repeated use for products or processes of production that are not obligatory for the producers or the tradesmen of such products (Gklavinis, 2009). Thus the difference between technical regulations and technical specifications lies in the fact that the first are binding, while the second are not. Regulations for the recognition of education titles are also included in technical barriers. xi.

Registration, certification, licensing and social security procedures

Another aspect of legal barriers to entry is the one that relates with registration, certification, licensing and social security procedures faced by new firms. The number, the duration and the cost of these procedures can affect the ease and the cost of new firm entry and also affect market structure (Lipczynski & Wilson, 2001; Bitzenis, 2002; Djankov et al, 2002: Bitzenis, 2009). These procedures are another way of state intervention in the economy through legislation. Research carried out by Djankov et al (2002) pointed out that the costs of these procedures are high in many countries and that their number and duration differ considerably in each case, with the most numerous procedures being met in developing countries. xii.

Price Fixing

Another source of legal barriers to entry arises in cases where governments intervene by fixing prices. In these cases the state, in order to protect consumers’ best interest, determines the minimum or maximum prices of products or services (Carlton & Perloff, 2000). xiii.

Dumping

The policy of dumping that is followed occasionally by some governments can also influence market structure. The term dumping refers to the deliberate export of a product in a foreign market in a price lower than the one that is in effect in the domestic market (Ktenidis, 1996). Governments use dumping in order to support domestic producers and capture market share in foreign markets. Are regulatory barriers socially desirable or not? The evaluation if, and to what extent, the laws and policies that were mentioned in the previous section, constitute barriers to the entry of new competitors and whether these are useful or not from a social point of view, will be carried out in the following part. The evaluation will be made by outlining the arguments that have been put forward for and against legal barriers to entry. Before the analysis of the arguments begins, however, it would be useful to note that the evaluation of the impact of legal barriers to entry could escape the limits of present study and be placed in the more general discussion about the role of 42

Market/Sector Analysis government intervention in the economy. The degree of intervention in the economy by the government can characterize a political system as liberal or socialist (at least from an economic point of view). These two political systems emanate from two different opinions for the function of the economy. The one supports that political power must ensure social effectiveness in favor of citizens and hence contains a large degree of intervention in the economy (if not total control), and the other supports that social effectiveness and growth can emanate only via free market operation and competition. In reality it is exceptionally infrequent, almost impossible, to find an economy in the world without absolutely no intervention at all. However, because examining the effects of intervention is not one of the objectives of the present study, the analysis will focus on the specific arguments for and against regulatory barriers to entry. The term arguments for regulatory barriers, in this case, does not mean the apposition of arguments that try to convince that legal barriers do not constitute barriers of entry, but arguments that try to convince that legal barriers are barriers to entry, but exist because they are socially beneficial. Arguments in favor of regulatory barriers to entry One of the main arguments for the existence of regulatory barriers to entry springs from the need for protection of natural monopolies. Legal protection in cases of natural monopolies is necessary because an increase in competition in these industries would lead in a reduction in the monopolistic firm’s market share and this in turn would undermine its ability to exploit all available economies of scale (Waterson, 1987; Waldman & Jensen, 2000). This means that the restriction in the number of producers comes from the need to minimize production costs (Church & Ware, 2000). If production is characterized by economies of scale and average cost decreases as production increases, then it is always less costly the production to be carried out by a single firm than by many firms. This is the reason why Domberger & Piggot (1986) claimed that public property is essential in cases of natural monopolies. Through monopoly in these cases, society avoids unnecessary investments in capacity reproduction and the waste of economic resources that these investments involve (OECD, 2004). The protection of natural monopolies from governments can also protect the positive externalities that these create for other related companies and for consumers in general. Another argument in favor of the protection of natural monopolies through regulatory barriers emanate from the view that the government in these cases functions as a guarantor of the quality and quantity of the products and services produced. This argument is based on the principle that the mechanisms of political direction and responsibility are most suitable to control a market than private individuals. If a natural monopoly belongs to the state, the effectiveness of the state monopolistic company is associated with the general effectiveness

43

of the government. A failure to meet society’s objectives would have an impact on the following elections, rendering the government responsible for the failure. Government intervention can protect consumers’ interest, even if a natural monopoly is transferred in private ownership though the issuance of monopoly rights. Through the terms of the contract (especially in regard to prices and quality) as well as through the regulation of the terms of supply, governments can again function as effective market regulators. If a government doesn’t take any precautionary measures while opening up these industries, the result may be socially harmful. An industry can be monopolized by a private firm who may abuse its market power and raise prices in very high levels. But even if these markets do not lead in private monopolies but in a large number of competitors, then a situation named excessive competition may appear. Excessive competition is a situation characterized by excessive capacity, increased production costs, reduction of total demand, reduction of investments and exit of many firms from the industry (OECD, 2004). The legal protection of natural monopolies can also guarantee the service of markets that would not be efficient for the private sector to serve (e.g. consumers in frontier areas) and also ensures that these monopolistic companies will gather the financial resources they need in order to achieve technological change and innovation through R&D (Waldman & Jensen, 2000). The availability of economic resources earned by monopolies is considered by many authors as a prerequisite for technological change (e.g. Schumpeter, 1943). A large number of small companies would not permit the gathering of the resources required for conducting R&D and creating innovative products and services. Some other arguments in favor of the application of regulatory barriers to entry arise from the need to protect the domestic economy and state revenues. Legal barriers as tariffs and monopoly rights can offer precious income for the state (Krugman & Obstfeld, 1994; Church & Ware, 2000). These can be used for the support of the national economy and for the improvement of the citizens’ quality of life in general. In many cases these revenues are transferred in other industrial sectors. Moreover, legal barriers as duties, quotas, taxes, subsidies, loans, procurement policies and price fixing can be used for the support of domestic production. The restriction of competition in an industry can help domestic producers to increase their sales and gain the capital they need in order to survive in the long-term. The capital raised can be used for the achievement of economies of scale as well as for investments in R&D. These policies are mainly used for “infant” industries, meaning those that are still in their initial stage of development and need the support of the state in order to survive (Carlton & Perfloff, 1999). This support is essential especially in cases where the other competitors of the industry are large diversified multinational firms. Apart from the improvement of the competitiveness of domestic firms, important is also the argument that connects legal protection with the increase in domestic employment. More advanced arguments are those that support government intervention for 44

Market/Sector Analysis the avoidance of dependence in foreign economies and their economic precessions, as well as those that relate with the national security issues (e.g. defensive industries). Moreover, legal barriers may also arise due to the influence of pressure groups such as trade unions and consumers associations, which some times “besiege” political power in order to protect their own interests (Thilmany & Barrett, 1997). Another line of arguments in favor of legal barriers emanates from the usefulness of the measures for protection of health, safety and intellectual property. All governments impose regulations for health, safety and protection of the environment though the specifications in domestic and imported goods and services, but also though certification, licensing and inspection procedures. These regulations aim to protect the health and the quality of life of the residents of a country, to protect the natural environment in which they live and to provide safety measures for employees (Jacobson & Andreosso - O' Callaghan, 1996). Regulations for safety can also solve problems of incomplete information in relation to the quality of products. The marking of products along with strict safety regulations can increase total active demand because of the alleviation of consumer’s concerns about quality. This is the main difference between technical barriers and other traditional trade restrictions such as tariffs and quotas: technical barriers can strengthen demand. On the other hand legal barriers that concern intellectual property are also considered justified. The protection of intellectual property is required in order to ensure the motives for new creative efforts and innovations. Innovations play a vital role in economic and technological growth. Some claim that these could not be achieved if the law does not guarantee to innovative firms the monopolistic rights and profits they need in order to redeem the investments that they have made in R&D (Lipczynski & Wilson, 2001). This means that patents lead to the availability of products that would be impossible or not practical to be created without legal protection. These new products and services have multiple benefits for the economy. Apart from the improvement of production techniques and the cost efficiency that they can create for producers and consumers, they can also improve the competitiveness of the economy (e.g. via exports). Ginarte & Park (1997) found a strong correlation between the income of country and the strictness of laws that protect intellectual property. Another argument that has been put forward in favor of the protection of intellectual property rights is the one that concerns trademarks. If a firm’s trademarks are not protected legally from copying, then this firm would not have a motive to be differentiated in regard to quality and price by other firms in the market. Advertising would be pointless as it would be very difficult for consumers to separate advertised products during their purchases. Arguments against regulatory barriers to entry Although all the arguments mentioned above certainly stress the usefulness and the positive consequences of regulatory barriers to entry, however there are many arguments 45

claiming exactly the opposite. Regulatory barriers can have negative effects in economic efficiency as they constitute the most important and difficult to overcome barriers to the entry of new competitors. Neo-Austrian economists Parker & Stead (1991) supported the view that all other barriers should be ignored because they are not important. From an Austrian perspective, the divergences of cost between firms, new or incumbent, are inevitable, as inevitable are also the efforts of new businessmen to overcome these barriers though innovation and advertising. For their new-Austrians, the only true barriers are those that result from government activity, as these are the only barriers that cannot be overcome from new firms. The advocates of the so called Chicago school of economic thought agree with this opinion. The reasons for the rising of these barriers have been connected by many authors with the influence of economic circles in politicians (Posner, 1971; Stigler, 1971; Sykes, 1995; Thilmany

