Editors: Predrag Bejaković - Institute of Public Finance, Zagreb , & Marc Meinardus - Friedrich Ebert Stiftung,

1. Equity and efficiency trade-off in social and employment policy and education, case of South East EuropeCountries cases and experiences Regional seminar – Zagreb, April 2011 Editors: Predrag Bejaković - Institute of Public Finance, Zagreb, & Marc Meinardus - Friedrich Ebert Stiftung, Sofia, Bulgaria

2. Content of presentation • Introduction • The aim of the publication • Country cases: Albania, Bulgaria, Croatia, Kosovo, Macedonia, Moldova, Montenegro, Romania and Serbia • Conclusion and recommendation

3. Introduction (I) • Although we are preoccupied – or more accurately obsessed – with our past, we lack a clear idea of who we have been. What is more serious, we have no desire to know. We live between myth and negations; we enshrine certain periods, we forget others. These exclusions are significant…

4. Introduction (II) South –East Europe? No, New Spain and Mexico in Octavio Paz For Juana (Harvard University Press, 1988)

5. Introduction (III) • While it is straightforwardly apparent what equity and what efficiency is, the relation between those two phenomena is not so obvious. • The efficiency and equity trade-off is that adequate equity enhances the poverty reduction agenda and thus, socio-economic efficiency. • The poor have less influence, less income, and less access toservices than other better-off social groups.

6. The aim of the publication • To analyse and propose measures for alleviating the widespread existing conflict between equity and efficiency in social policy in the broader sense: including social welfare, education and employment. • Education, social welfare and the labour market are closely intertwined and mutually reinforcing.

7. Country case: Albania • Even from its first days of independence in 1912, the country was plagued by a host of ills, among others, overwhelming illiteracy and epidemics of disease. • Albania was kept Europe's most isolated and deprived country overwhelmed by instability and poverty. • It entered a turbulent period of political and economic change.

8. Erisa Çela about Albania (I) Although in the last decade Albania has made progress in its social, economic and political development, it still faces a number of challenges, like: • widespread informal economy, • various distortions of the labour market, • inefficient educational system • huge regional disparities

9. Erisa Çela about Albania (II) Measures for improvement include: • increase employment – particularly women participation in the labour market • a growth of the employment capability of the economy, harmonized with a skilled and educated human capital • improve education efficiency and output – especially secondary education

10. Country case: Bosnia and Herzegovina • 15 years after the war, the country is still not prosperous and united, but it is poor and divided into two entities. • Welfare system is highly fragmented and comprises various almost independent subsystems, with a low level of coordination and cooperation between them. • Furthermore, functions are overlapped and division of responsibilities is unclear.

11. Cenić on Bosnia and Herzegovina (I) • Analyses relationship between poverty and development and underlines • poverty applies to individuals and households, whereas • development refers to large-scale processes of change at societal level. Absence of a legal framework at various levels results in the exclusion of certainvulnerable categories of the population.

12. Cenić on Bosnia and Herzegovina (II) Improvement could be obtained through: • need that country should finds itself at decisive stage in transformation of its socio-political and economic structure • development of more effective system that would reduce poverty, inequality and social exclusion • better coverage of social security and welfare particularly among workers employed in the informal economy

13. Country case: Bulgaria • Supported by more than a decade of consistent macroeconomic policies and deep structural reforms, joined the EU • However, country still has to overcome many obstacles, including harsh social situation, low technological level of economy, significant productivity gap and low labour remuneration in comparison with the rest of the EUand deeply rooted unofficial economy

14. Petkov and Vladikov on Bulgaria (I) The two central problems: • the demographic crisis (which is accelerated by low-cost labour migration and the brain drain) and • economic and social transformation coupled with the issue of increasing the standard of living and incomes to some acceptable level • the social security sector is administratively regulated top-down and the principles of command-administrative decision-making imposition are still preserved.

15. Petkov and Vladikov on Bulgaria (II) Amelioration could be achieved through: • wider introduction and application of modern technology in the national economy • improvements in social effectiveness and social equality • fiscal consolidation and restructure public finances, strengthen financial stability, and mitigate the social impact of the crisis in the short-run.

