Electronic Library of Scientific Literature - © Academic Electronic Press



EKONOMICKÝ ÈASOPIS


Volume 50 / No. 1 / 2002


 


ECONOMIC DEVELOPMENT OF SLOVAKIA IN 2001 (STUDY PREPARED ON BEHALF OF UNITED NATIONS ECONOMIC COMMISSION FOR EUROPE)

Ivan OKÁLI – Herta GABRIELOVÁ – Egon HLAVATÝ – Karol MORVAY – Richard OUTRATA

An Overall Evaluation of the Economy Development in 2001

The revival of the economy growth in the year 2001 reached the level of solid expectations because of two factors.

Firstly, it was the recession in the world economy, which started in the autumn of 2001 and retarded the growth in the Slovakia’s exports.

Secondly, but not less important factor was the incomplete institutional and structural reform required for the Slovak economy to obtain a better position in the sharp competition during the world recession period.

Nevertheless, the uncompleted transformation should not hide the results, which were accomplished in Slovakia during the year 2001 owing to its preparation for the accession to the European Union. The progress of institutional and structural reform benefited from the approximation of the Slovak Republic legal system in order to comply with the standards in EU countries. At the same time, it was important to set up priorities for the economic policy of the Slovak Republic in a mutual document signed by the Slovak government and the European Commission. In pursuance of those priorities the revitalisation of the financial sector was almost fully completed. A progress was made in preparation of privatisation of big companies operating within energy industry and transportation sector. Under the pressure of much more rigorous budgetary limits many companies consolidated their financial situation. A certain progress was achieved regarding price deregulation.

On the other side, however, the fulfilment of several transformation tasks legged behind because the ruling coalition was not able to find a consensus. In 2001 mainly the social and pension system reforms as well as the health care reform were not implemented and remained painful thus deteriorating the macroeconomic equilibrium. A serious problem is that the law enforcement reached far from the satisfactory degree and therefore debases the actual benefits from closing the chapters pulling the Slovak Republic legislation closer to the EU standards.

The key tendencies in the development of the SR economy in the year 2001 in a comparison with the previous years are presented in Table 1.

The Table 1 shows, firstly, that the year 2001 contributed for solving the problems, which generated during the transformation as a legacy from the centrally planned economy, but no positive turnover of the unfavourable development in the social situation of people was made. Secondly, the figures also indicate, that the world recession influenced (see the information on the high negative value of ratio between the current account balance and GDP) also Slovakia, but yet did not hit (in 2001) all sides and processes of the Slovak economy. Thirdly, the sustained fairly good trends in the performance on both macro and micro levels indicate that after the transformation shock recovery certain structural changes supporting its competitiveness have been running in the SR economy.

Outlook for the Year 2002

The revealing of main directions of the Slovak economy development in 2002 is driven by considerations in terms of their dependency on the SR economy performance results achieved in the previous year. Our attention was focused on evaluations of sustainability or change of factors, which predetermine the development of individual components of total demand, and we also made a research on the production (competitive) readiness to meet the demand expected for the year 2002.

The dramatic worsening of development in export of goods and services (and less positive net export results) at the end of 2001 was also pulled down by a negative development in the world economy. Assuming, that in 2002 the situation in the world economy will be slightly better, or at least not worse than in 2001, we can expect the growth in net exports deficit will slow down. Prognoses on the world economy say that the economy recovery in developed countries is more likely in the second half of the year 2002. The move in the OECD leading indicator, which is a half a year or 3 quarters of a year ahead of time able to notify inflexion points in the economy activity, signalled a positive change in October 2001. The existing knowledge about the relation between the indicator and the real economy development allows forecasting a positive break in the economy performance in OECD countries to start in the summer months in the year 2002. It is likely that an improvement in the economy activity dynamism in EU, starting in summer 2002, would probably a few months later (more likely in 4th Q 2002) strengthen the growth rate of exports from the SR.

The import development will be driven by the growth in domestic demand components. Insufficient restructuring of the supply side of the economy sustains a high import intensity of domestic demand and of exports. This is one of factors, which is responsible that the real growth in imports of goods and services (about 8.5 per cent) will further outpace the growth in the exports (approx. 7.5 per cent). It is likely that the results in net exports of goods and services will be slightly worse than in 2001. The share of net exports on GDP in constant prices could be expected to reach –5.2 per cent. In current prices it can be close to the level of –9 per cent to –10 per cent from GDP.

A slowdown in the growth of negative balance in net exports of goods and services (in constant prices) means a constriction of the negative impact of net exports for the real GDP development from –4,1 percentage points in 2001 down to –1,2 percentage point in 2002.

Foreign resources acquired from the privatisation process will presumably protect the local currency from depreciation because of external imbalance. The privatisation revenues temporarily serve as a certain exchange rate cushion. If the unfavourable development of the external balance sustains (or deteriorates) and at the same time the capital inflow from abroad drops, the currency depreciation could be under a strong pressure. A change in exchange rate would presumably show an impact on changes of the real development in exports and imports although not earlier than in the next year because the extensive volume of foreign currency revenues gained from the privatisation have an impact on the balance of payments.

