Electronic Library of Scientific Literature


Volume 46 / No. 3 / 1998



The paper states at first that the starting period of transformation is also the period of initial macroeconomic stabilization of the economy, during which the manifestations of market unbalance existing in a centrally planned economy are eliminated. The initial macroeconomic stabilization of the economy (installing the supply - demand balance) was accompanied by a transformation recession (the rise of a distinct unbalance among production capacities, work potential and their utilization). The creation of market balance during transformation led towards the origin of other manifestations of overall unbalance. From this point of view the starting stabilization had a partial character.
Initial partial stabilization of transforming economies at the same time has no permanent effects. Mainly in external economic relations the unbalance renews itself, grows and exceeds tolerances which characterize standard operation of market economies. If the initial stabilization (the approach of the economy towards the state of balance) was only a partial one, and moreover only temporary, it is obvious that initial reform measures did not create market mechanisms in a form which could provide further maintenance of balance on its own. The solution of this problem in the necessary volume was not either ensured by the revival of economic growth.
The paper aims to ascertain how was the initial macroeconomic stabilization in the Slovak Republic (i. e. that reached at the beginning of transformation process) gradually weakened as a result of chronic unbalances existing in the entrepreneuring sphere. This is analyzed separately in profit making and losing enterprises, using the data of the table.
The fairly high share (consistently over 40%) of losing enterprises in the total number of employees in non-financial enterprises with 20 and more people signals the great extent of social and economic problems connected with the fact that part of the microsphere could not adapt itself to the situation in a market economy.
The relatively high profit rate in profit making enterprises and high share (approximately 80%) of this group of enterprises suggests that in the economy of the Slovak Republic costs adapted themselves to market prices so as to use the revenues to provide resources necessary to recover and to develop new technologies. On the other hand the high rate of negative profit rate in losing enterprises, "stabilization" of this indicator on approximately the same level and since the year 1996 the growth of the share of this part of non-financial enterprises (mainly after their share in the total revenues of the business sphere) signals that these enterprises are unable to make the profit necessary for development and probably not even for the simple regaining of their production capacities, and are thus usually unable on their own to overcome this position.
In the branch projection of the results of profit making and losing enterprises one discovers than in all branches a considerable part of enterprises operate on a profit rate level ensuring necessary investments and maintaining competitiveness at home as well as on the foreign market. This conclusion does not hide the vast, and in the period of weakening macro-economic balance even growing, problem of losing enterprises in all branches of the economy.
The paper presents the information that the problems discovered in the Slovak business sphere appear also in other transitional economies.
A separate part of the paper notes the link between (un)balance in entrepreneuring sphere and at the macrolevel and finds that losing enterprises negatively influence the total balance by their substandard labour productivity and, linked with this, the growing negative production differential (e. g. the growth of the difference between labour productivity in the export segment of the Slovak economy and abroad. These losing enterprises have also a considerable influence on the maintenance of positive inflation differential values, mainly through:
1. Neglecting the obligations to pay income tax and to pay fees to insurance funds, thus causing one of the unbalances in national budget management, or in the budget of the whole public sector.
2. Wage increases, which in fact copy (in the years 1995 and 1997 even exceeded) wage increases in the profit making part of the microsphere.
3. Former accepted need to provide for the operation of losing enterprises also by means of granting risk credits. This produces pressure to increase bank credit margin and thus to increase the overall interest rate.

The unbalance in losing or low profit enterprises leads through its impacts to a relapse of the macroeconomic sphere and acts towards further weakening of the balance in the whole microsphere, consequently also in profit making enterprises. Unbalances at macro-level and microlevel are phenomena to a certain extent mutually independent which are nevertheless internally linked one to another. The solution of the problem of badly managed enterprises becomes a focal task of the next phase of the transformation process.