16. Country case: Croatia • Although the multidimensional approach and the governance of policies and practices have not fully become a reality, the assessment can be made that a significant progress in cooperation and coordination of various bodies and activity areas has been achieved in this area. • No doubt this is a consequence of economic crisis and increased number of unemployed and welfare beneficiaries.

17. Bejaković on Croatia (I) • Absolute poverty is low, but this diagnosis is only deceptively consolatory • Poverty is characterized by stagnancy - those who become poor take a great deal of time to escape from penury • There is currently a concern that social care services are not necessarily targeted to those most in need - despite the high percentage of social transfers in GDP Croatia has achieved little redistribution.

18. Bejaković on Croatia (II) Improvement can be achieved through • better targeting of social assistance programmes to most vulnerable • more attention should be dedicated to deinstitutionalisation and half-day or day-care centres and provision of services in the user’s home. • a need to increase the scope and improve the efficiency of currently insufficient labour market programmes.

19. Country case: Kosovo • It is the smallest state in terms of territory and the newest state in the SEE, but with very old, deep and serious economic and social problems. • During the 1990s, its economy had already suffered from poor economic policies, lack of domestic institutions, broken external trade and financial links, international sanctions, underinvestment and ethnic conflict.

20. Jeton Mehmet on Kosovo (I) • Insufficient long-term economic growth, low incomes and limited financial possibility are factors that cause a large percentage of poverty. • However, economic growth in the past decade has been solid but social assistance programmes are inadequate. • Remittances have helped individual families, but they are not a source for financing public investments in infrastructure and social services.

21. Jeton Mehmet on Kosovo (II) • Poverty reduction could be achieved through strategies that lead to high employment-generating and long term sustainable growth. • One of the main pillars for growth is export. • Creating jobs is a major challenge that needs immediate solution. It should be the government’s responsibility to improve the country’s image and attractforeign investors.

22. Country case: Macedonia • Apart from the typical transition troubles there were also other long-term problems which have been prevailing before: low level of the country’s economic development, higher unemployment level and low investment level. • Furthermore, economic emigration and low education attainment have aggravated the transition process.

23. Milevska Kostova & Kotevska on Macedonia (I) Main characteristic of social policy: • low or limited financial resources and insufficient administrative capacity at the disposal to the institutions in charge • consequently, slow or weak implementation of law and reforms • hardly sustainable and equitable social protection system • effectiveness and equity are questionable

24. Milevska Kostova & Kotevska on Macedonia (II) Conclusion and proposals for improvement: • The interconnectedness between the three areas is more than evident - measures undertaken in each of them reflect upon the others. • Enhancing the capacity of the administration and of the personnel working in the institutions for social welfare and unemployment. • Employment policy still lacks sufficient active labour measures.

25. Country case: Moldova Characteristics: • a complex socio-economic situation, primarily linked with increase of poverty after the proclamation of the independence • transition process had devastatingly impacted the country's social situation • heavy external debt burden and high dependency on migrant remittances • unfavourable economic situation has been further worsened by political instability

26. Cornel Ciurea on Moldova (I) • Poverty reached its peak after the economic crisis in Russia in 1998, when over 53% of the population were living on an income of less than 2.15 USD per day. • A slowed rate of economic growth, accompanied by significant disparity between development in rural and urban areas and constant growth of inequalities. • A significant segment of persons engaged in the informal economy.

27. Cornel Ciurea on Moldova (II) Proposals for improvements • an attempt should be made to find the optimum ratio between the desired labour market flexibility and the required social protection • primary health care level should be empowered to deal with majority of thehealth care needs • attention should be given to long-term efficiency in education, social and health policy The adoption of measures depends on the ability of state agencies to undertake ambitious efforts.

28. Country case: Montenegro • Achieved independence in 2006, applied for EU membership in 2008 and received candidate status in 2010. • Montenegro has recorded remarkable economic growth in recent years, which has created opportunities and enabled progress in social situation and equity. • There are significant differences in the extent of the poverty between the regions.