The development of domestic demand in the year 2002 will be driven by a combination of the impact of external demand and of the government economic policy. The world economy recession pressure against the Slovak economic activities, which will likely sustain till the autumn in 2002, will cut down the annual growth in exports to 7.5 per cent. However, this growth rate in exports can guaranty the space for further increase in the domestic demand.

The economic policy will impact the development of domestic demand in various ways. The government in its last year of the political cycle will push forward the growth of nominal incomes in the public sector. A temporary break in regulated price adjustments (and through a corresponding cut in the inflation rate) will spark the growth in real incomes of the population and rise a real consumption of households.

The recession in the world economy and its impacts that increased the foreign trade deficit, as well as a reasonable concern, that public finance deficit in 2002 will sharply exceed the budget approved level, force the government to revise and make cuts in the original expenditure program. The government corrections will constrict the growth chances in domestic and mostly consumption demand, however, a reduced growth is attainable. It is because the pressure put upon the government before elections will be much stronger than the willingness for a fiscal restriction.

Considering the inclusion of the above mentioned impacts in the prognosis of current incomes and current expenditures of households and also into the forecast on savings we can assume, that the final consumption of households in current prices in 2002 will rise by 7.9 per cent (to compare 10.2 per cent in 2001). Under the condition that a relevant drop in inflation (CPI measured) in 2002 to compare 2001 will cut deflator of the consumption of households from 5.7 per cent down to 4.0 per cent, then in the year 2002 we can expect a real growth in the consumption of households by 3.8 per cent. In the outlook for the GDP formation in 2002, based on the state budget prerequisites and the objectives seeking a much tight financial policy, we assume that the government consumption in current prices will be higher by 9.0 per cent (to compare 10.3 per cent in 2001) and its real growth will be 4.8 per cent (against 5.2 per cent in 2001).

The growth rate of gross fix capital formation in 2001 reached a high value owing to the expectations, which in 2000 sparked a strong investment wave in connection with completion of new capacities in 1st – 3rd Q 2001. As early as in 4th Q 2001 the growth rate of GFCF considerably declined, and in 2002 it will continue to go down. The expectation are that it will reach 7.5 per cent in current prices and 5.4 per cent in constant prices.

Rather high growth rate in domestic demand (by 4.5 per cent in constant prices) will also in 2002 provide a basis for the rise of imports in the same speed as assumed in the chapter which forecasts the exports and imports relation. Development in the domestic demand will therefore also in 2002 strengthen the impact of the world economy recession upon the unfavourable trade balance development and upon current account of the balance of payments.

The space for the supply development has been given by a capacity expansion and by the investment volumes in the economy in the previous period. Regarding an overall rise in GFCF in 2001 (in current prices by 26.7 per cent, in constant prices by 21.8 per cent) the values per industry sectors are rather different. The most rapid growth in GFCF (by 88.5 per cent in current prices) was reached in the sectors with a significant contribution to the SR exports (42.1 per cent). While in the manufacture of transport equipment (a sector with the highest investment activities in manufacturing) GFCF in 2001 should produce contributions in value added and in exports not earlier than in the year 2002.

The effort of enterprises to widen their production capacity and to improve quality, despite the adverse impact upon the foreign trade balance, is testified also by higher volume of imports in the year 2001. It allows for a conclusion, that imports in the year 2001 increased due to the hike in imports of industrially processed goods, which were in a large scope used for the investment processes (roughly 40 per cent), partially due to intermediate consumption and, obviously also due to consumption. In general, the imports of a high quality industrially processed goods should bring positive effects.

Therefore the development in the year 2001 preconditioned a relatively good starting point for further growth in production of goods and services for the year 2002. However, in the first half of that year the growth in supply will be further constricted because of insufficient external demand. Presumably, in the second half of 2002, the situation on foreign markets will be much better as for Slovak producers, and enterprises will be able to resume their full export capacity.

Taking into account the trends working the external and domestic economic environment we could assume, that value added (VA) in the year 2002 will rise by 3.8 per cent. The VA is expected to rise in all sectors: in forestry, fishing and hunting by 3 per cent, in industry by 3.6 per cent (with a precondition that VA in electricity, gas and water supply will not sustain its declining trend from the previous 2 years), in construction by 2.7 per cent and in the sector of services by 4.1 per cent. The manufacturing in the year 2002 should expect a lower growth of value added to compare the year 2001 (down to 4.0 per cent from 5.5 per cent in the year 2001). GDP growth will deviate from the growth in value added depending on the intake development regarding the VAT, the excise tax and the foreign trade tax. If the situation in the above mentioned field remain unchanged, the expected growth in value added will sustain the GDP growth at the level of 3.5 per cent.

The above mentioned findings about possible development on the demand and supply side of the Slovak economy resulted into the prediction presented in Table 2.