Egon Hlavatý

The paper is dedicated to the analysis of the results of the Slovak currency policy in the years 1993-1998, and to the open problems of its future development.
The experience from the currency development of the Slovak Republic confirms that the currency policy of the transforming economy has to start from the real conditions of the relevant period, and objectives to be achieved. As both these factors change, the policy should react to these changes and adapt itself to them.
The experience of the development in Slovakia has confirmed the fact that up to now even without more drastic monetary measures the real economy achieved relatively good results, which by GDP growth and inflation decrease (in 1997 inflation stood at a mere 6.4%) widened manoeuvring room for monetary policy. Various developments in the years 1993-1998 show that after the successful managing of the currency stabilizing phase, problems appeared above all in the years 1996-1997 in the attempt to accomplish certain development objectives in the changeover from restrictive, anti-inflationary oriented poli-cy towards more active development currency and credit policy.
In this aspect the development in the Czech Republic can be a suitable lesson, as a similar, earlier process has taken place there.
The evaluation of the Czech currency crisis in the year 1997 demonstrated above all the fact that its origins rested mainly in serious macro and microeconomic structural and institutional problems which obstruct solution of this crisis and create the continuing possibility of its relapse. At the same time it was confirmed that the results of currency policy are influenced more than in standard market economies also by extra-economy factors. The achievement of the currency objective of the economic policy is thus conditioned above all by the process in which the whole system in its basic relations creates conditions for the rational use of money in macroeconomic policy.
From the facts stated above, it follows that in the Slovak Republic long term stabilization and strengthening of the Slovak currency, defence against inflationary tendencies and consolidation of internal and external currency balance, continue to remain an important currency objective. On the other side the experience from the Czech Republic indicates that, in relation to further objectives of economic policy, currency policy cannot be neutral in the sense of supporting solely the stabilization monetary objective without the support of economy revival and growth. Purely monetary criteria in currency objectives without the second objective, the long term stabilization of economy growth based on restructuring, when successful, have a brief life only, do not facilitate long term currency stabilization and permanently threaten a relapse to the deterioration of the internal and external balance. The currency policy approach, respecting the above mentioned dual currency objectives in the transitional phase of economy transformation, represent a certain combination of expansive credit policy and currency-stabilizing restrictive fiscal and income policy. In order not to provoke the relapse of inflationary movement by active currency policy, one has to:
- start to prepare a complex economic programme of the optimum incorporation of the Slovak economy into the international division of labour,
- co-ordinate fiscal and currency as well as credit policies,
- ensure consistent economic selection of the allocation of limited monetary resources.

The exploitation of credit as a source of an active development economic policy demands also an adequate credit policy. High interest rates would retard entrepreneuring, and primarily investment activity. They would affect particularly unfavourably the development of private enterprising and the activities of small and medium enterprises and tradesmen.
The unbalance of external economic relations which originated in the year 1996 by more rapid growth of imports was reflected by the increased trade deficit and increased current account of the balance of payments deficit. In spite of this, the state of currency reserves of the Slovak National Bank did not drop and ensures the coverage of a 3.4 multiple of the average monthly import. The total state of reserves in commercial banks has an increasing trend. Due to the expected restructuring effect of the increased imports, stronger limitation of imports, in currency policy at the expense of the restructuring rate decrease would lead in the long run to the violation of the external balance. As an essential solution one should rather choose the faster inflow of foreign investments.
On the basis of 6 years experience the author tries in the present paper to suggest some new views concerning currency policy during the current economic transformation. At the same time he assumes that the currency problems discussed here are not specific only for the Slovak economy, but in the wider context can be meet also in other transforming countries.



