Electronic Library of Scientific Literature
Volume 46 / No. 2 / 1998
Nationally fragmented Europe used to be a territory producing contradictory
economic interests that were expressed by policy, and wars were defined
as continuation of policy by other means. Thus from all aspects, one can
consider integration processes in Western Europe as the most important
positive socio-economic process going on in the European continent. In
this context these processes have not only a European dimension, but their
global influence manifests itself worldwide.
In the years to come there is an outlook of the extension of the European Union (EU) from 15 countries up to 26 countries; membership applications arrived from the countries of Central and Eastern Europe (CEEC - Hungary, Poland, Romania, Slovakia, Latvia, Lithuania, Estonia, Bulgaria, Czech Republic and Slovenia) as well as Cyprus.
There is no doubt about the historic significance of the EU extension that is being prepared. Never before, however, did the EU expect extension of such an extent. This extension means that to the present 370 million EU inhabitants, an additional 100 million will come from various economic and social backgrounds. Moreover, the average per capita national income of Central and East European countries (CEEC) is only about 30-40% of the EU average. Thus the extension process is a complex and complicated affair, mainly from the economic point of view.
European Union extension to the east, however, constitutes the central column of the European architecture. Geopolitical factors from the EU point of view present the main motivation factors and a motor driving the enhancement of the conceptual orientation mentioned above. On the other side, economic and financial factors present obstruction to the EU extension, as they constitute additional and not inconsiderable economic and financial costs.
Central and East European countries under consideration for EU extension differ economically from the fifteen countries of EU (EU 15). For instance, the share of agriculture in EU 15, in the overall structure of created GDP, amounts to half the percentage of the CEEC share, the economic level of EU 15 expressed in GDP per capita is two-and-half times that achieved in CEEC. Substantially lower GDP per capita income in CEEC reflects above all the considerably lower level in labour productivity.
Most of this difference results also from the lower level of capital and technology equipment of CEEC. In most of CEEC potential possibilities of additional investments into modernization of machines and equipment, as well as into an increased qualification level of working population, are leading most of the professional economic public to favourable forecasts of the dynamics of CEEC economic growth. This dynamics of GDP growth can be twofold or threefold compared to the dynamics expected in Western Europe. This economic growth difference can gradually narrow down also income differentials, e.g. differences in real income level. Nevertheless, the richest CEEC will need decades before they reach the economic level of the EU 15 average.
Budget estimates issuing from the current state of expenditure rules of EU would in the case of CEEC 5 (Czech Republic, Slovak Republic, Hungary, Poland, Slovenia) be as follows: 10 billion ECU per capita and 13 billion ECU structural expenditures, e.g. 23 billion ECU altogether. From the point of view of the additional loading of the EU budget such an expenditure appears unreal. Extension of EU by CEEC 5 amounting to less than 5 billion ECU per capita and 9.7 billion ECU for structural expenditures seems to be adequate. Net costs of CEEC 5 membership should therefore amount to about 7.5 billion ECU (e.g. incomes 14.13 billion ECU and payments into the EU budget 6.68 billion ECU). Cited budget estimates start from the current state of EU expenditure rules. They are, after all, reduced by the current economic situation and assumed, or as the case maybe, defined by the monopolistic position of the EU member countries.
Should one use rationally, e.g. for the import of machines and equipment and for overall modernization, the 560 billion SKK volume of financial resources for the Slovak Republic, which is the lowest realistic option for a 10 year period, the result should positively manifest itself in an improved technology and economic standard of Slovakia.
To these direct benefits accede further benefits approximately quantified in the preceding analysis. The export dynamics will increase and the GDP will grow by at least 1.5% p.a. Should there be in the next ten years GDP growth of about 6% p.a., the influence of EU membership would raise this figure up to 7.5% p.a. Further economic benefits are expected in the sphere of greater inflow of foreign direct investments as a result of the decrease of so called risk premium. A new member state of the EU is rated as fully safe (riskless) region for the entrance of foreign capital.
Listed direct and indirect economic benefits follow from the programmed reduction of differences in the economic level of EU member countries. This reduction is based on the formation of optimum conditions for less developed countries, to enable them to approach gradually the level of economically developed countries.
The problem of international competitiveness of economies is currently
very frequented not only in economically developed economies, but also
in countries transforming their economies into a market system. Whereas
in the developed countries the progress in competitiveness is related to
the evolving process of globalization, in transitional economies level
and structure gaps in competitiveness are added, mainly in industry as
the main branch of economy.
At the beginning the author of the paper stresses the importance of this problem mainly in connection with the efforts of transitional economies of Central and Eastern Europe to integrate themselves into the European Union (EU), and in connection with the tasks following from Agenda 2000 and which will yet follow from the documents of Partnership for Entrance.
The paper further substantiates the validity of understanding the concept of competitiveness not only on the enterprise level, but also on higher layers - branch and national levels. In this context the author casts no doubt on productivity as an indicator of compe-titiveness, stresses also the influence of the branch structure on competitiveness and endorses an opinion preferring a multicriteria evaluation of competitiveness.
Main attention is paid to the evaluation of competitiveness of the Slovak industry. The author has chosen for this purpose a non-traditional methodical apparatus that enables mea-suring quantitatively qualitative aspects of industry's competitiveness. The competitiveness of industry is analyzed by the branch groups defined by the character of source intensity, phases of technological progress and courses of production use. Each group of branches is evaluated by 7 selected indicators on the basis of comparison with small economically developed West European countries.