& Barrett, 1997; Church & Ware, 2000; Lipczynski & Wilson, 2001; OECD, 2005;

Bitzenis, 2009). This theory was developed in modern economics by Stigler (1971). Stigler’s basic principle is that the government possesses a monopoly in the exercise of legal power and this monopoly firms seek to influence for their own interest. Politicians are willing to provide legal protection in return for help in the achievement and maintenance of political power. In return for the utilization of laws and regulations that limit competition and deter entry, firms provide politicians and political parties what that need in order to win the elections: money and votes. Consequently politicians are controlled by the firms which they are supposed to control. In return to votes, economic resources or the promise of future employment, regulators use their power in order to serve private firms’ and their own personal interests (Stead et al, 1996). Posner (1971) extended further this opinion by supporting that state intervention in markets is influenced not only by firms, but also by various other pressure groups, such as consumer associations and trade unions. Based on this principle later on Peltzman (1976), claimed that market intervention through legal restrictions in reality creates imperfections instead of solving them. As companies are more organized than consumers that regulators represent, they have the power to influence political circles more effectively. This can lead in the long run to a situation named regulatory capture, meaning the formation of current legislation to the best interest of the private firms and to not of society as a whole. Economists often refer to these firms’ pressure efforts as rent seeking, which means the expense of resources for the achievement of government created monopolistic profits (Church & Ware, 2000; OECD, 2005). Another relative argument is the one that stresses that the cost of controlling a market is high (because of the committees that have not be organized in order to decide the form of intervention), as high are also the time delays in the entry of new companies that these procedures can create.

46

Market/Sector Analysis The restriction of competition in industrial sectors constitutes in substance the most powerful argument against legal restrictions and industrial policy. Either in cases of government-protected monopolies or in cases of exercise of industrial and trade policies that intervene, control and delay entry, the results are similar: exclusion or restriction of entry, reduction in the number of competitors, high concentration, lack of consumer choice and finally transfer of resources from consumers to producers. Taking for example tariffs, quotas and subsidies: these barriers reduce the competitiveness of imported products and limit the social gains they could create. An increase in the number of products and services through imports, can increase consumers’ available choices and offer a price competition that will decrease final market prices. Many domestic producers could also benefit though the import of more efficient raw materials and production factors. In regard to dumping, its use has obvious negative effects in the operation of competition in industrial sectors, as the import price of new products does not represent their real cost, but is rendered low due to government intervention with a sole aim to take over a sufficient share of the targeted market. This practice can lead other, more efficient, domestic producers on the fringe of a sector. The agreements of the World Trade Organization on the application of compensatory measures for dumping (GATT article 6 “Anti-dumping and countervailing duties” 1994), and the legislation of the European Union (EE L 56, 6.3.1996. p.1) on the defense from imports of this kind have been put forward for protection against dumping. On the other hand procurement policies followed by some governments can also negatively influence competition and growth (Kovacic, 1992; EU, 2009). As a country’s government usually constitutes the largest domestic consumer, the choice of suppliers that it makes can play a very important role in the development of market structure. Opaque and discriminatory procurement policies sometimes result to the support of specific companies and to the degrading of all the rest in the sector, up to the closure of some them. Companies that gain government contracts are in place to secure the resources they need in order to develop faster than their competitors and capture large market shares. But also taxes imposed by governments have some negative consequences in firm competition. Beyond the obvious consequences of double taxation and the high tax rates in production and income, other negative consequences are those related with increasing concentration in markets where small companies are forced to merge with larger ones in order to pass in more favorable scales of taxation and depreciation (Carlton & Perloff, 2000). Another line of arguments against legal barriers to entry are those that relate with the application of technical barriers to entry. According to the European Commission for Trade (2009) “the gradual reduction of tariff barriers to trade has been accompanied by an increase in the number of measures creating technical barriers to entry, such as regulations on packaging, labeling or conformity assessment procedures. These regulations can be 47

intended to pursue a legitimate objective, such as the protection of human health or safety. However, they are also sometimes wrongfully used in order to erect protectionist barriers around a domestic market” (online). This is why the EC has signed with the WTO the Technical Barriers Treaty (TBT), which tries to ensure that regulations, standards, test and certification procedures do not create unnecessary barriers to the entry of new competitors. As noted by Thilmany & Barrett (1997), trade liberalization agreements as NAFTA that decreased traditional protection methods as tariffs and quotas, can provide a motive for the development of more complex, less transparent means for the protection of domestic industries. The reason is that this trade protection can be less vulnerable in critics from outside parties, especially if the trade restrictions are connected with sensitive political matters, as health and safety (Kramer, 1984; Chambers & Pick, 1994). These barriers, however, in contrast to tariff barriers, are difficult, if not impossible to measure. Often they are hidden in the switching costs for compliance with specific standards or regulations and to time consuming expenses for testing and certification procedures (Thilmany & Barrett, 1997). According to the European Commission technical barriers: “not only add extra costs, but also distort production patterns, increase unit costs, increase stockholding costs, discourage business cooperation and fundamentally frustrate the creation of a common market for industrial products. Until all these barriers are removed, community producers are forced to focus in national rather in continental markets and are unable to benefit from the economies of scale that a truly unified market offers" (CEC, 1985, p. 17). The elimination of technical barriers can improve market access, rear the protection of large incumbent firms and lead to a higher degree of competition. Finally, another negative aspect of technical barriers to entry has been highlighted by Scherer & Ross (1990) and concerns the effects in small businesses that cannot correspond with the cost of conformity with technical regulations. The cost of the necessary equipment required for the control of water supplies, air and worker safety in industrial facilities that has been imposed by environmental laws and laws for work safety, has led many small business in closure. The last line of arguments against legal barriers to entry comes from the concerns about the effectiveness of the intellectual property rights system and especially for patents. As patents issue monopoly rights to their holders for a large number of years, they are in turn able to charge high prices and earn monopoly profits. Apart from the well known consequences that every monopoly has in relation to the loss of consumer surplus, further negative effects come from the inability of other firms and organizations to exploit new technology and produce new products and services in a more rapid rate. This is why in some cases the duration of patents is judged as excessively high from a social point of view. This critic is also based on the opinion that knowledge is a public good and no one should be excluded from its use (non-exclusivity). This argument is more clear especially in cases where 48

Market/Sector Analysis innovative products and services can have an instant impact in people’s lives (e.g. medicines). The issuance of a long term patent can, however, have more extensive consequences for an industrial sector. The monopoly profits and market power that are earned by the firm that holds an important patent may allow it to monopolize the sector and drive all other firms out of competition. This harms social welfare, as the monopoly power of the firm escapes the monopoly of a product and extends in the whole industry. This process is partially owed in a negative parameter of the patent system that relates with who wins the patent first. Many companies are involved in the process that has been named patent races, and means the excessive focus in R&D with an aim to win a patent. As patent offices can grant a patent in only one firm, the first one that presents all the necessary certificates, this means that all other firms that have invested in R&D of the same technology will get nothing. This phenomenon has been named in modern economics as “winner takes all” (Lipczynksi & Wilson, 2001) and implies the waste of resources in R&D activities of the same kind. Problems with the process of patent issuance can also be created from the different systems adopted by various countries (Church & Ware, 2000). Another issue also relates with the differentiation criteria of innovation. The stricter the differentiation criteria from previous innovations are, the harder it is to win a patent, and this in turn extends the period for which a current patent can win monopoly profits. Other negative parameters of patents relate with the recent burst in patent applications for plants and living organisms. This process has created serious criticisms from the supporters of the view that natural chemical compounds and organisms belong to manhood and they should not be legally secured and commercially exploited. Although the above tell us that in substance governments must balance, through legislation, between providing motives to private companies for investing in R&D and the diffusion of knowledge as a public good, there have been completely different proposals for the promotion of R&D and technology. Alternative plans for the promotion of innovations are those that relate with government awards for those companies or organizations that produce innovative products and services. These opinions are strengthened from research that has proven that R&D does not relate with the issuance of patents, but it is something that would also happen without them (Taylor & Silberston, 1973; Schankerman, 1998; Lipczynksi & Wilson, 2001). Empirical studies on regulatory barriers to entry Due to the large number of regulatory barriers and the different form they take in each case, the empirical studies on the topic are many. In this part of the study there is going to be a short reference to empirical studies for each source of regulatory barriers. The issue of natural monopolies and monopoly rights was examined by Joskow & Rose (1989) and Mosca 49