Table 2
Prognosis on the Slovak Republic Economy Performance in 20021

 

 

In bn SKK

Index 2002

2001 = 100

Share on GDP in %

2001

2002

2001

2002

Consumption of households2

339.2

352.1

103.8

49.5

50.1

Consumption of government

135.0

141.5

104.8

19.7

20.1

Gross capital formation3

239.4

252.3

105.4

35.0

35.8

Domestic demand

713.6

745.9

104.5

104.2

106.0

Export of goods and services

552.8

594.3

107.5

Import of goods and services

581.5

636.7

109.5

Net export of goods and services

–28.7

–37.0

.

–4.2

–5.2

Gross domestic product4

684.9

708.9

3.5

100.0

100.0

Consumption

474.2

708.9

104.1

69.2

70.2

Gross savings

210.7

209.9

99.6

30.8

29.8

1 In constant prices.
2
Including consumption of non-profit institutions serving households.
3 On the assumption that change in inventories match up with change in gross fixed capital formation.
4 Less statistical discrepancy (in year 2001=4,8 bn SKK), which is a difference between the total GDP figures and the sum of basic GDP components.

A summary of the factors that impacted the Slovak economy in the year 2002 is leading to a conclusion on a moderately faster growth rate of the economy. The GDP growth of 3.3 per cent achieved in the year 2001 should be higher to reach 3.5 per cent in 2002 (in constant prices) despite worsening of the results regarding the international trade (higher negative value of net exports of goods and services) connected with the recession in the world economy.

A relatively (in ratio to GDP growth) high rate of growth in domestic demand which is expected in the year 2002 may turn into a risk factor for the Slovak economy development in the coming year if the following two prerequisites materialise. Firstly, if the SR is being considered a less credible in political and economy terms, secondly if the decline of the world economy is going to continue behind the currently estimated time horizon. The second reason is likely to cause a drop in investment activities down below the level, which was taken into consideration for the prediction of gross fixed capital formation. Possible future tensions in the Slovak economy may arise also from the recurring higher difference between the share of gross savings and the gross capital formation from GDP.

An inflation impact of the administrative interference regarding prices, which are usually introduced at the beginning of a year, was in January 2002 less significant to compare the previous years. This is a temporary step aside from the strategy of gradual adjustment in regulated prices, which is likely to push a much stronger price adjustment in the next year. Since there were fewer administrative price increases when a year-earlier period is compared, y/y inflation rate fell in January 2001 down to 6.2 per cent and in February further dropped to 4.3 per cent.

Except for the less administrative adjustments, the inflation dynamism (especially of the core inflation) was lowered also because of the moderate rise in industrial producers prices, a relative stability of prices for energy resources on world markets and a relatively stable exchange rate development of Slovak crown against euro. The inflation growth was under a pressure called forth by seasonal volatile food prices, mainly vegetable prices. It seems likely that this factor will be in force only for the time being.

Presumably if no unforeseen change of factors impacting inflation happen in the year 2002, the inflation rate would reach an average value on the level well around 4.5 per cent being the lowest value so far.

While in the years 1999 up to 2001 the y/y rapid increase of the unemployment rate usually started at the beginning of a year, at the beginning of 2002 the unemployment rate did not significantly differ (in January the registered unemployment reached 19.7 per cent) from the level recorded in the similar period in the previous year. In the year 2002 we can count on an ongoing trend of a moderate increase in the number of employees. The impact of demographic factor, which during the period of year 1999 through 2001 complicated the situation on labour market, should be less evident. Therefore in the year 2002 we can expect that the unemployment rate will stop rising and its annual average level will reach 18.8 – 19.0 per cent.

 


MERITS AND COSTS FROM THE SLOVAK REPUBLIC ENTRY TO EUROPEAN ECONOMIC AND MONETARY UNION

Martin STRIEBORNY

The article considers the prospects of the Slovak Republic (SR) entry to the Economic and Monetary Union (EMU) and assumes possible benefits as well as potential risks associated with this step. From the national-economy point of view one of the benefits of the monetary integration is a better resistance against likely speculative foreign exchange attacks. This is especially important for small open national economies and therefore also for Slovakia. The example of several West-European countries indicated that the prospects of the euro-zone membership leads to a better budgetary discipline and can be to a large extend contributional so that necessary, but politically not very popular structural reforms will materialize.

On the other side, the entry to the monetary union is associated with several risks, which come from the lost chance to pursue own independent monetary policy. The above said risks are acceptable under the prerequisite that the respective countries form an optimal monetary region. If so, the single central bank (in case of EMU this function was undertaken by the European Central Bank ECB) makes a single monetary policy which meets national-economic needs of all membership countries. In this terms the article focused on three selected criteria – foreign-trade linking, likeliness of asymmetric shocks and mobility of production factors – and offers answers to the questions whether the Slovak Republic will form in a short period of time an optimal monetary region with the current and future members of the euro-zone. Regarding the first criterion, the most important portion of foreign trade volumes Slovakia has already makes with the EU member countries or with Central European neighbours (Czech Republic, Hungary, Poland), which like Slovakia, belong to candidates for the membership in the European Union. Regarding the deepening process of European integration we can assume that the level of foreign trade tie between the above mentioned countries will be much deeper. This intensity of foreign trade connections between the SR and countries, which are members of the EMU or which are likely to become its members in a close future, decrease the probability that Slovakia, after its entry to euro-zone, will be exposed to asymmetric shocks. The higher risks regarding the Economic and Monetary Union as a possible optimal monetary region for the SR are related to the mobility of production factor within the euro-zone extended by the Central and Eastern Europe countries. Language barriers, but predominantly the planned several-year transition periods preventing the free mobility of labour and of capital indicates a potential obstacle on the road that should lead to a successful integration of the SR and of other candidate countries to the EMU.