The analysis disclosed important differences in the model of competitiveness between Slovakia and these small economically developed West European countries. Slovakia is more competitive in labour and capital intensive products, mostly designed for production consumption, and on the other side low competitiveness manifests itself in more sophisticated products based on research and qualified labour intended for final use. A further important finding is that Slovak exports are supported above all only by price competitiveness, which is not based on comparative cost advantage, but mainly on currency devaluation. Qualitative competitiveness is therefore less noticeable.
The author therefore stresses that an inseparable dimension of future economic growth and the transformation process must be the growth of competitiveness based on more consistent product and technology innovations. That will obviously demand also reappraisal of the current industrial policy aiming at its transformation into the policy of competitiveness.
The Slovak economy faces the strategic task of transforming its technology
structure, raising its performance and integrating itself into the international
division of labour with economically developed countries (EDCs). The problem
of structure changes is not intrinsic to transitional economies only, EDCs
meet this problem too. Know-how of this development can be instructive
along several lines to master the changes that face the current economy
of the Slovak Republic (SR).
Since the sixties EDCs have experienced gradual manpower price increase, which especially in Western Europe proceeded faster than labour productivity increase. That discriminated above all labour intensive branches oriented on mass production. In the seventies this development was aggravated by the steep price increase of raw materials and energy. These facts, accompanied by progress in science and technology and a drive of newly industrialized countries of south-east Asia with cheap manpower, changed the character of the competitive advantage of EDCs. In one decade a whole range of production branches went bankrupt, such as iron and steel metallurgy, textile production, ship-building etc.
If price increase and limited natural resources lead on one side to seek new economical methods, on the other side the price increase of production factors opened the way towards more expensive investment and research intensive technologies. Factors based on the progress of science and technology became a moving force of a new type of competitive advantages. Unlike static factors of comparative advantages, which are usually linked to a certain geographical region, dynamic factors are characterized by greater mobility and are linked more and more to regions rich in science and research potential.
The result of all this seems to be a high concentration of direct foreign investments in EDCs. The share of EDCs in the total inflow of direct foreign investments represented 85.4% in 1980 and till 1992 this figure rose up to 88%. Such a development means a new polarization of the world. In the year 1965, the seven wealthiest countries produced 20 times more than the poorest countries. In the year 1995 this figure rose to 39 times.
All these facts influence foreign trade too. The traditional exchange of commodities between autonomous independent firms has widened into international exchange within multinational companies. The share of intercompany exports in multinational companies USA reaches about 36%, in manufacturing industry even double that figure. Such a change markedly narrows transfer channels of modern technologies through traditional foreign trade. Under the new conditions multinational companies try to gain advantages resulting from the progress in science and technology by founding daughter and sister companies of their own, and research institutes. In the year 1989 the enterprises of USA, Japan and EU placed 40% of their research centres abroad, compared to only 12% in the year 1982. This means that the interest of investors is attracted not only by comparative advantages of production conditions, but increasingly comparative advantages of the intellectual potential in the relevant country.
The advancing process of globalization, the growing importance of innovations and a more severe competition environment significantly increased the demand on information volume, its acquirement and handling. The share of people employed in information professions markedly rose. The transfer of the centre of gravity from physical work to brainwork introduced a whole range of new problems. Most important of these was the contradiction between labour productivity in information professions and in physical work. Solely in the period from 1975 to 1985 the labour productivity increment in industry was 30 times as big as that in administration. The increase of those employed in information activities became a great obstacle to total labour productivity growth. This discrepancy resulted from the strategic orientation of industrial community predominantly oriented on the increase of the physical performance of the individual.
The start of computer technology brought a solution of this contradiction. This technology together with telecommunication techniques provided material base of post-industrial development now designated the information society. In a short time it penetrated into all segments of economics and society and accelerated the rate of production restructuring in favour of products demanding information resources and qualified labour. Table 3 illustrates the development of manpower allocation in the USA proportionally by sectors and years, and Table 4 presents the share of people employed in information activities in the total of the active population proportionally in selected countries. The in-formation society today has ceased to be a future vision only. It has a definite place in the economies of EDCs, creates new branches in the sphere of production and services.
The changeover of the Slovak economy onto the development path of EDCs will not be easy. Foreign trade exchange of SR is still characterized by imports and exports of raw materials, fuels and intermediate products. Their share in the last three years has even increased. The Slovak economy registered an increasing comparative advantage against small economically developed countries in the years 1994-1996 only in intermediate products and short term consumer goods. The data of Table 6 show that SR is reaching positive differences in comparative advantages in commodity groups demanding simple labour, physical capital and raw materials. At the same time the group of products demanding research, e.g. higher qualified labour, the negative difference increases (from -24.8 up to -30 points). The data of Table 7 witness the fact that SR gains comparative advantage against small economically developed countries above all in less technology demanding commodities. At the same time the share of university students in Slovakia per hundred thousand inhabitants is satisfactory, in the middle between developed and less developed countries of the EU. Due to worse technology equipment, to provide one million USD of GDP needs 4.82 students, whereas in economically developed countries one needs only 0.89 students. it is clear that current technology equipment of production substantially reduces the efficiency of university educated professionals. Slovakia achieves, in the overall productivity measured by GDP per capita, only one third of the productivity currently achieved in the EU countries. In the education level SR occupies eleventh place among 15 EU countries (Table 9). This disproportion between the education level and labour productivity can be explained only by the fact that other production factors badly lag behind. One can see, therefore, that the factor of education and intellectual potential of SR is not lagging behind to such an extent as other production factors and has therefore the best chance to become a driving force of future development.
