ANNALS vol.10,nr.2(12) - USV [PDF]

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THE ANNALS OF THE "ŞTEFAN CEL MARE" UNIVERSITY OF SUCEAVA. FASCICLE OF THE FACULTY OF ECONOMICS AND PUBLIC ADMINISTRATION VOLUME 10, NO. 2(12), 2010

Editura Universităţii Ştefan cel Mare din Suceava

EDITORIAL BOARD: Editor-in-chief: Carmen NĂSTASE General editorial secretary: Adrian Liviu SCUTARIU Editors: Elena HLACIUC, Carmen CHAŞOVSCHI, Mariana LUPAN, Ovidiu Florin HURJUI SCIENTIFIC COMMITTEE: Angela ALBU, „Ştefan cel Mare” University of Suceava, Romania George P. BABU, University of Southern Mississippi, USA Christian BAUMGARTNER, International Friends of Nature, Austria Grigore BELOSTECINIC, ASEM, Chi şinău, Republic of Moldova Ionel BOSTAN, „Alexandru Ioan Cuza” University of Iaşi, Romania Aurel BURCIU, „Ştefan cel Mare” University of Suceava, Romania Gheorghe CÂRSTEA, Academ y of Economic Studies, Bucharest , Romania Slobodan CEROVIC, Singidunum University, Belgrade, Serbia Simion CERTAN, State University of Chişinău, Republic of Moldova Carmen CHAŞOVSCHI, „Ştefan cel Mare” University of Suceava, Romania Liliana ELMAZI, Tirana University, Albania Cristian Valentin HAPENCIUC, „Ştefan cel Mare” University of Suceava, Romania Elena HLACIUC, „Ştefan cel Mare” University of Suceava, Romania Elena IFTIME, „Ştefan cel Mare” University of Suceava, Romania Marian JALENCU, State University of Chişinău, Republic of Moldova Miika KAJANUS, Savonia University of Applied Sciences, Iisalmi, Finland Stefanos KARAGIANNIS, Institute of Tourism Research, Athens, Greece Maria MUREŞAN, Academy of Economic Studies, Bucuresti, Romania Carmen NĂSTASE, „Ştefan cel Mare” University of Suceava, Roman ia Alexandru NEDELEA, „Ştefan cel Mare” University of Suceava, Romania Ion PÂRŢACHI, ASEM, Chişinău, Republic of Moldova Rusalim PETRIŞ, „Ştefan cel Mare” University of Suceava, Romania Abraham PIZAM, University of Central Florida, Orlando, Florida Ion POHOAŢĂ, „Alexandru Ioan Cuza” University of Iaşi, Romania Gabriela PRELIPCEAN, „Ştefan cel Mare” University of Suceava, Romania Gheorghe SANDU, „Ştefan cel Mare” University of Suceava, Romania Petru SANDU, Elizabethtown College, Pennsylvania, USA Pavlo SHYLEPNYTSYI, Bucovina State Academy of Finance, Chernivtsi, Ukraine Doru TILIUŢE, „Ştefan cel Mare” University of Suceava, Romania Ion TORONCIUC, National University Yuri Fedcovici, Chernivtsi, Ukraine Viorel ŢURCANU, ASEM, Chişinău, Republic of Moldova Diego VARELA PEDREIRA, University of A Coruna, Spain Răzvan VIORESCU, „Ştefan cel Mare” University of Suceava, Romania Valeriy YEVDOKYMENKO, National University Yuri Fedcovici, Chernivtsi, Ukraine

Text review: Alina HODOROABĂ, Adrian Liviu SCUTARIU. Cover design: Adrian Liviu SCUTARIU

Contact: Faculty of Economics and Public Administration „Ştefan cel Mare” University of Suceava Str. Universităţii nr. 13, Corp H, Camera H108 720229 SUCEAVA, ROMANIA Phone: (+40) 230 216147 int. 294 E-mail: [email protected] Journal web site: www.seap.usv.ro/annals Faculty web site: www.seap.usv.ro University web site: www.usv.ro

Responsabilitatea pentru conţinutul articolelor revine în întregime autorilor. The authors are entirely responsible for the content of their articles.