(2008). The OECD has also published many investigations into sectors which are considered natural monopolies (e.g. 2000, 2001). Another study is that of Gelfond & Spiller (1987) in relation to the banking industry. The relationship between government intervention and private sector was examined in the study of Spiller (1990), while Pittman (1988) examined the relation of rent seeking with industrial structure. Jacobsen & Soysa (2006) examined the relationship between rent seeking and FDI. An interesting research related to tariffs is that of Geroski & Murfin (1991) for the UK car market. An overview of the effects of tariffs, quotas and other trade policies was made by Corden (1971) and a study of the effects of tariff barriers to entry is that of Rousslang & Suomela (1985). Tarr (1989) on behalf of the U.S. Federal Trade Commission, has published an assessment of the impact of tariffs on three major sectors: textiles, automobiles and steel. Hoekman et al (2004) examined the relation between tariffs and country size. Regarding subsidies, an important empirical study is that of Carlsson (1983) on the role of industrial subsidies in Sweden, while very interesting is also the one of Dixit & Kyle (1985). Typical is the study by Majumdar (1988) for the aircraft industry. The legal side of subsidies was examined by Stewart & Dwyer (1998) and Hernandez de Madrid (2007). The role of taxation in industrial structure was examined in the studies by Prais (1981), Spiller & Favaro (1984) and Bitzenis (2009), while for loans characteristic is the study by Gonzalez-Maestre & Granero (2003). In relation to procurement policies important are the studies made by Duggan & Morton (2006) on the role of government procurement in drug prices in the U.S. and Burnett & Scherer (1989) for the U.S. defence industry. Taylor & Silberston (1973) and Schankerman (1998) examined the relation of patents with innovation. The relation among IPR protection and economic growth was examined by Horri & Iwaisako (2006). IPR in relation to drug access was examined by Heywood (2002). In relation to sanitary and phytosanitary measures and environmental protection measures, a complete analysis is that of Gruenspecht & Lave (1989), while a specific industry study (food) is that of Thilmany & Barrett (1997). Policy considerations regarding the application of such measures were examined by Miljkovic (2005). Technical barriers were examined by Cecchini (1988) and Hanson & Saykiewicz (2007), but important are also the legal studies by Marceau & Trachtman (2002) and Henson & Wilson (2005). Technical barriers in the EU were examined by Brenton et al (2001). The number, the cost and the duration of registration, certification, licensing and insurance procedures were researched by Djankov et al (2002), while a very good analysis of the operation and impact of price fixing is made by Carlton & Perloff (2000). Legal barriers to the Balkan markets and in particular the case of Bulgaria were examined by Bitzenis (2002), Bitzenis and Marangos (2008) and Bitzenis (2009). Finally in relation to dumping typical are the studies of by Czako, Human & Miranda (2003) and Kong (2003).

50

Market/Sector Analysis Policy recommendations By examining the arguments for and against the various sources of regulatory barriers to entry, it is possible to make some policy recommendations about their application and impact. Natural monopolies should be legally protected by the governments, as more competition in these industries is not socially beneficial. More competition in these cases would increase production costs through unnecessary investments in capacity reproduction. Strict state legal and financial control of these industries is a necessary prerequisite for safeguarding their social effectiveness. Where monopoly rights are issued, the terms of the contracts must again ensure the socially desirable level of prices and quality of products and services provided. The use of licences can limit competition, so the opening of these industries can create socially desirable effects. Tariffs and quotas can limit competition so their application is not useful from a social standpoint. Subsidies, taxes and loans should only be used only in order to promote more competition. These regulatory tools should be used only in order to promote new firm start ups in concentrated markets, and not as a strategic tool for restricting current and future domestic or foreign competition. Government procurement on the other hand, should be made with transparent selection procedures so as not to distort industrial competition. The contracts signed should not be very long in duration, so that the fear of replacement will prohibit private firms from degrading the products or services they provide to the state. Industry specific adjustments are needed in each case. In regard to IPRs, there has to be a distinction among them. While copyrights and trademarks are useful from a social point of view, the role and the duration of patents needs to be reconsidered. Trademarks are necessary for the effective operation of competition in the economy, as they provide the basic motive for differentiation regarding the price and quality of the products and services. Copyrights are also useful in order to promote new ideas. The patent system needs to be reconsidered by governments and international organizations. The long duration of patents, the monopoly rights they provide, their exclusivity, the restriction of competition and the different patent systems around the globe are the main reasons for a complete rethinking of the patent system. A free patent system, some claim, would lead in less innovation, as less financial resources will be invested in R&D. Others claim that on the contrary, a system without patents would lead in more innovation, as firms would need to introduce new products and services more often in order to survive. A step towards that direction would be to decrease the patents’ time duration and discover new means for rewarding innovation. The application of sanitary, phytosanitary and environmental protection measures, as well as technical barriers, should all be used in order to protect social health and welfare and not as anticompetitive tools that restrict competition. In order to achieve that, the use of

51

these measures and standards must be based on core scientific data published by international

organizations.

Registration,

certification,

licensing

and

social

security

procedures should be minimized to a minimum in order to promote and simplify new firm entry. Once new firms are established, then governments can apply the desirable level of firm inspection. This has a double effect: on the one hand new competition is encouraged and on the other hand the government can more easily control established firms. Price fixing is a policy that must be used with caution. A very high price may create a black market for products and services, while a very low price can undermine the ability of the firms to survive. Price fixing can be effective only in monopolistic or highly concentrated oligopolistic industries. However before setting a price, the government must first calculate the profit margins in all stages of production. Finally dumping is a policy that needs to be examined carefully, as price competition is desirable from s social point of view. As with predatory pricing, this strategic tool cannot be applied without the backing of some structural advantages. The effects of dumping on competition however cannot ne longterm. The country applying dumping is in risk of making more losses in the long run than gains. The basic criterion for the application and of each regulatory barrier is the effect it has on social welfare. If social welfare, in cases other than natural monopolies, is connected with more competition, than it is easy to separate those regulatory barriers that restrict domestic or foreign competition from those that are applied in order to increase the number of firms. Specific attention has to be given in providing motives for new firm entry and the intensification of competition though technological progress and innovation. New innovative products and services can lower production costs, make better use of the available economic resources and help new firms to surpass structural and strategic advantages of incumbent firms more effectively. Conclusions Regulatory barriers constitute the most difficult to surpass barriers to entry as they spring from government action and have the power of the law for their application. Through the various sources of regulatory barriers governments can intervene in the process of industrial competition and affect market structure and social efficiency. Regulatory barriers can also completely block, delay or undermine in terms of cost the entry of new competitors in industrial sectors. The presence of regulatory barriers and the restriction of competition that they create is socially effective only if it takes place in order to protect competition and social welfare. In cases where politicians erect these barriers in order to serve private companies’ or their own personal interests, these barriers have socially undesirable effects. In order to correctly assess the importance and usefulness of each regulatory barrier to entry it is always necessary firstly to assess the motives behind its application and its long term effects in competition. 52

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Organisation for the Economic Cooperation and Development (2001). Competition Issues in Road Transport, Policy Roundtables, DAFFE/CLP(2001)10. Organisation for the Economic Cooperation and Development (2004). Intellectual property rights, Policy Roundtables, DAF/COMP(2004)24. Organisation for the Economic Cooperation and Development (2005). Barriers to entry. Policy Roundtables, DAF/COMP(2005)42. Oustapasidis, Κ. (2003) Applied Industrial Economics. Thessaloniki: Zigos. Parker, D. & Stead, R. (1991). Profit and Enterprise: The Political Economy of Profit. New York: St. Martin's Press. Peltzman, S. (1976). Toward a More General Theory of Regulation. Journal of Law and Economics, 19(2): 211–240. Pittman, R. W. (1988). Rent Seeking and Market Structure: Comment. Public Choice, 58: 173185. Posner, R. (1971). Taxation by Regulation. Bell Journal of Economics, 2(1): 22–50. Prais, S. J. (1981). Productivity and Industrial Structure: Α Statistical Study of Manufacturing Industry in Britain, Germany and the United States. Cambridge: Cambridge University Press. Rousslang, D. & Suomela, J. (1985). Calculating the Consumer and Net Welfare Costs of Import Relief. Washington, International Trade Commission. Schankerman, M. (1998). How Valuable is Patent Protection: Estimates by Technology Field. Rand Journal of Economics, 29(1): 77-107. Scherer F.M. & Ross, D. (1990). Industrial Market Structure and Economic Performance. Boston: Houghton Mifflin. Schmalensee, R. & Willig, R. (1989). Handbook of Industrial Organization. North-Holland, Amsterdam. 55