Slovakia has an extraordinarily open economy and consequently its economy
is easily vulnerable to changes in external economic environment. Therefore
it is necessary to concentrate attention at the anticipated development
mainly in regions where the Slovak Republic (SR) has close economic links.
This covers mainly the European Union - EU (and above all Germany, Austria
and Italy), and transitional economies, mainly the Czech Republic.
This paper tries to describe actual and expected development of the boom in the regions linked closely to the Slovak economy and to evaluate possible influence of this development mainly on performance and expansion abilities of the Slovak economy.
One can provide some generalized characteristics for current and anticipated development of basic macro-economy proportions in EU countries. In 1997 economic growth in this region was strengthened, the production rate growth slightly overlapped the production growth potential. The expansion of economic activities will probably proceed in 1998 and 1999 along with slightly enhanced utilization of capacities. GDP growth should exceed 2.5%. This continuing revival was to a great extent caused by the growth of domestic demand, witnessed above all in accelerated dynamics of investments. The development of final household consumption differed from country to country, in countries with improved situation on labour market and with notable increase of disposable incomes more distinct extension of consumption expenditure was witnessed. It is however important that according to expectations the carrier of growth tendencies in the near future will be to a larger extent domestic demand; this will be so thanks to the growing volume of investments following high capacity exploitation and favourable income expectations.
Price increase remained moderate, due both to an inconsiderable increase of direct labour costs and by raw material price development. The consumer price increase in the years 1998 and 1999 should vary within the range of 2.0-2.5%.
Exports continued to provide important positive impulses in spite of the fact that financial and currency crisis in south-east Asia reduced export expansion to some extent. Although the export dynamics from EU countries into south-east Asia may decrease in a near future, this factor will be of a relatively weak influence, as the share of this region in the exports from West European countries is modest (about 3%). The development of exports can be unfavourably influenced rather by the predicted deceleration of economic growth in the USA.
The development of domestic demand was influenced stimulatingly by an expansive currency policy. A rather expansive monetary policy is expected also in the years 1998 and 1999 - Great Britain will be an exception here. On the other side financial policy was forced to limit demand in order to fulfil Maastricht criteria. One expects that financial policy in the years 1998 and 1999 will be oriented neutrally; expenditures will continue to be narrowly limited, distinct budgetary cuts or tax increases are not foreseen.
Similarly as in the case of West European countries, also in countries of Central and Eastern Europe (CEEC) one can see some general tendencies of macro-economic development. It is obvious that production in countries of the former socialist bloc will develop in a less differentiated manner, compared to the post-revolution development that has taken place so far. Important change lies in positive economic growth, which is anticipated after the year 1997 also in the countries of the Commonwealth of Independent States (CIS). According to some estimates the average economic growth in CIS countries to the horizon 2001 should approach the growth rate of Central European transitional economies, where one anticipates an average growth of about 5%. By the year 2001 GDP of former countries with planned economies could on average expand by 4.5% per year. In the year 1998, respectively 1999, one assumes that each post-socialist economy will achieve positive economic growth.
Marked growth in transitional countries is usually accompanied by high investment rate and marked increase in labour productivity. No matter how strong the growth process was, there appeared no apparent tendencies towards marked unemployment decrease. In general, inflation decreased also in the year 1997, its decrease, however, was not so profound as in the past. Similar tendencies will probably appear in the years 1998 and 1999, although in the Czech Republic and in Estonia one can still expect accelerated inflation in 1998.
In some transitional economies warningly (particularly because of the coming crisis in south-east Asia) resounded the tendency to vast current account deficit. During the year 1997 these deficits were successfully alleviated, also with the help of government measures constraining the import dynamics. At the same time exports from these countries could expand thanks to the improvement of the boom situation in Western Europe and economic revival in Russia. By the 2001 horizon one assumes that the imports of transitive countries should grow on average by 9.5% and exports by 9% yearly. That means that at growth of the total world trade approximately by 8% per year, the countries of former planned economies and developing countries not exporting oil will achieve a higher share on export markets, while industrial countries and oil exporting countries will lose part of their export markets share. From the transition economies' point of view a factor of complication can be the fact that in some markets south-east Asian countries could be more successful, as they offer the same range of goods as transition countries at more competitive prices thanks to the currency rate development of their currencies.
From an evaluation of boom development of Slovakia's relevant partners it follows that the external premises of economy performance growth will in the years 1998 and 1999 continue to improve. This assumption is based on the following argument groups.
As regards the performance of Slovakia's most important economic partners, in the overwhelming majority of monitored countries accelerated growth rate is expected. The weighted arithmetic average of the values of economic growth in six countries followed most closely (Germany, Austria, Italy, Czech Republic, Hungary and Poland) by preliminary estimate amounted in 1997 2.4%, in 1998 and 1999 3.3% and 3.4% are expected. One used shares of monitored countries in exports from SR as weight in these estimates, with about three quarters of Slovak exports routed into these six countries. At this configuration (when there is a chance of an increased foreign demand for Slovak products), Slovak disadvantage resting on a great export share of low sophisticated and low processed products and intermediate products can manifest itself as potential temporary advantage - such an export is namely more boom dependent compared to trade in final products.
There is, however, another problem - will there be in Slovakia in these branches enough free capacity? It is worth notice that after years of negative GDP increments in the regions of Russia and Ukraine (about 6.6% of the Slovak exports are headed to these regions), one can expect also here positive GDP growth (weighted growth rate average can reach in 1998 approximately 2%). The prospects of GDP growth dynamics in the surrounding environment can be marked as altogether favourable also for the 2001 horizon.