The Annals of The "Ştefan cel Mare" University of Suceava. Fascicle of The Faculty of Economics and Public Administration

Vol. 10, No. 2(12), 2010

CONTENT

SECTION 1 - ECONOMY, TRADE, SERVICES .................................................................................................................................. 7 ROMANIAN ILLEGAL MARKETS IN THE CONTEXT OF THE CURRENT MACROECONOMIC EVOLUTION ........................................................................................................................................................................................................... 9 Scientific Researcher PhD. Irina CAUNIC „Al. I. Cuza” University of Iasi, Romania Professor PhD. Gabriela PRELIPCEAN Stefan cel Mare University of Suceava, Romania Doctoral student Florin Bogdan SUCIU „Al. I. Cuza” University of Iasi, Romania THE IMPACT OF MOBILE GOVERNMENT IN ORGANIZATIONS: PROMISES AND PITFALLS ................. 15 Ph. D. Professor Mircea GEORGESCU Business Administration Department, Alexandru Ioan Cuza University of Iasi, Romania SOCIAL POLICY AND SOCIAL WELLFARE IN SLOVAK REPUBLIC ........................................................................... 23 Iveta HAJDÚCHOVÁ Igor STADTHERR Technical University, Faculty of forestry, KERLH, Zvolen, Slovak Republic EUROPEAN DYNAMICS INFLUENCE ON WORLD CRISIS................................................................................................... 30 Professor PhD. Cristian Valentin HAPENCIUC Stefan cel Mare University, Suceava, Romania PhD. Student Elizabeth Lorena TCACIUC Stefan cel Mare University, Suceava, Romania THE EFFECTS OF TRANSITION FROM A TECHNICAL DIVISION OF LABOR TO A COGNITIVE INTERNATIONAL SPECIALIZATION ................................................................................................................................................. 39 Professor PhD. Ion IGNAT ”Al. I. Cuza” University of Iaşi, Romania Lecturer PhD. Liviu-George MAHA ”Al. I. Cuza” University of Iaşi, Romania TRANSNATIONAL COMPANIES AND FOREIGN DIRECT INVESTMENTS ............................................................... 45 Professor Ph.D.Maria MUREŞAN Academy of Economic Studies, Bucharest, Romania EDUCATION - AN ECONOMIC GROWTH FACTOR .................................................................................................................. 53 Associate Prof. PhD. Carmen NĂSTASE University “Stefan cel Mare”, Suceava, Romania Highschool Teacher Alina HODOROABĂ Technical College ”Petru Muşat”, Suceava, Romania STUDY OF SIGNALLING GAMES ON THE LABOUR FORCE MARKET OF EU-27, THE PURE STRATEGY CASE ............................................................................................................................................................................................. 61 Prof. Ph. Stelian STANCU Prof. PhD.Tudorel ANDREI PhD Candidate Oana Mădălina PREDESCU PhD Candidate George Viorel VOINESCU Academy of Economic Studies, Bucharest, Romania CHANGES OF INNOVATION BEHAVIOUR IN SLOVAKIAN FORESTRY .................................................................... 71 Mgr. JUDr. Zuzana DOBŠINSKÁ Technical University Zvolen, Slovakia Ing. PhD. Zuzana SARVAŠOVÁ National Forest Centre Zvolen, Slovakia doc. Dr. Ing. Jaroslav ŠÁLKA Technical University Zvolen, Slovakia ROMANIA’S INVESTMENT POLICY ................................................................................................................................................... 81 Lecturer PhD.Oana CHINDRIS-VASIOIU The Ecological University in Bucharest, Romania COHESION POLICY AND GREEN ECONOMY .............................................................................................................................. 88 Professor PhD. Florina BRAN PhD. Cristina POPA Associate Professor PhD. Carmen Valentina RADULESCU Bucharest Academy of Economic Studies, Bucharest, Romania