For Slovak companies the benefits of the entry of Slovakia to Economic and Monetary Union would especially come from the removal of foreign trade risks, mostly from removal of FX risks. In addition, if the Slovak koruna is replaced by the single European currency, transaction costs i.e. mainly bank charges for foreign currency exchange would be considerably lower. Small and medium size enterprises thanks to still more integrating European financial market would get the access to alternative sources for financing their business activities. On the other side, the SR membership in the EMU is associated with a higher pressure from the foreign competition, regarding Slovak enterprises and especially banking institutions operating in Slovakia. Therefore in the following year we can expect further continuation of, already launched and from the economic point of view inevitable, the Slovak enterprise and banking sector consolidation process associated with a foreign capital entry. The above mentioned higher competition pressure related with the prospects of the SR membership in the Economic and Monetary Union thus can be regarded as a positive contribution to the ongoing restructuring of the enterprise sector in Slovakia.

The problem of the SR entry to euro-zone has two dimensions, except for the economic one, there is also the political dimension. Needless to say, that declaring the will for the future membership in the EMU which is included in the Copenhagen criteria must be fulfilled by Slovakia before the entry to the European Union. In this terms, the effort to win the membership in the Economic and Monetary Union proves to be an inseparable component of the process of gradual active participation of the Slovak Republic in the European integration region.

 


NEW ECONOMY AND INFORMATISATION

Antonín KLAS

In the new economy and old economy as well applies that economic growth decreases the rate of unemployment along with the consecutive wages increase and growing demand, but the impact of growing demand on manufacturing capacities and productivity growth in new economy is changing.

This is because the new investment based on scientific and technology progress impact the productivity growth and enable to maintain the unit labour costs constant or even lower. So the growth in demand and supply are balanced. The threat of inflation is minimised as well as need of intervention by the central bank monetary policy. Thanks to the non-inflation development the potential growth can in spite of fully employed manufacturing capacities gain a permanent character and reach – compared with the past – higher rates of growth within concurrent smoothing and prolonging the cycles of economic prosperity.

In this context a question arises, which are the forces capable to raise the labour productivity in a longer run.

The accelerated scientific and technological progress is generally considered as one of the decisive forces. At present a key role here is played by the information and communication technologies. Their massive growth has a triple effect on economic growth.

The first one is the fact, that effectiveness of information technology producers is constantly growing.

The second one reflects in the growth of manufacturing capacity in those industries which use this technology.

And the third one lies in the anti-inflation character of information technology, when the performance unit prices constantly decrease. The mentioned facts are documented by data in Tables 1, 2 and 3.

In connection with the growing information technologies contribution to the economic growth there appears another question what are the means by which they achieve this growth. Principally there exist three channels through which the information and communication technologies support potential growth.

The first channel are the sectors of information and communication technologies which by means of their own output contribute to the overall economic growth. More than two thirds of the US output growth can be assigned to the information technologies and to the technical progress in the computers and semiconductors production.

As it is seen in Table 4, over the period of 30 years the number of transistors on a chip was growing by 40 per cent annually. At the same time the prices for these products show a declining tendency. According to the well known Moore law prices of integrated circles decline to the half every 18 months, i.e. within this period their effectiveness duplicates at the same price.

The second channel is represented by higher investment in information and communication technologies by which the labour productivity grows through higher capital endowment of manufacture. According to the second Moore law the investment in research and development of a new integrated circle duplicate every three – four years, while costs of producing their copies decline.

The third channel are the externalities of information and communication technologies guided by the Metcalf law, according to which utility value of interconnected information equipment, i. e. a network, grows exponentially along with the number of its participants. Thus, the higher is the participants number, the more effective is the network, allowing to perform transaction operations in a larger extent, faster and cheaper. Besides this other different services joined with its use are added, that stimulates extension of network and accelerates the growth in economies of scale.

The mutual interaction of the mentioned impacts does not bring only partial changes of the economic reality, but changes also the paradigm of its overall behaviour. Among the most important means and consequences may be counted: creating networked structures, digitalisation and economic structure changes.

New economy is above all a networked economy. In contrast to the old economy where interconnecting among the firms was more of a local character and sporadic, in the new economy the firms are switched on-line. In this way completely new forms of firms’ organization on a permanent or provisional basis are established. Nowadays a typical example of such a networked structure is internet. The speed of internet’s growth has no analogy in the history. While in the past radio gained 50 million participants in 38 years, television in 13 years, internet succeeded as early as in 5 years. In consequence of this development the expenditure on processing and information communication dropped in recent 25 years to one hundredth.