One does not expect any danger for Slovakia in the years 1998 and 1999 caused by considerable external inflationary influence from the EU countries; one does not expect any marked price increase of energy and raw materials either. In some EU countries revival will bring some inflation increase which, however, will be mild, and the formation of inflation differential towards the EU countries to Slovakia's disadvantage will go on. Out of the monitored CEFTA countries inflation will increase in the Czech Republic, while decrease is expected in other CEFTA countries. If weighted inflation average in monitored partner countries in the year 1997 was estimated at 6.1%, in the year 1998 it could reach 7% followed by a decrease in 1999 to 5.8% level (import shares from monitored countries into SR were used as a weight). The availability of adequate volume of liquid means is important for a successful development of international trade too. Some experts point out that after shocks in some world stock exchanges and massive selling of bonds, a large volume of assets in highly liquid form appear to be in partner countries; that may exercise a stimulating effect on trading development and stimulate investment activities too.
One does not expect important changes in the sphere of exchange rate development of the most important currencies. No further considerable strengthening of the USD exchange rate against DEM is expected. As SKK is linked to DEM (there is a majority share of DEM in SKK currency basket), it is important that no considerable currency exchange rate of DEM against other important currency is expected in the near future. The decision already implemented, concerning participants of the Monetary Union and an announcement of bilateral exchange rates adjustments of currencies of participating countries, should bring stability into the currency sphere.
Naturally, the influence of the external environment on the national economy depends not only on examined macro-economic quantities. These, however, render some frameworks and offer certain opportunities for the eventual expansion of the national economy. In this context there are assumptions that the development of external environment so far has never been so favourable for transition economies as it will be in the near future.
The paper deals with the analysis of income flows within
the framework of the institutional sector of the economy of the Slovak
Republic (SR) in the period of transformation from a non-market into market
economy. The period 1989-1995 is analyzed.
For the analysis data base of matrix time line of social accounting (SAM) for the years 1989-1995, which are designed in the Institute of Informatics and Statistics. SAM matrixes are assembled mainly from the data base of National Accounts (NA) of SR with some built-in adjustments or transactions estimates. To analyze income flows we picked out the accounts describing the formation, allocation and use of incomes within institutional sectors of economy from a given time line of SAM matrixes
In the first part of the paper the structure of the SAM matrix and its nominal flows are described in SAM matrix for the year 1995.
The second part is dedicated to the analysis of income generation in the Slovak economy and its share in gross domestic product (GDP). We start from the time line of income indicators forming GDP in the period 1989-1995; these indicators are gross wages, social insurance contributions, operational margin and net taxes on production.
One can differentiate the evolution of these indicators into two periods: one up to the year 1992, and the other after 1992, when a development reversal of these indicators has taken place. The development of incomes in this period is characterized by private sector formation, which manifests itself by the decrease of the labour force employed in formal sector and by the increase in numbers of entrepreneuring individuals. This trend was registered up to the year 1992. After 1992 the increase of the number of physical entities (tradesmen) stopped (according to the statistical data).
In a period of labour force decrease the share of wages in GDP decreases too. After the year 1992, when the increase in numbers of entrepreneuring individuals - tradesmen stopped, the share of wages in GDP increased to approximately 34%. On the contrary, the share of mixed incomes in GDP increased up to the year 1993 and after that year stabilized at 14% of GDP. The amount of mixed incomes in the period of 1993-1995 is influenced also by estimates of the volume of concealed economy in this sector, which has been included by NA into estimates of the relevant indicator.
The operational margin calculated for the rest of economy, e.g. mainly for small and big enterprises, registered an increase of share in GDP till 1992. After that year its share in GDP formation decreases approximately to 28%.
The development of net taxes on production was influenced by changes in the tax system. Till 1992 main tax on products was the turnover tax, since 1993 it is mainly value added tax (VAT) and consumption tax. Until 1993 one registered the decrease of tax on products share in GDP. The turning point occurred in the years 1994-1995, when net taxes on production amounted to about 11-12% of GDP. The increased share of taxes in 1994 was influenced by the increased share of taxes on imports, and the transfer of tax arrears from the year 1995 to 1994.
In the third part we analyze the structure of current incomes and expenditures in the three sectors of the economy: households, enterprises, state administration. We identified main changes of structure and development tendencies of incomes and expenditures structured in detail.
Sector of households as understood in NA includes not only households as consuming units, but also households as owners of noncorporate enterprises. Enterprise sector includes nonfinancial and financial enterprises. The definition of state administration in the NA system differs from state administration as defined by financial statistics. The state administration sector according to NA includes not only central state administration, but also all non-budgetary state funds, funds of health and social insurance, and local government. From this sector one excludes contributory organizations, where the costs are covered, by more than 50%, by their own earnings. Such contributory organizations were ranked into the enterprise sector. We included non-profit organizations servicing households into the state administration sector; these form an independent sector in the NA system.
In the household sector within the framework of current incomes the highest item consists of gross wages and salaries, in spite of the fact that their share in total incomes decreased till 1993 (in the years 1994-1995 one registered an increase of their share). Mixed incomes e.g. incomes of tradesmen represent a steadily growing share in households incomes. Gross wages and salaries together with mixed incomes represent approximately 70% of the total incomes of households. Incomes from property, e.g. interests, dividends, ground rents etc. register a growing trend in household incomes. In the year 1995 their share amounted to about 6% of the total household income. The share of social benefits varied, the highest amount reached in the years 1991-1992. Social benefits recently amounted to about 21% of household incomes.