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ASPECTS REGARDING HISTORICAL EVOLUTION OF INTERNATIONAL FINANCIAL FLOWS.................. 93 Lecturer PhD. Carmen BOGHEAN Lecturer PhD. Florin BOGHEAN Ştefan cel Mare University of Suceava, Romania LANDMARKS OF REGIONAL DEVELOPMENT IN THE E.U. .............................................................................................. 99 Assistant PhD. Student Adrian Liviu SCUTARIU Ştefan cel Mare University of Suceava, Romania Highschool Teacher PhD. Student Lucia Hedviga PASCARIU Cooperation Highschool Botoşani, Romania ASPECTS CONCERNING ECONOMIC AND FINANCIAL PERFORMANCES OF SUBSIDIARIES OF TRANSNATIONAL COMPANIES ACTIVE IN ROMANIA ...................................................................................................... 109 Lecturer PhD. Daniela PÎRVU Adjunct Professor PhD. Logica BĂNICĂ Assistant PhD. Candidate Alina HAGIU University of Piteşti, Romania THE CRISIS INFLUENCE ON THE UNEMPLOYMENT EVOLUTION ........................................................................... 118 Assistant PhD. Student Gabriela-Liliana CIOBAN “Ştefan cel Mare” University of Suceava, Romania PhD. Student Costel-Ioan CIOBAN “Alexandru Ioan Cuza” University of Iaşi, Romania EXCEEDING THE RESTRICTION IN AGRICULTURE, ECONOMICAL SPEAKING AFTER ADHERING TO THE EUROPEN UNION ....................................................................................................................................................................... 124 Professor PhD. Dorina ARDELEAN Lecturer PhD. Marius BOIŢĂ University Vasile Goldiş Arad, Romania COMPARATIVE ECONOMETRIC ANALYSIS ON THE EVOLUTION OF TOURISM TRAFFIC IN PRAHOVA AND BRASOV COUNTIES ................................................................................................................................................ 130 Professor, PhD. Marian ZAHARIA Petroleum-Gas University, Ploiesti, Romania Associate Prof. PhD. Rodica Manuela GOGONEA Academy of Economic Studies, Bucharest, Romania IPSAS AGRICULTURE – PROBLEMS OF A START .................................................................................................................. 136 Lecturer Cristina Silvia NISTOR Babes Bolyai University, Faculty of Economics and Business Administration, Cluj Napoca Assistant Andreea CIRSTEA Babes Bolyai University, Faculty of Economics and Business Administration, Cluj Napoca Diana COZMA IGHIAN North University, Baia Mare, Romania INFLUENCE OF BRAND NAME ON CONSUMER DECISION MAKING PROCESS- AN EMPIRICAL STUDY ON CAR BUYERS. ......................................................................................................................................................................... 142 Assistant Professor Mohammed ALAMGIR University of Chittagong, Bangladesh, Bangladesh Lecturer Tasnuba NASIR University of Science and Technology Chittagong (USTC) Associate Professor Mohammad SHAMSUDDOHA University of Chittagong, Bangladesh Associate Professor Ph.D. Alexandru NEDELEA Stefan cel Mare University of Suceava, Romania IMPLICATIONS OF THE EURO ADOPTION IN THE EU COUNTRIES. CASE STUDY: SLOVAKIA vs SLOVENIA ........................................................................................................................................................................................................... 154 Assistant PhD. Student Anamaria HLACIUC ”Stefan cel Mare” University of Suceava, Romania SECTION 2 - MANAGEMENT AND BUSINESS ADMINISTRATION ............................................................................... 160 GLOBAL CRISIS AND MICROCYCLICITY .................................................................................................................................... 161 Professor PhD. Aurel BURCIU “Ştefan cel Mare” University of Suceava, Romania EVALUATION OF INTER-GENERATIONAL KNOWLEDGE TRANSFER BY USING THE ANALYTIC HIERARCHY PROCESS (AHP)................................................................................................................................................................ 176 Professor PhD. Constantin BRĂTIANU Lecturer PhD. Adriana AGAPIE Academy of Economic Studies, Bucharest, Romania