The paper consists of two parts: 1. Development tendencies of administration costs in the Slovak Republic and 2. Theoretical problems of bureaucracy.
In the first part is defined the term administration as used in current economic practice and mainly in state closing accounts; these represent the main source of the analytical part of the paper. Under the term administration mainly the state administration is understood. For instance in the year 1992 the share of state administration in current administration costs totalled 87%, and other components of administration (courts, prosecution and state notary offices), 13%. In 1994 the share of state administration in total administration amounted to 96% (prosecution 4%).
Total costs of administration (current costs and investment costs) kept growing in absolute numbers year after year. The only exception was the year 1994. This absolute increase was very striking. This is witnessed by increments of 2 374 million SKK (1993), 2 039 million SKK (1995) and above all 4 499 million SKK (1996). High annual percent increments corresponded to these data; the highest of these were in the years 1996 (54.6 %), and above all in the year 1993 (61.0%).
It is remarkable that state budget expenditure related to the GDP development decreased in all years with the exception of 1993 (109.1% growth was registered then). In the years 1994-1996 a certain regularity of this decrease was witnessed (85.5%, 77.1% and 75.9%). The overall trend of state budget expenditures in relation to GDP is convincingly decreasing. Total administration expenses related to the GDP had a different course. Compared to 1991 they have kept rising ever since. This growth had its fluctuations; the trend is, however, distinct: the administration expenses grow in relation to the GDP.
In the structure of administration expenses prevailed the great prevalence in non-investment administration expenses. This means essentially a prevalence of labour costs and non-investment material costs for the operation of the state administration. Investment costs, in their share in administration expenses, had no distinct remarkable tendency.
For the year 1997 one could use only the assumed data of the state budget for that year. The fact that the trends started in previous years go on is vital information for 1997.
As for the shares of individual structural bodies of state administration, one can see that markedly highest administration expenses are allocated in the ministries and regional authorities (newly created bodies of state administration functioning as lower regional units), therefore in the classical bodies of state administration. These absorb together up to 86.1% of all non-investment administration expenses (the ministries 58.5%, and the regional authorities 27.6%).
The expansion trend of administration expenses is directly linked to the number of people working for the bodies of state administration (wages and salaries). The number of people in central bodies of state administration kept growing since 1993. Whereas in 1993 there were 4 735 people employed in the central bodies of state administration, in the year 1997 7 865 people employed there are estimated (66.1% growth). More distinct yearly increments occurred in the 1994 (12.4%) and mainly in the year 1996 (25.2%).
Especially remarkable, alas, is the fact that, contrary to expectations, the newly created regional authorities as new bodies of state administration did not halt the tendency in the absolute increase of the number of people employed in the central bodies of state administration.
In the year 1996, when the formation of the regional authorities was approved, the number of people employed in the central bodies of state administration increased by 1 433 people (25.2%) and in the year 1997 one assumes an increase of people employed in the central bodies of state administration by a further 740 (10.4% increment).
This clearly opposes political statements informing that "decentralization" of the state administration means the transfer of competence down to the lower (e. g. regional) bodies of administration. It was stated further that this process will secure more effective utilization of the financial means flowing through state administration. There are so far no arguments on the effect of "decentralization" to regional authorities, but the expenses for state administration (now central and regional) do not confirm this. State administration continues to be more expensive.
The second part of the paper deals with the theoretical problems of bureaucracy trying to reflect the preceding analysis.
Latest information of sociology on bureaucracy are outlined (mainly based on M. Weber), and above all the economic (so called managerial) concept of bureaucracy is analyzed.
In connection with the position of bureaucracy, one fundamental question arises. Can the public administration and its management have an autonomous position? The question is le-gitimate, as from the legal point of view this administration is only a "tool" of political power.
It appeared that in practice the situation occurs that no, however detailed, rules can envisage all situations, and therefore the political centre must cede to subordinate bureaucracy a certain realization of liberty, the so called discretion power which is used by the administration. This is a result of a real factor represented by asymmetric information.
In general the problem of asymmetric information consists in the fact that one party is enabled to utilize this asymmetry in its own interest at the expense of other parties of the decision making process. This can result in various inefficiencies. The managerial concept of bureaucracy starts at this information asymmetry, which then results in the term, discretion power.
A dilemma emerges in theory, and mainly in practice. Various dispositions towards inefficiency are attributes of bureaucracy, yet on the other hand bureaucracy in modern society is considered to be necessary. No country can manage without a state bureaucracy. Therefore one has to come to terms with bureaucracy. One should provide it with only such a space that would not markedly (markedly is accentuated, because due to the character of bureaucracy the disposition for inefficiency will always exist) endanger the possibilities of rational economic approaches as well as the democratic system. This second aspect (e. g. possibility of endangering the democratic system) is at least equally important as the economic aspect.
Control appears to be a most important phenomenon, which could at least partially limit the negative effects of state bureaucracy operation. It serves political authorities as a tool to decrease or eliminate the deviations between the volume (cost) of public estate production optimal from the political power point of view and the volume from the bureaucracy point of view. One assumes that political power tries to decrease the measure of liberty for administration by the expansion of control which will improve its own knowledge. It is impossible to ensure bureaucratic "production" at the level of political optimum; one supposes, however, that control is mostly rewarding. Control is understood as a self-evident and system component of the whole democratic system, even when the not negligible control costs are taken into account.