The highest share in current expenditures of households represent paid income taxes, e.g. income tax of physical entities and other current taxes. After the year 1992 a decrease in the income tax volume has taken place, which was caused by changes in the tax and social insurance system. Till 1992 in the item "income tax" payments for social insurance of employees were included. After the year 1993 social insurance contributions paid by individuals, e.g. employee as well as entrepreneur - individuals are recorded separately from current taxes. Current taxes represent about 42% of current household expenditures in the year 1995 and their share in the household expenditures since 1993 has kept increasing. Current taxes together with social insurance contributions paid by individuals represent about 74% of current household expenditures in the year 1995. The amount of paid incomes of property has been steadily increasing since 1989. In the year 1993 these reached the highest value, which was influenced also by the interest rate in that year.
From the quantified household savings throughout 1989-1995 one notices constant growth of household savings after 1991. Negative savings in the year 1990 suggest that in that year higher drawing of households savings deposits occurred as household expenditures exceeded the current incomes of households.
In the enterprise sector the biggest item in current incomes is the operational margin. Its share in total income of the sector decreases in the 1992-1993 period, after the year 1993 a reversal has taken place - the share of operational margin in total incomes of the sector began to increase. At the same time since 1993 an important increase of incomes from property was recorded, the biggest item of these consisting of received interests from financial enterprises.
Till 1993 income taxes were the biggest item of current expenditures of enterprises. Their decrease in the year 1993 compared to 1992 is related mainly to the tax system changes and changes to the social insurance system in 1993. The share of income tax in the total volume of expenditures is steadily decreasing. The share of incomes from property in the enterprise expenditures is growing. The main increasing item here is the share of paid interests and dividends from the entrepreneuring sphere into other sectors.
In the sector of state administration main income resources are net taxes on production, social insurance contributions and current taxes.
In the income structure of the sector the share of taxes on production increased as late as in the years 1994-1995. The decrease in 1993 was caused also by tax system changes in that year. The development of income taxes (current taxes) can be compared since 1993 only, because till 1992 this item covered also social contributions paid by individuals. The share of income taxes, including the contributions into the social insurance in current incomes of the sector, kept decreasing till 1994.
Within the framework of current expenditures of the state administration the biggest item is represented by social benefits paid either as system benefits from the social insurance funds, and non-system benefits paid by the state administration, and further social subsidiaries. The share of these social benefits in the overall expenditures of the state administration had a decreasing tendency in the period 1992-1994, in the year 1995 this share increased to 79% of the current expenditures of the state administration sector. The increase of the share of incomes of property is connected with the increase of interest payments of the state administration.
Final consumption of the state administration sector increased considerably in the year 1993 in relation to the formation of the independent Slovak Republic and with the establishment of independent units of state administration and funds of health and social insurance. This increase of final consumption was not covered by current incomes of the sector, which demonstrated itself in the negative value of registered "savings" of the state administration sector in the year 1993.
Main tendencies in the development of income flows and their distribution within the framework of institutional sectors of SR economy in the period 1989-1995, or 1992-1995, as defined in the paper, can be briefly summarized in following conclusions:
When analyzing the development of income formation in the Slovak economy
in the period of 1989-1995 we recorded following tendencies:
- the decrease of the share of wages in GDP formation, accompanied by simultaneous increase of the share of mixed incomes;
- the increase of the share of operational margin of the formal sector in the GDP formation in the period 1991-1992 and its decrease in the period 1993-1995;
- the decrease of the share of net taxes on production in GDP formation, which stopped as late as in the years 1994-1995.
When analyzing the development of current incomes and expenditures of
the three institutional sectors of economy (enterprises, households, state
administration) we identified the following facts.
In the household sector:
- the decrease of the share of gross wages in the period 1989-1995 in total incomes of households;
- the increase of mixed incomes and incomes from the ownership share in household incomes. Household incomes from economic activities and from entrepreneuring represent altogether about 76% of household incomes, which is approximately the same level as in 1989;
- tax burden of households consisting of income tax and social insurance contributions of individuals represents a lower share in current household expenditures in the year 1995 compared to 1989;
- the share of household savings in household incomes increases, and simultaneously the share of household expenditures for final use, decreases.
In the enterprise sector the following tendencies in the years 1992-1995 were recorded:
- the share of incomes from operational margin in total incomes of the sector decreased in the first half of the relevant period followed by a reversal after 1993;
- the share of paid income taxes in total sector expenditure decreased;
- the share of income of property in incomes and expenditures of the sector increased.
In the state administration sector in the period of 1992-1995 we identified the following tendencies in the development of incomes and expenditures:
- the share of incomes from net taxes on production in the total sectoral incomes increased in the years 1994-1995;
- the share of incomes from social insurance contributions paid by employers and individuals increased;
- the share of expenditures for social benefits in total sectoral expenditures in the year 1995 decreased compared to the year 1989.
Judging from the overall development of incomes and expenditures in
state administration sector one can see the decrease of the share of expenditure
for the final use in recent years and the increase of the savings share.
Concluding the paper, one can state that the changes going on in the Slovak economy in the transformation period influence also newly distributed flows of incomes between institutional sectors. They substantially change the structure of individual income flows, new income flows are registered connected with the privatization process, and on the other side, other income flows disappear.