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MOUNTING E-WASTE OF EUROPE: POLICIES, MANAGEMENT PRACTICES, AND BUSINESS SOLUTIONS ........................................................................................................................................................................................................ 185 Associate Professor PhD. Ildiko IOAN Associate Professor PhD. Carmen Valentina RADULESCU PhD. Cristina POPA Academy of Economic Studies, Bucharest, Romania TWO PERSONALITIES, TWO SOLUTIONS FOR BUSINESS DEVELOPMENT IN ROMANIA: ROBERT KIYOSAKI OR JIM COLLINS?................................................................................................................................ 194 Professor PhD. Gheorghe NEGOESCU “Ovidius” University, Faculty of Economic Sciences, Constanţa, Romania BUSINESS INCUBATORS. EFFECTIVE MEANS TO SUPPORT PRIVATE INITIATIVE ..................................... 201 PhD. Professor Dănuţ Tiberius EPURE Teaching Assistant Dorinela CUŞU „Ovidius” University of Constanta, Romania OPTIMIZATION OF HUMAN RESOURCES FUNCTION THROUGH KNOWLEDGE MANAGEMENT .... 208 Associate Prof. PhD. Carmen CHAŞOVSCHI Assistant PhD. Student Ruxandra BEJINARU Assistant PhD. Student. Otilia BORDEIANU University “Stefan cel Mare” Suceava, Romania SECTION 3 - ACCOUNTING - FINANCES ........................................................................................................................................ 216 THE ACCOUNTANT PROFESSION: EVOLUTION AND RUPTURES. THE BIRTH OF THE ACCOUNTING PARADIGM ...................................................................................................................................................................... 217 Professor Dr. Rusalim PETRIŞ Professor Dr. Elena HLACIUC “Stefan cel Mare” University of Suceava, Romania SYSTEMIC APPROACH TO THE FUNCTIONS OF PUBLIC FINANCES - A NECESSITY FOR THE ROMANIAN ECONOMY ............................................................................................................................................................................. 228 Professor PhD. Carmen COMANICIU Junior Teaching Assistant PhD. Student Liliana BUNESCU "Lucian Blaga" University of Sibiu, Faculty of Economic Sciences, Sibiu, Romania ESTIMATING THE COST-VALUE RELATIONSHIP USING INSTRUMENTS OF MANAGEMENT ACCOUNTANCY .............................................................................................................................................................................................. 235 Professor PhD. Iuliana GEORGESCU Professor PhD. Dorina BUDUGAN PhD. Student Laura CRETU Alexandru Ioan Cuza University of Iaşi, Romania THE ANALYSIS ON THE PREPARATION DEGREE OF THE EASTERN EUROPE BLOCK STATES TO ADOPT THE UNIQUE CURRENCY ...................................................................................................................................................... 241 Lecturer PhD. Student Anisoara Niculina APETRI Profesor PhD. Gheorghe SANDU Lecturer PhD. Irina Stefana CIBOTARIU Stefan cel Mare Univesity, Suceava, Romania RATIO BETWEEN ACCOUNTING PRINCIPLES AND INTERIM FINANCIAL REPORTING ......................... 250 Assistant PhD. Student Claudia-Elena GRIGORAS-ICHIM “Stefan cel Mare” University of Suceava, Faculty of Economics and Public Administration THE MANAGEMENT OF THE FINANCIAL AND NON-FINANCIAL IMPLICATIONS OF THE SALARIES GROWTH.............................................................................................................................................................................................................. 255 Assistant PhD. Student Irina CHIRITA Assistant PhD. Student Raluca ZOLTAN University „Stefan cel Mare”, Suceava, Romania SECTION 4 - LAW AND PUBLIC ADMINISTRATION .............................................................................................................. 263 RECENT BENCHMARKS ON WAGES IN THE NATIONAL PUBLIC SYSTEM*** ................................................. 264 Lecturer PhD. Alunica MORARIU ,,Ştefan cel Mare” University of Suceava, Romania MEDIATION IN COMMERCIAL CONFLICTS .............................................................................................................................. 270 PhD. student Marcela SLUSARCIUC “Stefan cel Mare” University of Suceava, Romania