Digitalisation of information and communication technologies accelerates their convergence and common use. The convergence of information and communication technology means impacts also the market structure. The operators of all different types of this equipment worked on different markets in the past. After integration they have found themselves on a common market and have become competitors. Digitalisation allows to change the physical processes to virtual ones or to interconnect them with virtual processes.

So for example the hitherto “stone stocks” can be replaced by intelligent information systems. These reduce demands for space, storage time and transport. In a virtual environment of internet the distance, seat of a firm etc. are not significant. All these changes support flexibility of economic operations, allow to create great variety of combinations of economic activities and contribute to overall effectiveness and performance of national economy as a whole.

A significant factor of economic development that arose in recent 50 years is a shift in the sectoral structure towards services and within them towards information services. Employment in professions that were original bearers of services growth, is stagnating or declining, whereas the newly emerging services connected with information and communication technologies show increase.

In conclusion of the article objections of opponents are dealt with as well as assession of present development of new economy in the U.S., European Union and in Central European countries.

 


TACIT KNOWLEDGE IN THE PROCESS OF INNOVATION

Georg HAINDL

Many organizational change processes during the last few years have had the tendency to cause reductions in personnel. Especially older workers were denied the ability for innovative behaviour and were seen as hindering the technological and process-orientated changes in the company. In the meantime, companies have recognized the fact that vast amounts of operational know-how, urgently needed to implement innovations, has been lost through older workers leaving. This has resulted in knowledge development, in particular experience-based knowledge, having a new status within an organization. Many enterprises have been forced to involve themselves much more in the structure and the development of their knowledge capital. This is particularly so of businesses in the IT or computer industry. The specialist know-how of these industries possesses a half-life of clearly under five years and becomes outdated very quickly.

Generally speaking, with regard to the transferability of knowledge, one differentiates between two types. Explicit knowledge concerns the knowledge stored in books or data bases and is therefore transferable. Implicit knowledge, however, is the knowledge existing in the minds of people which is difficult or impossible to describe and can only be passed on interactively from person to person.

For companies, a balanced relationship between theoretical specialized knowledge (explicit knowledge) and know-how (tacit knowledge) is particularly important. While theoretical knowledge can be “bought” through young, well-trained workers, the implicit existing experience based knowledge must be opened, classified, systematized and made accessible for others. In this, experience-based knowledge is not understood as a sense of routine, which prevents the change process more than it promotes. Experience is a whole range of competences and abilities for a complete action mode. Know-how cannot be produced but must be developed over a long period.

Research results show that innovation ability and performance at work depend only slightly on the biological age. The worker who adapts his/her theoretical knowledge during the course of a working life within the framework of training measures and adapted to prevailing needs, and pays attention to the acquisition of know-how, develops a personal USP(Unique Selling Proposition). This provides not only competitive advantages in the job market but also a certain position of power for the individual in the company. Thus the older employee, who has developed his/her know-how over the years, becomes an indispensable element in the innovation process.

The innovation behaviour of businesses increasingly falls back on the theory of the knowledge-based management. Their goal is, among other things, to make the workers’ know-how transparent and accessible for the benefit of others. However, the transfer of tacit knowledge to other persons becomes extremely difficult. For describing the process of knowledge transfer, the well-known SECI model with its four different phases is often used. But individuals usually have little interest in passing on their knowledge since they often prefer to use it themselves at those times beneficial to their careers.

To summarize, it can be said that knowledge has a strong significance for the competitive ability of the individual as well as the company. This requires substantial efforts from both sides towards the creation of knowledge. The individual aims to constantly develop new tacit knowledge, while a company endeavours to make the tacit knowledge of the co-worker accessible and available for others. From these different starting points, a process can be developed which generates more and more in the way of dynamics and helps a business to constantly develop new knowledge. Promoting and keeping this process on course is a challenge confronting management in its efforts to maintain its ability to innovate.

 


KNOWLEDGE ECONOMY: ISSUES AND CHALLENGES

Martin SOKOL

Knowledge economy is a term increasingly used by academic literature as well as popular press. Knowledge economy is often seen as equivalent to new economy (Leadbeater, 2000; ECE, 2000, p. 3). In its various forms, it is conveniently used by politicians and economic strategists alike. Lisbon summit 2000 concluded that Europe should become “the most competitive knowledge economy in the world” (EU, 2000). The importance of the direction set in Lisbon cannot be ignored by the EU candidate countries including Slovakia. If the countries of Central and Eastern Europe are suppose to fully integrate into the European economic space, they ought to follow the trends emerging among their West European counterparts. However, the question is “What is the knowledge economy”?

This article aims to provide a brief insight into theoretical background of the knowledge economy concept. In its first part, it introduces the term together with related terms such as post-industrial society, information society and learning economy. These concepts are then subject to a critical analysis in the article’s second part. Subsequently, an economic strategy based on knowledge economy is briefly presented using Great Britain as an example. Finally, in its concluding part, the article summarises theoretical and practical problems associated with the knowledge economy. It also points at challenges that Central and Eastern European countries (including Slovakia) will face during the process of their integration to the global and European economy.