We consider as the decisive causes of changes the tax reform of 1993 and social insurance reform, stabilizing of informal sector after its sharp growth in the first transformation years, as well as the development of interest expenditures and interest savings of individual sectors.
Savings generated by the entities playing a role in a country's economy
are considered to be an important issue, the resolution of which is posing
a permanent challenge to both the designers of economic theories and politicians.
From an economist's point of view, savings represent a deferred consumption that under certain circumstances, if efficiently transformed into investment, could be an important impetus for the country's economic growth.
The basic motivation for saving are determined by functions and roles money plays in the national economy and by other reasons motivating the individuals to keep their highly liquid assets available. Transactional motivation, together with prudence and speculation, are potentially good reasons for generating savings in the national economy.
Entrepreneurial subjects in pursuing their business objectives are inherently interested not only in using their own free funds but also in efficiently employing external funding (e. g. loans/credits).
Individuals are the only segment of the economy generating savings on a regular and long-term basis.
Corporate savings potential is largely determined by the virtue, function and role of financial management.
It is generally assumed that capital will preferably be allocated to investments in tangible and intangible assets, in following a basic entrepreneurial philosophy which is to produce goods and services with the final objective of selling these goods and services form profit.
Influenced by some external and internal factors the entrepreneur may hesitate over the most efficient capital allocation, deciding whether to invest it in tangible or intangible assets, to buy securities, or to deposit the funds.
Results of a theoretical analysis of financial management in the corporate
environment show the following specific micro-economic motivation
a) Time synchronizing of investment and operational needs with financial potential,
b) Capitalization of interest on savings,
c) Related risk,
d) Essence and characteristics of financial assets,
e) Legal environment.
Finally, with regard to the generation of savings in the corporate sphere,
it could be stated that the level of savings in the economy results form
many individual decisions by financial management, influenced by inter-relationships
in the reproduction process, and by the industrial sector in which it originates;
consequently, this level is not very stable. The generation of savings
is influenced by the quality of the macro-economic environment as well
as by specific subjective possibilities and expectations, which indicates
the fluctuation in level of savings could be significant.
Individual savings are regarded as and important economic category. The economic feature of saving is characterized by the deferring of current consumption and a gradual accumulation of financial fund for utilization at a later time.
In quantitative terms the individual savings are defined as the difference between disposable income and consumption. They consist of two components, deposits and cash.
The pattern of the decision-making process of the individual shows the following features: Human needs influenced by biological and social factors stimulate consumers to generate an income as a means for satisfying these needs. Upon generation of income, the individual will develop his own spending and saving strategy which will be determined by the quantity and quality of economic, subjective and psychological factors. As a result of the inter-dependence and also the contradictory features of these factors the individual will develop his own consumption and saving strategy, reflecting his individual approach in dividing his disposable income into the part that will be spent and the part that is intended to be saved.
The earning of an income by an individual can on one hand lead to satisfaction of existing needs but on the other, it can arouse the emergence of new or modified needs (e. g. new physiological requirements).
The decision-making process of the individual will therefore be an inter-related system consisting of a great number of factors strengthening their impact in one area, and acting in a contradictory manner in another one. It is a variable system vulnerable to changes, influenced by time and different environments.
Specific micro-economic motivation for generating individual savings
a) Harmonization between the individual's consumption strategy and his/her available budget,
b) Capitalization of interest on savings,
c) Related risk,
d) Basic character of financial assets.
Potential possibilities of savings created in the national economy can be expressed by the following formal savings function:
Sx = f (E, I, Pc, Í, T, F)
Sx - savings
E - level of the economy expressed in terms of macro-economic variables (GDP, State budget deficit/surplus, inflation rate, unemployment rate)
I - income (legal entities, individuals)
Pc - price level and price development dynamics
Í - interest rate
T - subjective factors - taste, preference, fashion trends, expectations, traditions
F - other (psychological factors)
It is assumed that, with a high degree of simplification, even though
the motivation of economic entities for saving could be similar, the weight
of individual factors is different.
The purpose of definition of the formal savings function lies in summarizing the factors determining the process of savings created in the national economy by the economic entities and to point out the complexity of the internal relationship of these factors.
The sector of small and medium enterprising (SME) is a young but very
dynamically developing component of the Slovak national economy. It has
become an important part of the economy in its structure adaptation process.
Advanced countries of the European Union (EU) started to prefer SME as
early as in the early eighties within the framework of structure policy;
then it was found out that SME represents a most dynamic factor of economic
growth, creates new labour opportunities and is a source of regional development.
It is only natural that the sector of small enterprises rooted itself in
the economic basis of the Slovak regions.
Socio-economic influence of the Slovak economy transformation into a market economy manifested itself in various spheres. Regional unemployment level is one of them. New regional and administrative organization of SR, implemented in the year 1996, intensified disproportion in unemployment and from the regional point of view this disproportion concentrated into smaller territorial units.
This paper aims to demonstrate regional non-uniformity of employment in Slovakia related to entrepreneuring activities and to the level of education attained.
The highest entrepreneuring activity of the population (the paper defines it in relation to physical entities not listed in business register who carry out business on the basis of trade licence) has been in Bratislava, the capital of SR; followed by districts Senec, Galanta, Pezinok, Dunajská Streda, Banská Bystrica, the city of Košice, Komárno, Žilina, Poprad, Stará Ľubovňa, Piešťany, Šaľa, Kysucké Nové Mesto, Považská Bystrica, Trenčín, Levice, Rimavská Sobota, and Nitra. From the entrepreneuring point of view the least successful in Slovakia are districts Revúca, Gelnica, Krupina, Sobrance, Medzilaborce, Brezno, Sabinov, Púchov, Detva, Snina.