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CURRENT GUIDELINES IN THE FIELD OF ADMINISTRATIVE CONTRACTS ..................................................... 278 Lect. PhD. Liana-Teodora PASCARIU University „Ştefan cel Mare” Suceava, Romania THE ROLE OF NGOs IN EUROPEAN GOVERNANCE ............................................................................................................. 284 Lecturer PhD. student Ciprian UNGUREANU Lecturer PhD student Nicoleta IONESCU FLOREA Lecturer PhD. student Gabriela NEGRU "Ştefan cel Mare" University of Suceava, Romania THE APPLICATION OF THE LEGALITY PRINCIPLE IN THE ADMINISTRATIVE ACTIVITY IN THE EUROPEAN UNION COUNTRIES ......................................................................................................................................................... 290 Lecturer PhD. Student Dumitriţa FLOREA (IONESCU) Junior Assistant Alina LARION University”Ştefan cel Mare” Suceava, Romania BOOK REVIEW ................................................................................................................................................................................................ 297 INSTITUTIONAL ECONOMISTS’ TERRITORY – Professor PhD. Ionel BOSTAN ............................................ 298 INSTRUCTIUNI UTILE PENTRU AUTORI / AUTHOR GUIDELINES............................................................................. 301

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SECTION 1 ECONOMY, TRADE, SERVICES

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Vol. 10, No. 2(12), 2010

ROMANIAN ILLEGAL MARKETS IN THE CONTEXT OF THE CURRENT MACROECONOMIC EVOLUTION Scientific Researcher PhD. Irina CAUNIC „Al. I. Cuza” University of Iasi, Romania [email protected] Professor PhD. Gabriela PRELIPCEAN Stefan cel Mare University of Suceava, Romania [email protected] Doctoral student Florin Bogdan SUCIU „Al. I. Cuza” University of Iasi, Romania [email protected] Abstract: Illegal markets constitute the source of income for organized crime. In the context of contemporary illegal market conditions, it needs to be noted that with the restrictions of national borders declining and the increasing mobility of goods, money and services, transnational business opportunities have created new global markets. The globalization of trade facilitated access of foreign markets and the advantages offered by technological innovations led many enterprises to expand their activities across international borders. Key words: illegal markets, drug trafficking, trafficking in human beings, smuggling of persons, cigarette smuggling. JEL Classification: E26

INTRODUCTION Analyzing the criminal sphere with certain methods for drawing the economic component from a series of activities such as drug trafficking, human trafficking, and so on, represent a particularly difficult scientific approach due to lack of knowledge of the phenomenon` real extent. The main causes of the emergence and expansion of organized crime have roots in economical nature, as the driving force is given, in this case, by the possibility of obtaining significant income in relatively short periods of time. Currently, organized crime is considered by experts the economic branch having the fastest expansion in the world. According to calculations the annual profit made by these networks is estimated between 500 and 1500 billion dollars, the most profitable industries being related to illicit drugs or weapons trafficking [1] (Engvall, 2006, p. 827). Opening borders facilitated the movement of people and goods, driving the free market in Romania, but also crime. Both the illicit activities composing the hard core structure of the underground economy and those carried out lawfully have some common features, among which may be mentioned: • expansion into new markets; • achieving / maximizing a profit from the sale of goods or services; • diversification of investment in new technology or human resources to increase profits. The article 1 of UN Convention against organized crime includes in the concept of organized crime the following issues: the activities of a three or more persons group, with hierarchical links that allow their leaders to achieve profits or control territories and domestic or foreign markets, using violence, intimidation or corruption, both to support the criminal activity and to infiltrate the legitimate economy, in particular, through:  illicit trafficking in drugs or psychotropic substances and money laundering;  human trafficking,  illicit trafficking in weapons, nuclear materials;  illicit trafficking in stolen vehicles;  smuggling.