Recently much attention has been paid to the analysis of relations between wage development and labour productivity in transitional economies; this relation constitutes one of the factors of possible danger to their competitiveness. Attention is being paid not only by the relevant countries themselves, but also by various international institutions. This paper to a certain extent follows up these analyses.
The paper has two basic aims: to present a concise but at the same time relatively complex review of methodical procedures used for the quantification of the relation between wages development and labour productivity and its international comparison, and to characterize the position of the Slovak economy in this relevant field on the basis of the particular analysis of the development tendencies of this economy. Attention is focused not only on the investigation of the dynamics of the parameters followed, but also on the identification of their achieved level in comparison with other countries.
In the first - methodical - part of the paper the indicator of the unit cost of work (JNP) is the basic starting point for the quantification of the relation of wages and labour productivity. At the same time input data applicable for its quantification and various possible methods of their construction are characterized.
Current monitoring of JNP dynamics does not provide sufficient information necessary for an evaluation of how JNP development influences the competitiveness of the economy. Only the quantification of the dynamics of internationally comparable JNP (JNPMP) and detecting their relative dynamics (in relation to other, usually competing countries) after the method presented in this paper enables evaluation, whether the position of the monitored economy improves or deteriorates as for its competitiveness.
Considering the sizeable lag of the transitional economies behind the economically developed economies in wages as well as in labour productivity levels, and also systematically faster growth of JNPMP in transitional economies compared to economically developed economies, the paper focuses its attention also on the methodical problems linked with the recognition of the internationally comparable level of JNP.
The determination of an internationally comparable level of labour productivity is especially problematic. Adherence to the universally established principle - to express labour productivity for JNP quantification in comparable prices - is ensured in this case by the use of an indicator of purchasing power parity (PPP). The results reached on the basis of PPP utilization should be considered, however, as certain estimated values, which nevertheless approximate reality much more than the indicators based on currency exchange rates.
Gradual changes of the relative level of JNP (calculated on the basis of the recognized relative JNP level and continued monitoring of the JNPMP dynamics) can relatively comprehensively evaluate the intensity of the growing JNP influence on competitiveness. They do not reflect only actual changes in relative JNPMP, but also initial relations of their level.
In the second part of the paper presented methodical procedures are applied to the particular analysis of the JNP development in the Slovak economy, both on the national economy level and within the frame of the manufacturing industry.
Based on the approximate calculations one discovered that in the national economy of the Slovak Republic the JNP in 1997 reached about one third of the Austrian level, which is about 6 per cent points more than in the year 1993. The obtained results confirm to a certain extent that the Slovak economy has, above all in relation to the economically strongest partners, still a relatively large space for an increase of the relative level of JNP. One can estimate that Slovakia will, at the current relative JNP growth rate, reach 70% of the Austrian JNP roughly around the year 2010.
Analysis of the development of JNP in manufacturing industry is of primary importance for an appraisal of the influence of wage increase on competitiveness, since the manufacturing industry directly enters the foreign trade exchange. The paper characterizes JNP development in the Slovak Republic in the years 1993-1997 and compares it with the development in selected CEFTA countries; at the same time it traces the JNPMP level in monitored countries compared to the Austrian level.
Some results follow.
The difference between Slovakia and the economically developed countries measured by the levels of comprehensive hourly labour costs (ÚNP) in the manufacturing industry still remains extraordinarily wide - in the year 1996 the hourly ÚNP in Slovakia compared to Germany reached only one tenth, compared to the EU average about 15%, compared to Portugal (EU country with the lowest hourly ÚNP) somewhat more than 50%.
In the year 1993 in the Slovak manufacturing industry compared to Austrian manufacturing industry (after the calculations of P. Havlik [16]) labour productivity reached 39%, yearly wages 6.7% and JNP 17.2%; our calculations suggested that during the years 1994-1997 relative JNP in this branch increased by 50% and in the year 1997 reached roughly 26% of the Austrian level. The growth of relative JNP can be witnessed also in the Czech Republic (34%) and in Poland (18%). In Hungary, on the other hand, relative JNP in manufacturing industry dropped during the monitored period, also due to currency exchange rate changes, by almost 30%.
In all monitored CEFTA countries the relative level of JNP in manufacturing industry, which was fairly differentiated in 1993 (17.2% in Slovakia and 36.9% in Hungary) reached during the years 1994-1997 virtually the same level - about one quarter of the Austrian value.
Irrespective of the necessary approximation, the analysis of the relative level of JNP for the Slovak national economy and particularly for the manufacturing industry shows that wages development at the existing relative level of JNP should not endanger competitiveness of the Slovak economy to such an extent that could lead to an external unbalance.
The hot-bed for the latent external unbalance creates a whole complex of problems and limitations which prevent particular subjects to assert themselves in the international trade exchange. One can hardly solve these problems by the attenuation of wage increases only. The focal point in the process of increasing Slovak export performance definitely lies in a long term economic policy aimed at the support of structural adaptation processes and application of technical and technological innovations as the basis for the acceleration of labour productivity growth. The pressure to maintain low levels of wages can obstruct this process to a certain extent - thanks to this, entrepreneuring subjects can assert themselves in the foreign markets, at least momentarily, without systematic efforts to innovate production and to invest in human capital.