In selected branches of the national economy, entrepreneuring activity is focused mainly on the sphere of trade and services; these however, cannot in the long run influence positively unemployment in problem districts.
The exploitation of entrepreneuring activity to eliminate unemployment can be evaluated by means of absorption capacity, e.g. the difference between entrepreneuring activity and the unemployment rate. Private entrepreneuring was successfully utilized for the alleviation of unemployment in Bratislava, and in districts Senec, Pezinok, Banská Bystrica, Trenčín, Piešťany, Žilina, Považská Bystrica, Galanta, and partially in Ma-lacky, Zvolen, the city of Košice, Nové Mesto nad Váhom, Liptovský Mikuláš, Skalica and Myjava. When evaluating the regions of Slovakia, best results were achieved in Bratislava region, followed by regions Trenčín, Trnava, Žilina, Nitra, Banská Bystrica, Košice and Prešov.
When evaluating individual regions, private sector mainly in the shape of SME concentrated to the vicinity of town agglomerations, where in connection with developed infrastructure foreign investments materialized to a greater degree; this supported employment, whereas in the peripheral regions of Slovakia discharge of employees was not compensated by more distinctive formation of new jobs.
Unemployment is influenced also by the educational level of the population, and a discrepancy between the economic basis of a relevant territory and educational potential of the system of schools has a certain share in the increase of unemployment rate.
This paper is focused on the evaluation of the secondary school system in individual regions of the Slovak Republic and the unemployment rate in these regions. According to indicators related to the secondary school system (the number of secondary school students per 1000 inhabitants) and unemployment rate the districts in Slovakia were classified into four groups:
- districts with the standard of secondary school system under the SR average and at the same time with unemployment rate over the SR average;
- districts with the standard of secondary school system over the SR average and at the same time with unemployment rate over the SR average;
- districts with the standard of secondary school system over the SR average and at the same time with unemployment rate under the SR average;
- districts with the standard of secondary school system under the SR average and at the same time with unemployment rate under the SR average.
The allocation of districts into the groups listed above is a result
of co-operation of various factors, as for instance privatisation process,
transformation of agriculture, stagnation of building industry, attenuation
of mining industry, sales problems, or the philosophy of Slovakia's industrialization
implemented in the past and the sitting criteria of services and facilities,
the presence of important town centre in the district etc.
The causes of school-leaver unemployment and unemployment on the whole are closely connected with the economic structure of the regions. In principle, to solve unemployment problem one can recommend certain measures focused on a qualitative change of educational system aimed at higher versality of education, synchronization of the needs of economic and social practice with educational system, support of the formation of small enterprises and trades as well as creating the housing market as a precondition for territorial mobility of the labour force.
The foundations of the theory of economic structure according to economic
sectors were laid down by Colin Clark in his book "Conditions of Economics
Progress" published in the year 1940, as well as by other authors.
According to their hypothesis, the development progresses gradually starting
from the society with an overwhelming prevalence of primary sector, mainly
agriculture, through the industrial society up to the tertiary society
(society of services).
The growth of world economy is actually linked with gradual structure change in economic sectors. This growth is accompanied by the life-cycle shortening of other sectors. Agriculture occupied a prominent place for several thousand years. Later, above all in the last century, rapid growth of industry took place. Its era lasted for a shorter period. A new historical revolution, representing the start of the third wave, began in the USA around the year 1965, and in other developed countries by the end of the sixties, and especially in the seventies.
In the last almost three decades the deindustrialization process represents a common trend in developed countries. As a result of this process the share of employees in industrial production in overall employment has fallen from 1970 till 1994, from 28% down to 18%, and on the contrary the share of those employed in services has increased. In the EU today, only one in five employed works in industry; in the USA less than one in six people is employed in industry, whereas over 70% of employed people work in services.
The richer the country, the smaller the share of workers needed in industry. One assumes that in the industrial production of the USA in twenty years only one out of ten present jobs will be required.
The impact of deindustrialization on the volume of industrial production is not negative. Production is higher than before, yet its share in GDP in current prices decreases. The share of agriculture in GDP decreases too, on the other hand the share of services increases.
The increase of nominal value of services and their share in GDP is a result of not only the actual increase of real services' performance, but is caused also by a relative price increase. From an analysis of the International Monetary Fund (IMF) it follows that the share of industrial production in GDP in constant prices has remained, in developed countries in the last three decades, more or less stable (in the year 1994 it represented about 22%).
Based on research of structure changes development in individual sectors, one is offered two facts explaining fundamental alterations to structure change in sectors - these are the development of demand and the development of labour productivity in economic sectors and branches.
The development of demand according to economic sectors and branches differs and is related to changes of income per capita. Along with the increase of incomes, demand for individual commodities does not grow equally; the income growth is accompanied by diverse demand elasticity.
The main cause of structural change in individual economic sectors seem to be differences in labour productivity growth. The industrial revolution significantly increased the productivity of labour in agriculture. The information revolution stimulated a similar process in industrial production. Labour productivity grows in industry faster than in services. The analysis shows that in the years 1960 to 1994 performance growth in service and industrial sectors in developed economies was approximately equal; however, productivity of labour in industry grew about twice as fast as in services.
These tendencies manifest themselves also in the economic structure of Slovakia; the structural changes, however, have gone on at a slower pace compared to developed countries.