Spiller P. (1990). Politicians, Interest Groups and Regulators: A Multiple-Principals Agency Theory of Regulation, or ‘Let Them Be Bribed’. Journal of Law and Economics, 33(1): 65-101. Spiller, P. & Favaro, E. (1984). The Effects of Entry Regulation on Oligopolistic Interaction: The Uruguayan Banking Sector. Rand Journal of Economics, 15(2): 244-254. Stead, R., Curwen, P., & Lawler, K. (1996). Industrial Economics: Theory, Applications and Policy. London: McGraw-Hill. Stewart, T. & Dwyer, Α. (1998). WTO Anti-Dumping and Subsidy Agreements: A Practi¬tioner's Guide, Boston: Kluwer Law International. Stigler, G. (1968). The Organization of Industry. Homewood: Richard D. Irwin. Stigler, G. (1971). The Theory of Economic Regulation. Bell Journal of Economics, 2(1): 3–21. Sykes, A.(1995). Product Standards for Internationally Integrated Good Markets. Washington, D.C.: Brookings Institution. Tarr, D. (1989). A General Equilibrium Analysis of the Welfare and Employment Effects of US Quotas in Textiles, Autos, and Steel. Federal Trade Commission. Taylor, C. & Silberston, Z. (1973). The Economic Impact of the Patent System. Cambridge: Cambridge University Press. Thilmany, D. & Barrett, C. (1997) Regulatory Barriers in an Integrating Food Market. Review of Agricultural Economics, 19(1): 91-107. VonWeizsacker, C. (1980). A Welfare Analysis of Barriers to Entry. Bell Journal of 11(2): 399–420.

Economics,

Waldman, D.E. & Jensen, E. (2000). Industrial Organization: Theory and Practice, Harlow: Addison-Wesley. Waterson, M. (1987). Recent Developments in the Theory of Natural Monopoly. Journal of Economic Surveys, 1(1): 59-80. World Trade Organization (1994). General Agreement on Tariffs and Trade (GATT), 8th Round, Uruguay.

56

Market/Sector Analysis

Analysis of apple production of EU-Balkan states based on PC time series database Nikola Tsaikin, Mariya Zarkova, Diana Stoyanova & Kolyo Onkov1 Abstract: Data extracted from FAO Statistical Database is used for PC time series database building on crop production of Greece, Romania and Bulgaria. The developed software assembles computing of descriptive statistics and procedures for applying of moving average and other trend modeling methods. The advantage of this solution consists of automated statistical processing of time series data concerning different countries, crops and time periods. The developed PC database and software are used for statistical and economic analysis of apple production, harvested areas and yields. The obtained results show the negative trends during the last 15 years in post socialist Bulgaria. Despite of considerable annual variations, the apple production in Romania weakly rises due to better productivity. Greece has high and sustainable production and yields. Areas with apples are in decline in EU-Balkan states and the negative trends are permanent. The support of agricultural projects is an important measure for EU-Balkan states which is in accordance with the economic crisis and unemployment. Keywords: database processing, time series analysis, apple production, investments, entrepreneurship Introduction International and governmental statistical institutions store large amounts of statistical data from different fields (economy, demography, industry, agriculture etc.) in large scale databases. Data processing of these databases requires high computational costs (HSN Workshop on Large Databases, 2001; Javier 2004). Another problems referring to large scale databases are the lack of synergy among these systems due to poor interoperability, no real integration and weak data mutualisation (EUROSTAT, 2003). These statistical databases, usually presented in Web environment, provide interface for data querying but not on-line data processing. This is significant reason for building PC database containing subset of large scale database for the scientific research purposes. Statistical databases governed by Food and Agriculture Organization (FAO) of the United Nations have the above mentioned weak points. These databases provide time-series and cross sectional data relating to food and agriculture for 210 countries (faostat.fao.org). FAO databases contain detailed datasets on crop production. Profound analysis of data on 1

Department of Computer Science and Statistics, Agricultural University, 4000 Plovdiv, Bulgaria.

57

crop production of EU-Balkan states (Greece, Romania and Bulgaria) will support the progress in finding important information and knowledge in order to guide decisions for future activities (UNECE, 2000) in these countries. This work is in the compliance with: •

Transformational recession, unemployment and other associated concepts of the transitional process of Bulgarian and Romanian economics are not going to fade away without a second stage of transition (Andreff, 2004). It is one of important reasons for estimating quantitative and comparative characteristics of recession in agriculture, especially crop production.

•

Decision theory, start-up factors of production, information processing and network theory, and temporal dynamics are put forward for entrepreneurship scholars to explore important research questions in these intersections (Busenitz, 2007). The creation of informational base for studying crop production in different periods of time will contribute to take adequate decisions in the field. This paper aims to present the building of PC time series database on crop

production of EU-Balkan countries (Greece, Romania and Bulgaria) and analysis of apple production using this database. This work argues the necessity of investments and entrepreneurship for the development of new areas with apples in these countries. PC time series database building Primary data on crop production of EU-Balkan states is extracted from FAO database in a set of Excel tables, e.g. semi-structured form. Practically it is data cube in 4 dimensions: country, element, crop and period of time (fig. 1).

Country: Bulgaria, Greece, Romania Element: Production, Harvested area Crop: 82 crops Period of time: 1961-2008 Figure 1. Data cube The basic problem of PC time series database building is how to store data cube as multidimensional array in a set of relational objects. The idea for creating database model consists of hierarchically related two-dimensional tables. Hierarchical data structures enable the end users to view and access data. Besides, there are powerful software instruments of the Relational Database Management Systems (DBMS) for building of hierarchical data

58

Market/Sector Analysis structures. Figure 2 presents the entity-relationships diagram of the database on crop production of EU Balkan countries.

Figure 2. Entity relationships diagram The number of levels in the hierarchy is four. Time series data by years is stored in table Time_series_data, indexed by key CEC_ID from the linking tables – Country_element and Country_element_crop. Both linking tables combine three ID-keys of the attribute tables – Countries, Elements and Crops. Table Crops stores Indicative Crop Classification (ICC) codes of the crops under FAO classification. Each digit of ICC code is stored in a different entity and gives opportunity to classify crops in groups, classes, subclasses and order. DBMS Access is used for the development of database on crop production of EU Balkan countries. Figure 3 presents hierarchically related tables of the database. Cascade arrangement of the windows gives opportunity to view certain time series.

Figure 3. Cascade arrangement of windows The developed time series database contains data for the production and harvested area of 82 crops in the three Balkan countries (Bulgaria, Greece and Romania) for the period 1961 – 2008. This database has the following features:

59

•

Its structure makes the system open. The database model can be expanded over time by new countries, elements, crops and corresponding time series data;

•

Time series data is stored vertically (fig. 3). Hence, the annual updating requires to add only one row in each table containing time series;

•

DBMS Access has flexible instruments for data access, view and querying;

•

The FAO ICC classification code enables extended statistical data analysis of crop production by groups, classes, subclasses and order;

•

This database is an information environment which provides: °

Statistical and economical analysis of extracted data by well-known statistical software (SPSS, Statistica etc). In this case the statistical data processing is only partly automated;

°

Building of non standard mathematical and statistical procedures for automated database processing. This will enable profound studying of the complex processes of crop production in different countries and periods of time.

Analysis of apple production of EU-Balkan states Software techniques are developed for processing PC time series database on crop production in EU-Balkan states. They give opportunity for: •

Estimation of secondary indicator (average yield) by using primary data (production and harvested area) and input of additional data (import and export of crops);

•

Computing descriptive statistics: mean, standard deviation, coefficient of variation and as well as sum and percentage;

•

Application of moving average and other trend modeling methods. The centered moving average trendline is considered to work well for long time series in order to smooth fluctuations and show trends more clearly;

•

Presenting the results of data processing in table and graphical form. The developed software assembles all computations in an entire process. The

advantage of this solution consists of automated statistical processing of time series data concerning different countries, crops and time periods. This approach is applied for statistical and economic analysis of apple production in EU-Balkan states: Bulgaria, Greece and Romania. Analysis and discussion of the obtained results are presented in the following sections. The Apple in the national structure of fruits crop in EU Balkan states The data on apple production in EU Balkan countries on average for the period 20042008 are presented in Table 1.