29. JadrankaKaludjeroviconMontenegro (I) Main problems • amounts of social benefits are not sufficient and only reduce the vulnerability of families • the timing of social assistance benefits is poor and all social assistance benefits are paid to beneficiaries with significant delays • the educational system is still inefficient, as the learning outcomes are very low and labour market needs are not fulfilled • financing of education is still fully centralized

30. JadrankaKaludjeroviconMontenegro (II) Main proposals for improvement: • significant efforts have been made to increase access to education • actions have to be focused on further enrolment of children in pre-primary education institutions and an increase of enrolment, attendance rates and quality of education • there is a need to implement planned decentralization, in the first line to make transfer of the financing on local government

31. Country case:Romania • The prospect of becoming an EU member constituted, for more than a decade, a solid external incentive for the transformation of the country. • Experiences show unrealistic expectation of many transitional countries that all social problems would be solved with EU accession. • Romania is in spite of the accession to EU faced with serious and overwhelming economic crisis and the many difficulties of the integration, primarily with many “working poor” people.

32. Gabriela Cretu on Romania (I) • Despite many difficulties, there was huge support for the accession to the EU. • For Romanians joining the EU was the equivalent to a better quality of life, more and better jobs, freedom of movement, their expectations were high. • Labour migrations in the short-term palliate poverty and remittance improve unfavourable social picture, but in the long-run can endanger family links.

33. Gabriela Cretu on Romania (II) Main proposals for improvement: • investing more in cohesion policies could be a balanced solution for achieving higher efficiency and a more equitable society • a generous level of social protection and lower inequality do not necessarily lead to lower economic results • broadening social security programmes may enhance firms’ flexibility, facilitating labour mobility and social services could become a significant source of new jobs

34. Country case: Serbia In Serbia, war, sanctions and economic crisis produced the unprecedented GDP drop, huge inflation, salaries’ reduction, unemployment rise, poverty and economic collapse. The new democratic Government (2000) prepared a package of reform proposals whose goal was to create a real market economy as well as a strong social policy. The period after the democratic changes has been characterized by the reforms directed toward the creation of macro-economic preconditions for a sustainable and stable economic development.

35. Pavlović and Arandarenko on Serbia (I) • By 2008, dynamic economic growth, stability of prices and exchange rate were achieved along with the constant growth of foreign reserves. • Mandated the sell-off of the old, loss-making and inefficient socially-owned enterprises enabled the redistribution of resources, and the asset’s redeployment in trade and services. • The creation of a large service sector after 2000 came at a price: it was paid by the gradual devastation of manufacturing, and agriculture.

36. Pavlović and Arandarenko on Serbia (II) Main proposals for improvement: • Increase the relative share of wage tax revenues and decrease the relative share of revenues from social insurance contributions in the overall labour tax revenue • Reduce the tax burden on labour of low-wage workers • Ensure labour tax progressivity by introducing three progressive non-zero tax rates on labour income • Cut the overall combined social insurance contributions rate.

37. Differences are bigger than similarities • Due to various socio-economic situations in the observed countries and different contributions of authors to the book, it is almost impossible to perform inter-countries comparisons regarding situations, problems and solutions for efficiency and equity trade-off, but….

38. …for all observed countries it is important to • eliminate (or at least reduce) corruption, improve labour regulation and its implementation and enhance the business start up regulations • insure equitable access to quality public services • perform institutional reforms regarding transparency, accountability and good governance • significantly improve weak public administration, ineffective oversight of regulatory authorities and inefficient judiciary that hinder economic and social development.

39. Conclusion for all observed countries • There is no universal model for all countries, but there are some indications that SEE countries could benefit from establishing a closer relationship between employment policy and social policy. • In countries with high (particularly long-term) unemployment exposed to povertyand social exclusion, the interaction between benefit systems and employment policy is significant. • As countries move to placing an emphasis on active jobseekers, the link between policy and the delivery of educational, social and employment services becomes more important. In SEE this link seems to be missing.

40. Final message • Liberalisation of economy and related social policy is both an opportunity and a treat. • It is an opportunity because it set society free and breaks with overregulation in economic and social life. • It is a treat because many social groups are vulnerable but wit adequate policies and measures they can be helped. • We are the masters of our destiny.

41. THANK YOU FOR YOUR ATTENTION