The first part of the article argues that the thesis of the knowledge economy is older than it may appear. Its roots should be seen in the context of theories of “great socio-economic transformation” that echoed dynamic changes found in advanced economies in the second half of 20th century. From this point of view, knowledge economy can be seen as one of the “recycled concepts” of the theories of post-industrial society or information society. The theory of post-industrial society sees current changes as a transition from industrial phase of development into a new one based on services. The concept of information society focuses on information itself and technologies that support production, processing and distribution of information. The concept of knowledge economy, meanwhile, shifts the emphasis onto people, their knowledge and a broader socio-economic context. Knowledge economy or knowledge-driven economy is the one where the production and use of knowledge plays the most important role in creating economic wealth (Drucker, 1993; Leadbeater, 2000). Finally, according to the protagonists of the learning economy (Lundvall & Johnson, 1994), if the knowledge is the most important factor of economic development, then learning must be the most important economic process.

These concepts might look attractive, however, they all seem to suffer serious theoretical and practical shortcomings. These are addressed in a bit more detail in the second part of the article. For instance, post-industrial society sees transition to service economy and its impact on society in a rather uncritical manner. It also neglects the fact that de-industrialisation in advanced countries has been accompanied by industrialisation in many developing countries. The theory of information society, meanwhile, unjustifiably places too much emphasis on information technologies. Likewise, the concepts of knowledge economy and learning economy also display serious flaws. Despite its alleged economic importance, knowledge is not clearly defined. It is not known exactly which knowledge is important to successful economic development. Also, there is a little consensus about how knowledge is produced. Therefore, the definition of allegedly the most important economic process – learning – remain unclear.

Furthermore, it remains debatable whether contemporary economy can be seen as a knowledge-driven economy at all. Rather we should admit that the market economy is, and always was, profit-driven economy for its final goal is not knowledge but profit. It is likely, that the importance of profit-making will increase further reflecting continuing globalisation and mounting competitive pressures. Knowledge can be a part of a profit-seeking process (and probably always was), but not the only one and not necessarily the most important part of the process. Finally, the causal relation knowledge/wealth should be examined critically. The assumption that more knowledge creates more wealth is an oversimplification which ignores the possibility of a reversed causality (i. e. that wealth can create knowledge). Also it does not take into account the influence of other factors (e. g. power). Therefore, more accurately, knowledge and wealth should be seen as mutually linked through a web of complex, multidirectional, direct and indirect relations. The idea of a simple one-directional relation as assumed by the knowledge economy paradigm seems misleading (Sokol, 2002).

Regardless of these specific shortcomings, serious theoretical contradictions remain regarding the overall importance and direction of the great transformation. All in all, we should acknowledge, that so far, there is not a convincing theory available, that would explain on-going socio-economic changes to satisfaction.

Despite of this, the visions of information society, post-industrial society and knowledge economy or their parts have been powerful in influencing political and economic strategies of advanced capitalist countries. The example of such strategy is offered in the third part of the article by introducing the third way pursued by New Labour in Britain since 1997. Inspired by work of Giddens (1994, 1998), New Labour has been seeking the third way between traditional social-democracy and neo-liberalism. Their economic policy is based on partnership relations between government and businesses, while placing emphasis on the aspects of the knowledge economy. The knowledge economy has found its way into official Government documents such as the White Paper on Competitiveness “Our Competitive Future: Building the Knowledge Driven Economy” (DTI, 1998a).

According to the British Government, the key to economic success is an efficient use of knowledge, skills and creativity. These should be transformed into high-value products and services. To secure the competitiveness of the British economy, the focus should turn on innovation, entrepreneurship culture, knowledge creation and dissemination, building R&D capacities, improving skills and qualifications of workers and supporting learning culture among workers, businesses and the government itself. Public-private partnerships on sectoral and regional levels are to be formed to implement the above goals. A catalytic role in creating partnerships on regional levels is given to regional development agencies. Meanwhile, besides competitiveness, this strategy also emphasises the issues of employment and social cohesion.

There are several reasons why the vision of knowledge economy is attractive for politicians and economic strategists. However, this strategy also has its adverse side. In Britain, the third way has been nicknamed “neo-liberalism with a human face” (Arestis & Sawyer, 2001), for its over-reliance on supply-side and monetary measures. The recent policy development of the EU (arriving under the heading of the knowledge economy) could be seen in the same light. Therefore, instead of caring Union, generous to its lagging regions, we may witness a growing influence of neo-liberalism and expect further retreat from fiscal activism of the EU. Candidate countries of Central and Eastern Europe therefore have to prepare themselves for new challenges.

The concluding part of the article argues, that the task for Slovakia will be to prepare for the emerging pressures, secure a decent share of diminishing EU Structural Funds as well as find their efficient use. Furthermore, the Slovak economy should look for its internal resources not only to sustain increasing competitive pressure from its Western neighbours, but also in order to converge towards them. This challenge is the most pressing in the period of accession to the EU.

 


THEORY OF VALUE IN THE CLASSICAL POLITICAL ECONOMICS AND ITS IMPORTANCE FOR THE RISE OF THE ECONOMICS

Kamil FUCHS

Author takes notice of value theory of price in evolution of economics and its relation to contemporary economics. He comes out of a thesis, which places the price on an essential position in market system and which deals with price analysis within investigation of market functions.