60

Market/Sector Analysis The share of apples in the total fruits produced, is 5.96% in Bulgaria, 7.33% in Greece, and 27.22% in Romania. The biggest part in Pome and stone fruits produced in Bulgaria belongs to apples. It remains relatively stable (22.75%) for the studied time period. The structure of Pome and stone fruits crop in Greece is relatively stable. In this fruits group apple takes the second place with 20.13% , after peaches and nectarines. In Romania apples crop share in Pome and stone fruits declines from 60% in 2004 to 40% in 2008, and concedes the first rank to plums. Table 1 - Production, import and export /tones/. Average for the period 2004 - 2008 Indicator

Country Greece 3596070 1309127 263558 22603 34399 251762

Bulgaria 474714 124411 28303 33978 768 61513

Total fruit production incl. Pome and stone fruits Apples Import of apples Export of apples Domestic consumption of apples

Romania 2396094 1427260 652123 59710 4398 707435

The discussed three EU Balkan countries meet their domestic apples consumption as follows: Bulgaria – 46%; Romania – 92.2%; Greece – 100%. Romania is the biggest importer with 51% of the total three countries’ import, while Greece is the biggest exporter with 86.9% of their total export. Regional distribution of the apple production Until 1975 Bulgaria has the largest relative share in the total quantity of apples produced by the three Balkan countries - on average about 44% (fig. 4). Over the past decade its share collapsed to only 3%. After 1975 Bulgaria gave up its leading position to Romania, which now produces around two thirds of the three countries’ total quantity. Greece's share remained relatively stable over the years from 1961 to 1993. After that it began to grow and at the end of the period of study is over 35%.

100%

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0%

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Figure 4. Regional distribution of the apple production 61

Analysis of the production tendencies After 1961 in Greece there is a smooth increase in apples production with an approximately straight-line trend to the maximum quantities of 363 142 - 373 323 tons in the years 1996-1997 (fig 5). After this period the tendency becomes negative. The decline continues until 2008 when 234 700 tons are produced. A certain slowdown in the decrease is observed after the year 1997. t 1200000 1000000 800000 600000 400000 200000

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Figure 5. Dynamics of apples production Bulgaria produces its maximum quantities of apples in the years from 1981 to 1990. During the period of transformation from planned to market economy, started in 1990, the local apple production fell into a deep crisis, which continues to this moment. Our trend analysis of apple production in Bulgaria confirms the opinion of other authors [8] that “in the short term a change in the existing tendency cannot be expected”. The apples crop in Romania increases with an accelerating pace until 1986. Through the period 1987-2008 it is in constant decline and is characterized by a strong variation in annual volumes. In the last five years Romania’s apple production collapsed, and the quantity produced in 2008 is more than two times smaller than that in 2004. Harvested areas On average for the period 1985-2008, around 72% of the total three countries’ area with apples harvested is in Romania and the remaining 28% are almost evenly distributed between Greece and Bulgaria (fig. 6). The trends in the changes in the countries’ relative parts, however, are very different. While the share of Romania constantly expands reaching 79.5% at the end of the period, that of Bulgaria declines from 20.3 % starting in 1985 to 7.5 % in the last year 2008. Over the years Greece’s share fluctuates around an average of 14%, but at the end of the period there is a tendency of increase to 16-17%. Areas with apples are in decline in all three Balkan countries and the negative trends are permanent (fig. 6). In Bulgaria this process is carried out especially fast, where only in the last 10 years areas with apples have shrunk 5 times.

62

Market/Sector Analysis ha 35000

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Figure 6. Dynamics of harvested areas Yields Bulgaria has the highest productivity of apple production at the beginning of the observed period (fig. 7). Greece reaches Bulgaria in the middle of the 70's. Yields of both countries do not differ substantially, both in magnitude and as dynamics over the years from 1975 to 1990. During this 15-year period they increase, fluctuating around an approximately equal straight-line trend that for Greece continues until 1996. It is in 1996 that its maximum for the whole observed period average yield of 26315 kg/ha is registered. The negative tendency in the dynamics of the yield of apples in Bulgaria starts in 1990 and continues to date. Over the last five years Romania and Greece increased their productivity. In the last third of the observed period Greece holds the first position in the magnitude of average yields. The yields in Greece are more than 2 times those of Romania and more than 4 times those of Bulgaria in the last few years. Over the last eight years, Bulgaria has stable, but extremely low average yields of 5000 kg/ha, significantly lower than the average yields worldwide and in the European Union, which in 2004 were 11180 kg/ha and 25750 kg/ha respectively (Манолова, 2005). kg/ha 30000 25000 20000 15000 10000 5000

BG RO 5 per.Mov.Avg (GR)

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Figure 7. Dynamics of apples yields Table 2 presents descriptive statistical characteristics of the apples yields for the period 1985-2008. The productivity in post-socialist Bulgaria and Romania is significantly lower

63

than in Greece. This analysis also reveals another problem – instability of the yields in Romania and Bulgaria. Table 2 - Descriptive statistical characteristics of apples yield (kg/ha) Country Bulgaria Greece Romania

Mean 9486.54 19706.57 8037.25

Apples yields (kg/ha) for the period 1985-2008 Standard deviation Coefficient of variation* 5395.64 56.88 3497.30 17.75 2423.17 30.15

*Coefficient of variation = (Standard deviation/Mean) * 100 The results of the accomplished discussion can be summarized as follows: •

Traditionally for the Balkan geographic region production of apples is developing under different national models. Nevertheless, there is one fact in common – the areas with apples are decreasing.

•

Greece has the most favorable characteristics for apple production – high and sustainable yields and surplus of production which leads to net export.

•

Romania is successfully pushing its production to meet the demand of apples in its own market. In the last decade the production of apples in this country has been developing intensively. Even though with significant annual variations, the production rises due to better productivity.

•

The Bulgarian production of apples is in deep and constant crises which started with the beginning of post-socialist period. As a result, currently Bulgaria imports more than a half of its demand for apples. Bulgaria definitely needs investments in order to develop its potential for apple production.

Conclusion The build database enables statistical processing of time series data concerning different crops and time periods for EU-Balkan states. The developed software is used for statistical and economic analysis of apple production, harvested areas and yields. This analysis proves that the political and financial support of agricultural projects and entrepreneurship are needed for all three EU-Balkan states. This is in accordance with the economic crisis and unemployment in the agricultural sector. The database and software can be used for similar analysis of other crops production and as well as groups, classes and subclasses of crops. This paper shows the coherency between data and information processing, statistical analysis as well as investment policy and entrepreneurship in dynamics of crop production.

64

Market/Sector Analysis References [1] Andreff W - Would a Second Transition Stage Prolong the Initial Period of Post-socialist Economic Transformation into Market Capitalism ?, The European Journal of Comparative Economics Vol. 1, n. 1, 2004, pp. 7-31 [2] Busenitz Lowell W., G. Page West, Dean Shepherd, Teresa Nelson, Gaylen Gayled N. Chandler and Andrew Zacharakis - Entrepreneurship Research in Emergence: Past Trends and Future Directions, Springer Berlin Heidelberg, 2007. [3] EUROSTAT, 2003 (invited paper). Joint ECE/Eurostat/OECD meeting on the management of statistical information systems (Geneva, 17-19 February, 2003). www.unece.org/stats/documents/ces/ac.71/ 2003/12.e.pdf [4] http://faostat.fao.org/. [5] HSN Workshop on Large Databases, 2001: Results and Best Practices. Amsterdam, 17-18 May 2001. www.iisg.nl/research/hsnprogram.html [6] Javier C. – Fast Nearest Neighbours Search in High-Dimensional Large-Sized Databases, ITI Seminario, 2004. http://rhlt.iti.es/seminars/ SEMINARS/Cano04a.pdf [7] Manolova V., Investments and efficiency in fruit-growing, LAX advertising, 2005, ISBN: 9549806-58-8. [8] UNECE (Economic Commission for Europe of the United Nations), "Terminology on Statistical Metadata", Conference of European Statisticians Statistical Standards and Studies, No. 53, Geneva, 2000, OECD Glossary of statistical terms, http://stats.oecd.org/glossary/ detail.asp?ID=6157.

65

The market for corporate control in Greece: A critical assessment of the wealth effects to bidding-companies' shareholders Ioannis A. Tampakoudis, Demetres N. Subeniotis & Efpraxia Dalakiouridou1 Abstract: The paper examines the phenomenon of mergers and acquisitions in Greece, taking into account the wealth effects accruing to bidder-companies’ shareholders. The empirical results do not appear to robustly support mergers and acquisitions, since the companies being considered gain only marginal positive abnormal returns during the announcement day. Indeed, the returns are not statistically significant, while prior to and after the announcement date the returns show a downturn drift. The level of abnormal returns for the Greek bidder-companies is in line with those in Europe, while the particular diversifying results in the US cannot lead to direct comparisons. In fact, mergers and acquisitions do not constitute a business panacea and probably the extensive interest for business consolidation diachronically is accountable to the managers’ objectives or the hubris hypothesis. Keywords: mergers, acquisitions, event study, abnormal returns, managerial incentives

1

Department of Business Administration, University of Macedonia; Thessaloniki, Greece.