The number of employees in industry in our country exceeded the number of people employed in agriculture no earlier than in the first half of the sixties, e. g. in the years when in developed countries the industrial era was terminating. In the following years, e. g. till the year 1989, the share of persons active in secondary (to 43.9%) as well as in tertiary (to 41.7%) sectors continued to increase, and the share of those employed in agriculture continued to fall (down to 13.8%). In the last decades Slovakia managed the process of industrialization, even though the structure of industry was not satisfactory.
During the transformation process positive changes in the sector structure of the economy came into being; these changes correspond to world trends and manifest themselves up to the year 1996 by a decrease of the share in employment in primary sector to 10.6%, in secondary sector to 38.3%, and in the increase of the employment share in tertiary sector up to 51.1%. A similar trend appeared also in the development of the share of economic sectors in GDP.
Comparing present structural changes according to economic sectors with deindustrialization in developed countries, one discovers at the same time a similarity and difference between them. In developed countries the share of industrial production decreased, with a simultaneous increase of its total volume. On the other hand structural change of economic sectors in Slovakia was accompanied by a rapid and vast decline of industrial production. As a result of this, the tertiarization process was not wholly natural.
Out of the development tendencies of sector structure in the world,
the following con-clusions can be deduced for the future development of
the Slovak economy:
- Deindustrialization is an inevitable process. The decrease of the share of the first two economic sectors in employment and GDP in favour of tertiary sector is inevitable above all because of the growing importance of services in the society, which, however are lagging behind the demand
- The decrease of the share of primary and secondary sectors in employment and GDP should be accompanied by an increase in the overall volume of their production. This, however, demands a significant increase of labour productivity. To secure this increase in industry, radical branch restructuring and technical development of enterprises are needed.
- Services gain a steadily more important position in the economy not only because of their increasing role in the society and their function as the most important job maker, but above all because of their future role as the decisive factor of GDP growth. One needs to expand this sector, improve its performance and at the same time seek means to raise its productivity.
In today's economic practice marketing has become a factor which distinctly
influences enterprise competitiveness. Marketing management must ensure
early observation of changes in the market, in customer's needs, sales
conditions, rival behaviour, price movements etc. and thus evolve the ability
to react quickly and efficiently to changes that could invoke dramatic
economic impacts for an entrepreneur. Marketing manifests itself also by
its ability to activate and influence demand and thus gain the customer
and his confidence, and eventually raise the entrepreneur's share in the
market for a certain commodity or service. In this positive sense marketing
has an aggressive - nevertheless always ethic - character. Successful companies
are not satisfied with passive information recording, but operate actively
to influence purchase decisions of potential customers. Their activity
manifests itself in providing the "right products" at the "right
time" and in the "right way" (e.g. efficient way in the
long run) for the "right price". Marketing's aspiration to cover
long-range time horizon is not an aim in itself - it is a precondition
of the long-term stability of an enterprise. In other words, the enterprise
must be informationally, organizationally, personally and technically managed
in such a manner that could enable quick marketing measures as a reaction
to possible changes in external market environment.
Under the condition of a high autonomy degree of enterprise functioning in the market economy, enterprise management cannot decide and solve any investment design, any change in production programme, any capital demanding transaction, any change in organizational structure etc. without the co-operation of the marketing division, e.g. without marketing information, which qualitatively and quantitatively identifies and evaluates external market conditions (mainly needs, demand, price development and competitive environment), and thus enables optimum strategic decisions.
The marketing approach demands that enterprises base their strategies and plans on exploiting their strengths and soundly explore market possibilities; this would enable them to choose the best way to fulfill their turnover and profit aims. Enterprises today still lack deep knowledge on what they are able to do better than their rivals, what they possess as an "individual advantage" - competitive advantage resting on satisfying certain customer groups. Instead of this, they increase the total volume of sales and calculate with minimum profitability for all products and markets, not taking into account the magnitude of partial markets, market growth rates or the phase of the product's life cycle. Many facts point at difficulties that many enterprises have to face because their separate divisions or branches control their enterprising in terms of momentary profits or losses even at the expense of abandoning valuable and once hard acquired market shares.
In the Spring of 1997 was implemented within the framework of PHARE project voluminous research in 74 enterprises classified by Trend magazine in the TOP 100 (e.g. 100 most important the Slovak companies). The aim of this research was the evaluation of the status and place of marketing in Slovak companies. The research provided the information that training and consultant firms as well as literature on marketing played the role of most important intermediaries of the new marketing orientation of enterprises. In many enterprises one could not enforce the acceptance of marketing as the management philosophy for the whole enterprise; this manifested itself in the fact that in most enterprises people working in marketing divisions had no control and decision authority, but acted as managers with a consultative voice only. Marketing divisions had their authorities limited to the spheres of marketing as a method, such as new product development, business plans preparation, etc.
The assumption that marketing implementation was realized under the pressure of important problems the enterprise had to face was not confirmed. Marketing development was accelerated as a rule by strong marketing oriented personalities, or by the arrival of new managers with knowledge of progressive managing methods, or - in most cases - as a result of the recommendation of consultancy firms. Confusion in the distribution of authority between the marketing division and sales division was identified as a serious problem. Accessory to this confusion was then inadequate communication, deliberate retention of information and sometimes even an open aversion between marketing and sales divisions. This result too witnessed to the misunderstanding of benefits which the marketing style of enterprise management could provide. The relation between marketing status and enterprise size was confirmed.
The research proved unequivocally that Slovak enterprises continue to be driven by production and technology only and their declaration for a marketing orientation is more proclamatory than the implementation of concrete deeds.