There is explained the meaning of price in market economy and basic conception of price functions in contemporary economics in the first part of paper. Using Friedman’s approach author emphasizes the difference between contemporary economics and classical political economy in relation to the conception of price functions. Present conception is more narrow and does not highlight reproductive function, which was dominating in value theory of price. Author appreciates Friedman’s approach, particularly emphasis on inseparability of single price functions and he uses this issue to ask a question: “Which factors did cause the reducing of reproductive function of the price in present interpretation and what is the reason for lacking attitude to price?” Author states a fact that there is not included overall conception of price functions in market economy in modern study books.

The base of value theory of price is analysis of mentioned fundamentals in ancient economic thoughts, with emphasis on ethical connections of attitudes to market activities. Author explains ethical grounds of Aristotle’s economic thoughts, where is stated important requirement and thus it can not happen to better one subject situation at the expense of the other one during exchange. The principle of equivalence was a result of mentioned idea and was adopted by first author generation of classical political economics in 17th century.

The principle of equivalence was also included in T. Akvinsky’s conception of just price. This conception was also elaborated with emphasis on ethical context and embraced a requirement of equivalence in exchange. Author highlights Aristotle’s contribution for formation and evolution of price theory – Aristotle declared, that utility is a prerequisite for realization of exchange on the market and that the price is connected to adequate amount of income.

The price comes under basic categories of present economic theory. The analysis of price comes out of price value theory. Author explains basic coherences, why classical political economics has chosen value concept and its adequacy relative to followed objectives. Author puts emphasis on relations which are as follows:

Classical political economics has developed so far by elaborating of value theory that it was possible to answer asked questions – “What is the price?” and “How is the exchange rate determined?”. The system of market function was successfully described as inner self-regulating framework. The significance of price and its functions was highlighted in market economy – especially information, reproductive and allocation function of price. Due to period relation authors of classical political economy were led to lay emphasis on reproductive function of price.

Classical political economy has taken notice of supply and demand as market forces in chosen approach to analysis of exchange. The supply and demand as market forces influence the level of price, but they have short-term price-making impact. From long-term point of view the market price was identified with value and was oscillating round value and its fluctuations caused redeployment of sources among single productions.

Final part of article deals with analysis of questions, which are as follows:

Author emphasizes, that is necessary to distinguish among relations, which should be solved by elaborating of value theory of price (especially describing the system of market function or fluctuation of market price) and relations, which were supposed to be answered. It deals primarily with problem of value quantification as the means of price quantification. The evolution has proved, that this method was incorrect and led to tautology – where the only way of value quantification (production costs) was by means of input market prices.

Answering first question author highlights disagreement among long-term context of value theory of price and in-going methodological individualism and subjectivism, which emphasizes the analysis of motivation of market subjects behaviour. The fluctuation of market prices is irreplaceable point of mentioned analysis. Incoming neoclassical economics had to highlight price-making influences of supply and demand, which were stated as determining factors in market system, in the case that priority question would be forming of individual equilibrium (as condition of forming of market equilibrium).

Concerning second question author takes an attitude, that value theory of price is one of the possible approaches to analysis of market mechanism and market function. The value theory of price enabled to describe the mechanism of self-regulation and quality of market equilibrium. But the long-term horizon was an obstacle in further using of this method and was in direct disagreement with methodology of incoming neoclassicism. In consequence of this the value approach was rejected as not adequate in theoretical system based on neoclassical grounds.

Answering final question it is emphasized, that modern microeconomics is able to include even reproductive function of price. The mentioned function should be highlighted because it would help to understand position of price in market system in more global way. In final consequence of this it must lead to better insight into connections of function of market system.

 


THEORETICAL ASPECTS OF INFLATION BY MILTON FRIEDMAN

Vladimír GONDA

American economist Milton Friedman, the Nobel price winner for the economics in 1976, is a world-wide distinguished authority in the field of economic theory and praxis. It happens rarely that a scientist-economist had such a great influence, direct or indirect determined not only scientific research, but also a real economic-and-political reality. In the second half of 20th century (together with J. M. Keyness) he significantly shaped both current (modern) economic theory and economic policy.

This article takes into consideration the Friedman’s inflation theory, which together with the analysis of money demand represents one of the basic building stones of his monetary theory. Perhaps it will not be too exaggerating to say that Friedman and the inflation problem belong together forever, in addition some parallels can be found in their “biographies”. In analogy with Friedman, who started to present his liberal ideas (as “outsider”) in the period when Keynesian theories absolutely dominated, he slowly made his career up to the top of the “Olympus of the economics” and his monetarism theory became world-wide acknowledged, similarly inflation underwent a considerable development, when in the post-war period changed from an ad hoc phenomenon to become a universal phenomenon, and which during 70-ties gradually turned to be a macroeconomic problem number one in the majority of developed market economies.

An objective of this article is to provide an overall review of the Friedman’s monetary concept of inflation (which also impacted the reality of providing the stabilizing policy in transition economies) considering it from the theory-and-methodology point of view, and also viewing the proposed ways for the inflation treatment, although not avoiding a critical assessment.