66

Market/Sector Analysis

An accounting comparison of the post-merger economic performance of Greek acquiring listed firms in domestic vs. international M&As at south-east Europe Konstantinos Agorastos1, Michail Pazarskis2 & Theofanis Karagiorgos1 Abstract: This study examines the impact of mergers and acquisitions (M&As) on the economic performance of merger-involved firms in Greece at domestic and international M&As transactions using accounting data (financial ratios). The post-merger performance of a sample of Greek firms, listed on the Athens Stock Exchange that executed one domestic merger or acquisition in the period from 1998 to 2002 as acquirers, is compared with an equivalent sample of listed firms with similar characteristics involved in international M&As. In order to measure firms’ economic performance five profitability ratios are employed and selected accounting data from 1995 to 2005 are compared for the post-merger economic performance of the two groups at three years after the M&As announcements, as well for the cases of two and one year after M&As respectively. The results revealed in general that the international M&As have provided a better post-merger economic performance for the acquiring firms than the domestic M&As, and in contrast to the general economic performance of all listed firms in this period also have had a superior performance. Key Words: mergers, acquisitions, financial ratios, economic performance JEL Classification: G34, F23, M40

1 2

Department of Business Administration, University of Macedonia; Thessaloniki, Greece. Department of Accounting, Technological Educational Institute of Serres; Serres, Greece. 67

The financial crisis and the prospects for investments in the energy sector in Bulgaria Virginia Ivanova Zhelyazkova1 Summary The financial crisis in combination with high oil prices is hitting all sectors of the global as well as local economies. The interesting question that remains open is whether there is a way to turn the unfavourable situation upside down and to prosper in such climate. The crisis places us ahead of many challenges but opportunities as well. The pressure for climate change and finding alternative solutions to the highly priced conventional resources opens doors for developing profitable solutions to pending energy problems in the field of clean energy. It seems that the crisis stimulates societies to strive for a radical change. As a new member of the EU, Bulgaria is obliged to abide by the common 2020 energy targets. According to them, by 2020 it has to obtain 16% of its total energy consumption from renewable sources. As their share is currently 9.4%, it is obvious that the country has a way to go to reaching the target. This can happen only by intensive government stimuli for the investments in the area. What is the situation on the Bulgarian energy market at the moment and where are the potential areas for development? In this paper we evaluate the energy market in Bulgaria as well as the prospects for energy consumption and exports and outline the key areas for possible further investment. Keywords: financial crisis, energy market, energy consumption, investments

1

Institute of Economics, Bulgaria Academy of Sciences.

68

Market/Sector Analysis

Crisis management: A contemporary constant need for business continuity in the tourism industry Zissis I. Maditinos & Chris A. Vassiliadis1 Summary The existing literature concerning tourism industry has noted an increasing number of disasters and crises, which affect the tourism industry, ranging from natural to human influenced incidents. In recent years the global tourism industry has experienced many crises and disasters including terrorist attacks, political instability, biosecurity threats, natural disasters, the global economic crisis that has been emerged recently etc. Many of the scholars that have studied the management of crisis in the tourism industry argue that there is a lack of research on crisis or disaster phenomena in the tourism industry, on the impacts of such events on both the industry and specific organizations, and the responses of the tourism industry to such incidents. This lack of interest and research is somewhat

surprising

considering

that

crisis

management,

disaster

recovery

and

organizational continuity are important competencies for managers in both the public and private sector. Tourism is an important economic sector for many countries and many destinations rely on tourism for their growth and survival. Especially for Greece, tourism constitutes an economic sector with great contribution to GNP, offering thousands of jobs and multiple positive consequences. This important role of tourism puts increasing pressure on managers and planners to consider the impact of crises and disasters on the industry and develop strategies to deal with the impacts to protect tourism business and society in general. Crisis and disaster management should be a core competency for tourism destination managers as well as business managers. This paper aims to support the significance of crisis (and disaster) management as a contemporary constant need for the businesses that are involved in the tourism sector. Crises and disasters are defined in order to better understand these phenomena. The paper focuses further on the nature of crises and disasters for tourism industry. In order to enforce the necessity of organizational preparation in the tourism industry, the paper presents some brief statistical data, which are indicative of the importance of the tourism sector for the Greek economy. Moreover, the paper supports the worldwide interconnection of the tourism industry. This global interconnection has opened businesses up to a wider set of risks making 1

Department of Business Administration, University of Macedonia; Thessaloniki, Greece. 69

crises that happen locally to affect the tourism industry globally (i.e. terrorist attacks, political instability, economic recession etc). Indicative paradigms of these situations are presented also. Finally the paper addresses some future research issues which could contribute to better understanding, planning and management of crises and disasters in an increasingly complex and disaster prone world always in relation with tourism industry.

70

Market/Sector Analysis

Increasing the managerial capabilities in Indonesia Agus Gunawan1, Mohamed Wahdan2 & H. Jaap van den Herik3 Summary Over the last ten years, workers in the garment manufacturing industry have become the essential contributors to Indonesia’s Gross Domestic Product. This success inspired other countries, such as China, Vietnam, India, and Bangladesh to increase their activities in this branch. Due to the new competitors there emerged new relations between the five competing countries. Earlier, two decades ago, Indonesia was a leader in the garment manufacturing industry. As an example of the demanding competition in the garment industry, we saw between 1999 and 2004 a growth of 380% of imported China garment to Indonesia. Here we remark that the huge import number is calculated only by the officially garment import; it does not include the illegal import. On 1 January 2010, Indonesia implemented the zero-tariff import duties among the member countries of the AFTA 4, including China. It is an effort to eliminate tariffs on the intraASEAN trade. This policy aims at developing a greater trade and more industrial linkages among the ASEAN member countries. However, it also brings more challenging situations for Indonesia’s Garment Medium Scale Manufacturing Enterprises (IGMSs). Most of the IGMSs run their businesses based on the owners’ intuition. So far, the business is good. However, the Indonesian owners usually have a lack of managerial skills on monitoring-and-evaluating the company’s financial performance. They focus on how to increase the sales, but rarely focus on how to manage the company efficiently, and how to use historical financial performances in their decisions. Although they might obtain any profit by doing their daily activities, they suffer many times from low profit because of the inefficiency and even of internal frauds. The main question is of course: what countermeasures can we take? Without a clear view on what is happening in their daily business, managers respond too slowly to the changing situations and the remarkable circumstances. When they start to understand the dark clouds above the circumstances mentioned, they will attempt to find a means to increase their managerial capabilities. Because most of IGMS managers do not

1

Department of Business Administration, Parahyangan Catholic University; Indonesia. Faculty of Commerce, El-Menoufia University; Egypt. 3 Tilburg School of Humanities, Tilburg University; the Netherlands. 4 AFTA means ASEAN Free Trade Area. Established on January 1992, the ultimate objective of AFTA is to increase ASEAN’s competitive edge as a production base geared for the world market. 2

71

have financial expertise, they need to be supported by the knowledge of experienced financial experts on monitoring-and-evaluating financial activities. Inspired by the success of the Knowledge-based System (KBS) implementation on Financial Statement Analysis (FSA) from previous studies (e.g., Huang, 2009; Khan, 2008; Shiue, Li, & Chen, 2008; Wahdan, 2006), we propose an Automatic Formulation of Financial Report (AFFAR) system. AFFAR is a hybrid KBS that integrate the use of (1) Accounting Information System, (2) KBS, and (3) Analytic Hierarchy Process techniques in FSA methods to produce an experienced financial expert’s analysis on monitoring and evaluating financial activities. From studies and interviews performed in Indonesia we may conclude that the automatic interpretation from AFFAR on the historical financial experiences will help IGMS managers to learn from the company experiences in such a way that they can make adequate business decisions.