The paper starts from the fact that external and internal unbalance are features which are mutually interconnected by numerous quantitative and causal links.
From the purely numerical point of view external unbalance is quantitatively equal to the aggregate internal unbalance. That is to say, if one consumes more than is produced at home, missing resources can arrive only from abroad.
Much more important and complicated than quantitative connections are causal links. Identification of focal points where primary impulses of unbalance start, recognizing whether they primarily start at home or abroad, unwinding the complicated tangle of related causal links represents the first precondition of successful economic and political measures that should correct the unbalance.
As for the unbalance factors which originate autonomously at home, the paper is not limited to global views of the economy alone, but analyzes also the development of household and public administration consumption as well as the development of gross fixed capital formation and tries to identify where in the CEFTA countries and in which of these spheres primary unbalance impulses acted in the years 1995-1997.
In the household sphere in Hungary before the year 1995 and in the Czech Republic before the year 1997, consumption grew faster than the resources produced at home (GDP); anti-crisis programmes are thus aimed also at household consumption restriction, which one considers as correct. There has been a considerable household consumption growth in Slovenia, and in the years 1996-1997 also in Poland. Household consumption in Slovakia, on the other hand, cannot be considered a factor of unbalance.
However, such an important problem of whether households represent a primary focal point of unbalance cannot be answered on the basis of consumption development alone. One should consider also further factors, among them relations of the growth of productivity and real wages. These relations too developed unfavourably in Hungary and in the Czech Republic before the adoption of anti-crisis programmes. On the other hand, from this point of view, one can describe the development in Slovakia on the whole as acceptable.
As for public administration consumption, this can be denoted as an unbalance factor in Slovakia: its share in the GDP is high and in the year 1996 extreme increases took place. This share was high in Hungary too, but has decreased considerably as a result of anti-crisis measures. One cannot indicate public administration consumption as a primary focal point of unbalance in other countries analyzed.
As for the gross fixed capital formation, its excess cannot be identified solely on the evaluation of GDP share or on the basis of its growth rate comparison with the GDP growth rate; the urgent need for technical reconstruction in transition economies substantiates the adequately higher investment growth rate in comparison with the GDP growth rate. In spite of this, however, it is obvious that the scope of investments in Slovakia and the Czech Republic is excessive and represents a primary focal point of the internal unbalance.
The paper states that many factors acting autonomously in the sphere of foreign economy and influencing external, and indirectly, also internal unbalance, have been sufficiently analyzed in literature. The paper therefore deals in detail only with selected aspects:
- "subject" weakness of domestic enterprises,
- some difficulties in penetration into western markets.
After privatization many domestic enterprises (with the exception of those with prevailing foreign participation) appeared low experienced, weakly equipped with capital, and entrepreneuringly less capable. A considerable part of privatized enterprises (usually in the form of Limited companies - Ltd.) as well as companies related to them prefer the improvement of "their own" property over the privatized enterprises; privatized enterprise is for them somehow second class property. "Tunnelling" occurs frequently. In general, the function of the owner is overestimated, other components of modern "corporate governance" are underestimated - management function is particularly underestimated. Pressure from public authority (Courts of Commerce, bankruptcy proceedings) to contribute to the improvement of entrepreneuring subjects is inadequate.
Enterprises with prevailing foreign capital participation are usually characterized by a high level of "corporate governance".
As for some difficulties connected with penetration into western markets and thus difficulties in providing external balance by normal means, the paper points out that today's level of protection by customs tariffs does not represent the main problem. The main problem is the phenomenon indicated as western protectionism. Mainly due to this protectionism the share of imports from CEFTA countries in the imports of EU non-member states is very low.
Multinational corporations exert a complicated influence on the balance of payment current account. The paper points out mainly the phenomenon of transaction prices, where the transfer of commodities inside multinational corporations is accounted. In numerous cases these prices are artificially decreased - thus enabling profit centralization in the headquarters of multinational corporations. In essence these prices are a sort of subsidized prices. They decrease export prices as a tax basis in the country where the filial company of the multinational corporation has its seat.
The paper deals further with the experience of Hungary and the Czech Republic in overcoming the unbalance.
The Hungarian concept was based on the drastic restriction of domestic aggregate demand - mainly household consumption. The paper points out considerable economic and social costs connected with this solution. One can appreciate as a positive aspect the fact that Hungary thus achieved considerable decrease of its external as well as internal unbalance. It is significant that two years after the start of corrective measures the growth of the Hungarian economy has been restored.
The Czech "packet" of measures to overcome unbalance is also aimed at the restriction of aggregate domestic demand, but unlike the Hungarian concept it contains measures (at least on the analytical level) for the increase of microsphere performance. It is too soon to evaluate whether the Czech way succeeds more in overcoming the unbalance with lower economic and social costs, compared to the Hungarian way.