The Friedman’s interpretation of inflation can be ranked as a monetary concept of inflation. M. Friedman linked his theory with the ideas of quantitative theories and he understands inflation as a purely monetary phenomenon – being a result of an excessive amount of monies in circulation (i. e. faster growth of M2 in nominal values to compare the product growth). Friedman takes inflation as a sickness of the monetary system, which, if not early enough diagnosed, could destroy the society.

The author of this article explains Friedman’s analysis of the triad of causes, which led (in the USA) to an excessive growth of monies, and subsequently caused inflation – i. e. rather high growth of government expenditures, government policy of full employment and an improper FED policy.

A closer look on the Friedman’s understanding of inflation is complemented by an analysis of benefits, which inflation brings to government – the intake of inflation tax, higher taxation of economic subjects, a government debt partial write-off.

In the next paragraph the author defines the mechanism through which money impact prices. If the equilibrium of the monetary market is broken, an adjustment process leading toward a total change in price level follows.

Through the end of 60-ies the Friedman’s monetary version of inflation developed as the theory of a partial equilibrium in the monetary economy sector. Fluctuations of the price level were interpreted exclusively as a result of “stocks” of money (i. e. monetary shocks) at the background of a stable money demand. Later on in 70-ies M. Friedman developed his theory of inflation by adding a correlation of inflation and unemployment based on a critical analysis of the (Keynesian) Phillips curve. In his concept, when analyzing the relationship between the inflation process and the labour market situation, the key elements depicted are: a natural rate of unemployment and (adaptable) inflation assumptions.

M. Friedman differentiates a short-term and a long-term Phillips curve. According to him, the original Phillips curve is valid only for a short-term period, when inflation expectations of economic subjects deviate from the real higher inflation rate and subsequently these expectations should be modified. They express temporary status – the real unemployment deviations from the natural unemployment rate and their impact on inflation, which were brought up by the economic policy. In a long-term period the Phillips curve is vertically shaped and it equals the natural unemployment rate line, which has a serious impact for a long-term economic policy.

The engine of the examined processed of Friedman’s monetary construction are monies in circulation. Friedman admits that in a short-term period the monetary impulses can stroke the real variables (employment, production, investments); however, this impact is only temporary. In a long-term period these quantities go back to their original level, only prices are hiking as a final result. Monies, according to Friedman remain in a long-term perspective neutral.

Friedman’s concept of vertical Phillips curve and the hypothesis of a natural unemployment rate offered new grounds against Keynessian forms of economic policy. M. Friedman rejected a compromise – a “Phillipsian” dilemma option – as an illusion and the refused neo-Keynesian recipes according to which it is possible to ensure a high economic growth by means of regulated inflation in “batches”. His analysis indicates that an effort to increase employment behind the “iron” border of a natural unemployment rate creates much stronger inflation pressure, accelerates inflation without a visible long-term effect on labour market. Therefore, he requires to do away with a “nonsense” policy of stimulating aggregate demand and of targeting the pursuance of full employment.

From Friedman’s mono-resource understanding of what are the causes of inflation, we can logically derive some treatment recommendations. Since inflation according to Friedman is purely a monetary phenomenon, he concludes that we can fight it only by adopting measures on the field of monetary circulation. A unique treatment of inflation which is feasible according to Friedman is the restriction of the growth of money in circulation. At the same time he underlines that there is no way how to avoid the unpleasant side effect of the inflation treatment like a slowdown in economic growth and a higher unemployment.

The key tool for fighting the inflation according to Friedman is regulation of money supply. His monetary transmission mechanism is based on regulating of monetary base with monetary aggregate (M1 or M2) being a mediating target (intermediate target). As the best anti-inflation strategy Friedman proposed a non-activist monetary policy ensuring a stable rate of M2 growth, which would work as a long-term everlasting rule (so called monetary rule).

Monetary targeting as an intermediate target was at a certain period of time used practically by all banks. Monetary policy praxis however did not confirm a stability between monetary aggregates and inflation. Some of the unfulfilled assumptions of the monetary transmission mechanism regarding the stability of the income speed of money circulation and monetary multiplicators led central banks towards formulating new schemes of monetary policy regulation. In 90-ies central banks in the majority of countries announced a shift to a new monetary policy strategy – inflation targeting. This shift does not mean that a long-term monetary policy target was abandoned, in contrary, price stability remained to be the top target, but the ways how to implement the monetary policy should change. Inflation targeting means a direct determination of targets for inflation without mediating intermediate targets.

Currently, the system of inflation targeting is used by the National Bank of Slovakia, even if it did not declare it officially in it monetary program. This is evident on the transfer from the quantitative control of liquidity towards the qualitative control based upon own key interest rates and on the transfer of monetary aggregates from the position of an intermediary target to the one of indicators of monetary development (only).

In the recent years developed market economies as well as transition economies show a gradual retreat from monetarism. Despite of that M. Friedman remained to be a reputable generator of ideas. He also contributed – owing to the fact that many of his thesis many critical polemics among economists sparked – to a further development of the economic and especially monetary theory.

 


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