72

Human Resources Issues in International Business

The influence of the human resource capacity on the level of foreign investments in countries in transition: The case of Serbia Vladimir Marinkovic1 & Natasa Stanisavljevic2 Summary Foreign Direct Investments are a key to development and progress of all contemporary economies in the world. Foreign Direct Investments are particularly important for countries in transition and their level determines both the dynamic of the overall economic development and the process of reforms in all aspects of society. In order to attract foreign investors, it is of crucial importance to formulate a clear economic policy that will be a basis for economic trends in the future and for improving mechanisms for enforcing the existing legal framework, improving administration capacities and the quality of public services. In addition to creating quality environment for business and attracting investments, it is vital to create a reformed workforce market and flexible workforce that adjusts itself to global changes on the market. Besides flexible workforce, it is important to have an efficient educational system adapted to the needs of the economy in the long run, that will provide practically and theoretically highly educated people who should be a comparative advantage over the competition in the region and in the whole world. Well-educated workforce is bound to have a great impact on the decision of foreign investors where to invest their money. World economic crisis has already increased these standards. Regarding Serbia, the market still lacks in adequate expert capacities both regarding functionality and regarding management, relative to the formal education, experience and prior engagements. Workforce demand and the number of qualified personnel are still in disproportion because the supply of workforce is not big enough to cover the rising needs. In addition to this, if we look at the unemployment numbers and notice a high percentage of people with lower education

level, it is obvious that the re-training of personnel is also

needed. Similarly, it is the highest priority to attract the Serbs that possess adequate expertisethose working abroad and with key qualifications and knowledge of doing business in global companies-to return to Serbia. Instead of hiring foreigners, foreign companies appoint them to the top management positions. 1 2

Megatrend University, Belgrade; Serbia. Higher Education Institution for Applied Studies for Entrepreneurship, Belgrade; Serbia. 73

In Serbia, one can still notice the need to become closer to social partners and have a closer dialogue and consensus between international companies and the government, faculties, universities and trade unions in order to ensure that educational programs are adequately formed according to the new workforce market. Introduction The influence of the global economic crisis has significantly reduced the level of investment at the global level, so that the importance of investments

for recovery and

progress of individual economies has highly increased. It is not only a great economic crisis that is present, but also the historical geopolitical change, in which the balance of power in the world inevitably moves from the United States, who are losing the dominant role at the global level, due to the nationalization of important parts of the financial system which destroyed their own belief in free markets. U.S. Congress has provided $ 700 billion from the budget for the recovery of Wall Street's and 17 billion extra for the recovery of the automotive industry. China was preparing a strategy of struggle against the economic crisis that transferred to its own ground, despite a rate of economic growth of 9% and its fight in the period of crisis, for the rate to stay above the level of 7%. Crisis management in China has already defined a plan of action-The Central Bank announced the biggest reductions in interest rates over the past 10 years and earlier last month, approved a package of measures stimulating the economy in the amount of 586 billion dollars. From the data shown,

there is one common denominator- all the countries

understood that a successful fight against the economic crisis and its socio-economic consequences require at least two things. The first is to strengthen the role of government in certain sectors of economic strategy and policy. As the crisis was expanding, the until-then loud neoliberal advocates of unlimited freedom of markets were becoming quieter and many have turned to the state for help. Secondly, the crisis cannot be repaired without additional resources, especially those that imply Foreign Direct Investment. The level of Foreign Direct Investment determines, definitely, the economic development of big, but even more, small and underdeveloped countries. A perfect example of this is Serbia, which in the past three years had an enviable level of FDI, but in this year of crisis, within six months, only 600 million euro investment flew in. Direct foreign investment in the region and in Serbia The level of Foreign Direct Investment in a country depends on many factors and assumes a single systematic approach by the very state, whose task is to create an attractive and high-quality environment for foreign investors. When it comes to countries of the region,

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Human Resources Issues in International Business Croatia is leading, including the participation of FDI in the state GDP. This clearly shows that this state has a better strategy than the others of the area. Data on the level of FDI in the countries in the region are shown in chart No. 1. Chart 1: FDI in central, east and southeast Europe overview

2000. 5404 2998 10334 2089 149

2001. 6295 4391 6372 1768 412

2002. 9012 3185 4371 4397 1722

2003. 1863 1888 4067 1914 271

2004. 4007 3633 10292 2441 665

2005. 9374 6099 7703 1694 445

2006. 4752 4874 11093 3324 303

Per capita Predictive influx EUR 2007. 2006. 5000 463 4000 484 12000 291 3000 617 400 151

20974

19240

22687

10002

21039

25315

24346

24400

370

3571

425 447 412

603 147 499

307 269 772

822 270 160

776 513 623

2349 582 826

1282 1303 1426

1300 1300 1300

964 589 420

9232 2615 2462

22258

20439

24035

13795

22950

29072

28357

28300

389

3590

1103 1147

903 1294

980 1212

1851 1946

2736 5183

3103 5213

4104 9082

4000 7000

583 421

2047 1432

24508

22685

26226

15051

30869

37387

41544

39300

407

3019

155

232

143

158

278

224

259

300

82

603

FDI influx, EUR milion

Czech Republic Hungary Poland Slovakia Slovenia New countries members 5 Estonia Latvia Lituania New countries members 8 Bulgaria Romania New countries members 10

Per capita Goods EUR 2006. 5719 6170 2361 3338 3133

Albania Bosnia and Herzegovina Croatia Macedonia Serbia Montenegro Southeast Europe

159

133

282

338

534

421

338

400

88

676

1138 189 55 1696

1502 493 184 5 2549

1197 83 504 76 2285

1785 84 1204 44 3612

990 126 777 53 2759

1425 80 1265 393 3808

2838 279 3504 644 7862

2500 200 3500 600 7500

639 137 471 1031 365

4577 1028 1119 1943 1683

Belarus Moldova Russia Ukraine European CIS

129 138 2933 644 3844

107 115 3069 884 4175

262 89 3660 734 4745

152 65 7041 1260 8518

132 120 12422 1380 14053

245 160 10258 6263 16926

282 177 23047 4148 27654

300 200 25000 5000 30500

29 45 162 89 136

214 250 1150 370 914

30048

29409

33255

27180

47682

58121

77060

77300

236

1625

Central and Eastern Europe

Source: WIIW database on FDI 2007 and WIIW forecast

The data in the chart define that Serbia has not yet fulfilled the key requirements that define the level of direct foreign investment and the key reason for which it stays behind, is the labor regulations, training, productivity and efficiency of labor. Chart 2 shows the basics when it comes to implementation of high quality policy of attracting Foreign Direct Investment. Chart 2 clearly shows that the price and quality of human resources highly defines country's attractiveness for foreign investment. In this package, it is also necessary to define the high quality legislation that regulates labor relations in a practical way.

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Similarly, it is necessary to provide a forum for human resources - professionals who 3

seek to improve their professional and personal development. Programs, networks, support services which allow foreign companies to contribute strategically to the complex, dynamic world of human capital. Therefore, one of the most important tasks of management in the private and public institutions is to create the environment for establishing a society of knowledge and flexible models of employment that would lead to profitability and development of investment projects in our country. Chart 2

Foreign Direct Investment and state policies So far, the world practice has shown that apart from well-trained and highly skilled workforce, it is necessary that the state and state institutions influence the attracting the foreign investment through the adoption of high quality legal solutions and a series of measures that would make our country more active in investment. 4Simply put, nowdays, states are competing in providing better conditions for investments and thus, they develop their economy and employ citizens. Attracting Foreign Direct Investment in one country should be done by all relevant social actors, state, trade unions, employers, NGOs, universities, that would have influence on their level of permanent increase, through recommendations and public hearings. Consensus on ways of attraction of FDI is a very important aspect in successful

implementation of proactive policies of economic

development. For the realization of this, the state and its institutions have most responsibility, because only the state can change and bring up the legal solutions, as well as create a

3

Bratton, J. and Gold J.: Human resource management, Palgrave Macmillan, New York, 2007. Likert,R.: New Patterns of Management, New York, McGraw-Hill, 1961, i The Human Organization – Its Management and Value, New York, McGraw-Hill, 1967. 4

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Human Resources Issues in International Business favorable business environment in which entrepreneurs would be encouraged to invest and employ 5. Chart 1 clearly shows the level of Foreign Direct Investment in Central, Eastern and Southeastern Europe in the period 2000-2006, explaining how much the states in the region were successful in creating such a consensus. It is clear that due to the United Nations embargo and the crisis of the nineties, Serbia lost a whole decade and during that time, there were almost no Foreign Direct Investments, especially Greenfield and Brownfield ones. However, on the displayed charts, you can see a good example of the Republic of Croatia, which has attracted an enviable level of foreign investments. State institutions and relevant ministries should be in constant consultation with business associations, trade unions and especially with associations of foreign investors that are of key importance for attracting new investors, for it is very important which message they send to their colleagues in their home countries.

6

Since 2000 the Foreign Direct Investment in Serbia have amounted 13 billion dollars, of which most to the banking system-five billion, $2.6 billion to manufacturing activities, telecommunications $2.4 billion, trading $1.7 billion and $1.6 billion to the estate. The biggest investors were companies from Austria $2.5 billion, Greece - two billion USD, Norway -$1.5 billion and Germany with $1.6 billion invested. Chart 3: FDI in Serbia, 2000-2007, billions of USD

Source: Center for liberalno-demokratic studies, Belgrade, 2009.

Serbian government has introduced stimulating measures for foreign investments , that started in 2006, even though the economics does not recommended the promotion of investors. Incentives to investors are important for the regress of Serbia, because the neighboring countries do the same. 5

Ulrich, D.: Strategisches Human Resource Management, Carl Hanser Verlag, Munchen, 1999. Anthony, W.P., Nicholson, E.A.: Management of human resources, A Systems approach to personnel management, Columbus, OH, Grid, inc. 1997. 6

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Serbia has, so far, had a low level of Greenfield investments that are the core of development and employment. Greenfield investments are investments that start with no infrastructure, space, workers, and when our country is concerned, the biggest obstacle for foreign investors was a political risk, which still lies in complicated administration and licensing. Table 1: Greenfield investments in Serbia: Company Merkur Bol Corporation GTC international Helenik petroleum Veropulos Laiki Bank Neohimiki-Oil Rafinery Belgrade General Group Grave Hotel In

Country of origin sector amount Slovenia Retail 60 USA Industry 60 Netherlands Real Estate 58 Greece Energy 50 Greece Retail 34 Cyprus Banking 33 Greece Energy 31 Italy Insurance 30 Austria Insurance 30 Greece Tourism 20

Source: SIEPA, Belgrade, 2009.

Table 2: Investor countries: County

Thousands USD percent 2000-2007 Austria 1.685,234 19 Norway 1.550,214 17 Greece 1.451,978 16 Germany 1.361,833 15 Netherlands 476.784 5 Slovenia 439.660 5 France 413.655 5 Luxemburg 374.428 4 Hungary 311.877 4 Great Britain 273.408 3 Other 581.994 7 Total 8.894.065 100 Source: SIEPA, Belgrade, 2009.

It can be freely said that Foreign Direct Investments is the only way that can ensure economic growth in Serbia in the long run. 7The alternative to foreign investments is the loans that are expensive and will be even more expensive, but the good thing is that investments in countries in transition are not affected. Conclusion Contemporary business defines innovation and knowledge as the basics of competitiveness of

enterprises and economics on the global level. Therefore, the high

quality development of human resources is the most important thing in the realization of the competitiveness and efficiency in the market. New technologies and scientific achievements cannot be implemented unless there is highly educated, trained and motivated workforce. 7

Pržulj, Ž: Menadžment ljudskih resursa, Institut za razvoj malih i srednjih preduzeća, Beograd, 2002.

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Human Resources Issues in International Business Countries in transition, such as Serbia, not rich in natural resources, can find its economic growth only in the competitiveness that implies knowledge and motivation. One of the key preconditions for attracting the Foreign Direct Investment is the level of education and qualification of human resources in a country. It is, therefore, of great importance the strategy and the state policy of development of human resources and its potential. Investment in education and the educational system, promotion and providing good conditions for implementation of lifelong learning philosophy is a priority for Serbia in the future. It is certain that the level of Foreign Direct Investment in Serbia depends on development of human resources, because knowledge and skills are the only resource in the world that raises and there is no method to compensate its lost. State policy should be focused on the development of human resources (especially young talent), in order to avoid the situation from the 90's when ten thousands of highly educated people left our country for the developed ones. The brain drain that happened to us should be a constant reminder that human resources should be continuously developed and encouraged and that only human knowledge and skills in the times of crisis can provide us with new ideas and work and that they are the only ones that could attract foreign capital, leading towards improvement of the economy of the entire country. References Pržulj, Ž: Menadžment ljudskih resursa, Institut za razvoj malih i srednjih preduzeća, Beograd, 2002. Anthony, W.P., Nicholson, E.A.: Management of human resources, A Systems approach to personnel management, Columbus, OH, Grid, inc. 1997. Ulrich, D.: Strategisches Human Resource Management, Carl Hanser Verlag, Munchen, 1999. Likert,R.: New Patterns of Management, New York, McGraw-Hill, 1961, in The Human Organization – Its Management and Value, New York, McGraw-Hill, 1967. Bratton, J. and Gold J.: Human resource management, Palgrave Macmillan, New York, 2007.

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Wage system in Albania: An integral part of the human resources management system Frederik Cucllari & Mirela Cini1 Summary The premise of this paper is that wage system plays a key role in realization of the entrepreneurship objectives, in regard to efficiency, effectiveness, implementation of the law, motivation, maximal engagement of the employees, etc. The links between the remuneration and human resources development have to do with the ways of how the wages are defined. Wage system is the key in providing businesses with sufficient structural flexibility to adjust to sudden changes in the business environment. The paper presents the results of wage survey carried out in the region of Korce, including businesses divided into six groups, according to their economic activities (agriculture, industry, construction, transport, trade and services). The employers take into consideration a number of factors for determination of wages, for different positions or different levels of work skills. The productivity of the individuals is measured by their qualifications, their training, their previous experiences or data of their job quality. Some employers offer base wage based on other personal attributes such as gender, age, etc. The institutional factors such as official minimal wage, the collective agreements may influence upon the level of the wage. Analyzing the fact of how the employers take into consideration these factors, we have observed how much the training and their capacity influence upon the level of the employee’s wages. Using survey data, we would like to conclude that the employers need to use a flexible and responsive wage system that can help businesses to complete more effectively, so as, to earn a sustainable competitive return on their capital, while supporting profit growth and rewarding employers. The implementation of flexible wage is only one critical factor in human resources management

and the implementation could only be successful and sustainable if

businesses adopt a holistic approach in developing other aspects of human resources management practices.

1

Faculty of Economy, “Fan S. Noli” University; Korce, Albania.

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Human Resources Issues in International Business

An exploratory comparison of intended behaviors in ethical business reporting situations between US and Bulgarian university students Greg Broekemier & Sri Seshadri1 Summary Ethical dilemmas appear frequently in business situations. As international trade by Eastern and Central European countries expands, it has become increasingly important for both these countries and their trading partners to be able to predict behaviors of future business employees when ethical dilemmas arise.

The quantity of research regarding

business ethics in Eastern and Central Europe is limited. Further, the studies found that did investigate this topic researched ethical perspectives (Rhey, Rustogi, and Brust, 2000) or involved general discussions of ethics (Bitros and Karayiannis, 2010; Bohata, 1997; Bulgarian Business Leaders Forum, 2010; Business Ethics in Bulgaria, 2007; Rangelova, 2002). This study attempts to bridge this gap by comparing the intended behaviors of Bulgarian university students and US University students when confronted with ethical situations. University students from the two countries discussed above, Bulgaria and the US were presented with four ethical dilemmas (vignettes) that required them to make decisions of whether or not to report others involved in the business situations who were engaging in unethical activities. Over 1,000 US university students and nearly 200 Bulgarian students were participants in this study. Respondents were provided with four different situations of the following nature: 1. Padding an expense account - a situation in which a company is being harmed. 2. Supervisor dumping industrial waste - a situation in which society is being harmed. 3. Associate pilferage that reduces employee bonuses - a situation in which fellow employees are being harmed. 4. Boss violating safety codes - a situation in which customers could be harmed. The questionnaire was originally developed in the US where it was administered to students at a US university. The questionnaire was subsequently administered to Englishspeaking students at a university in Bulgaria. Response rates for both sample subsets were high, over 90%. Vignettes have been shown to elicit high quality data (Fraedrich and Ferrell, 1992) and Ferber (1977) argued that a student sample is considered valid for exploratory 1

Marketing and Management Information Systems Department, University of Nebraska at Kearney, USA. 81

studies when the subject of the research is perceived to be both relevant and understandable to the respondents, as in this study. Results for the four situations show significant differences between US and Bulgarian respondents in three of the four situations (p0.05, άρα

δεχόμαστε τη Η0. Επομένως, η απόφαση για το αν θα επιλεγεί ένα εμπειρικό σύστημα ελέγχου ίδιο για όλους τους προϊστάμενους ελέγχου είναι ανεξάρτητη από την αγορά στην οποία δραστηριοποιείται. Εν συνεχεία, οι υποθέσεις που πρέπει να ελεγχθούν είναι: •

Η0: Η απόφαση για το αν θα επιλεγεί εμπειρικό σύστημα ελέγχου που εφαρμόζει ο κάθε προϊστάμενος μόνος του ανεξάρτητη από την αγορά στην οποία δραστηριοποιείται.

•

Η1: Η απόφαση για το αν θα επιλεγεί εμπειρικό σύστημα ελέγχου που εφαρμόζει ο κάθε προϊστάμενος μόνος του δεν είναι ανεξάρτητη από την αγορά στην οποία δραστηριοποιείται. Το κριτήριο απόρριψης της Η0 είναι εκεί όπου το sig