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1. THE ILLICIT TRAFFICKING IN DRUGS OR PSYCHOTROPIC SUBSTANCES International drug trafficking is one of the major illegal business, representing the main attribute of the cross-border organized crime networks. Globalization has led to an increase of the commercial activities carried on both on the legitimate and especially illegal markets, the dynamics of the latter being largely determined by the balance between profitability and the large risks involved. The illegal revenues are significant, an example in this matter concerning those obtained from the drug industry [2.] (Laegreid, 2004, p. 4.). In recent years, the illegal drug trafficking saw an unprecedented escalation in Romania, due to the particular context of the markets liberalization or the movement of people and as a result of extending the phenomenon on new areas, both among producers and consumers. From the assessments made results that our country is mainly a transit area and only a part of the quantity of these drugs remained in Romania for consumption. Meanwhile, Romania has become also a storage area, where the drug entered especially the southern border are stored in different periodes and finally are directed to high-consuming countries in Western Europe [3.] (Guvernul Romaniei, 2005, p. 8). Romania is an active segment of the Balkan route for trafficking drugs, route that includes Turkey, Bulgaria, Romania (by customs Negru Voda, Vama Veche, Giurgiu, Bechet., Nadlac, Bors or Petea), Austria, Holland and Great Britain. A second section crosses eastern Romania, drugs coming out of the country through Ukraine reaching the Poland-Germany or Slovakia-Czech Republic, finally being consumed on the western European markets [4.] (Alexandru, 2006). In recent years, the case law claims that it is predicted to develop routes for the synthetic drugs coming from West (Netherlands, Belgium, Germany) to the East (Romania), but also from the North (Baltics, Ukraine) for the synthetic drugs (amphetamines, MDMA, LSD and others), which would become active in Romania. Relatively stable nature of the routes does not exclude other options concerning the Romanian territory, their detection depending to a large extent of the involved institutions ability in combating illicit drug trafficking and consumption and, most importantly, how they cooperate with the similar institutions located in other states [5.] (Guvernul Romaniei, 2005, p. 8). Heroin and cocaine are considered, overall, the most important drug in terms of involvement of organized criminal groups or local funding conflicts [6.] (United Nations Office for Drug Control and Crime Prevention, 2000, p. 33). In Romania, the most common drug is heroin, large quantities being brought by the Turkish and Iranian citizens by trucks, trains or buses. In Romania, the prices on these markets depend on the drug consumed, the purchased quantity and its quality [7.] (United Nations Office for Drug Control and Crime Prevention, 2000, p. 33) as shown in the table below: Table no. 1. Prices on the drug markets in Romania Name No.

Retail Price (per gram) /US$

Wholesale Price (per kilogram) / US$

2007

2007

1.

Cocaine

137

58.920.3

2.

Opium

22

4717.6

3

Heroin

50.3

20.553.6

4.

Cannabis (herbal)

8.9

1918.3

5.

Amphetamine 13.7

6849.3

6.

Ecstasy

16.4

5.032.1

7.

Marijuana

8.9

1.918.3

Source: UNODC, World Drug Report 2009: Section 3.4 Prices, pp. 215 - 234, June 2009. http://www.unodc.org/documents/wdr/WDR_2009/WDR2009_Statistical_annex_prices.pdf.

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Recent estimates of the international institutions (such as United Nations International Drug Control), claim between 300 and 500 billion of dollars come annually from drug transactions worldwide. In Romania, the supply of drugs is influenced by a number of risk factors, among which may be mentioned [8.] (Guvernul Romaniei, 2005, p. 9):  geographic location at the intersection of the main traditional routes used by the international drug traffickers and also, since 2007, our country is the eastern border of the European Union;  increasing the flow of immigrants to Romania and other European Union member states,  the development of trade through the border points, with consequences on decreasing the time control;  increasing the drug use and, in particular, the synthetic drugs use;  involvement in corruption of public officials who have direct responsibilities for border control activities;  the proliferation of terrorist networks interested in obtaining funds from the illicit drug trafficking;  the insufficient cooperation between the responsible institutions in reducing the drug supply. In this context, the main trend concerning the local phenomenon of the drug crime reffers to: continuous change of used routes and the types of trafficked drugs, according to the illicit market demands, the diversification of the money laundering methods, (revenues resulting from the illicit drug operations), increasing the number of drug users and in particular, of those who prefer the amphetamines and cannabis [9.] (Guvernul Romaniei, 2005, p. 9). Currently in our country, the institutional system of drug supply reduction occurs in a competitive way and not in a complementary one and requires an effective coordination, along with the reshaping the staff involved, taking into account the operational situation, the professionalization of staff, improving the institutional cooperation, allowing an adequate response to changing drugrelated organized crime and the management in partnership of the information resources. 2. TRAFFICKING IN HUMAN BEINGS The phenomenon has recorded positive dynamics especially in the last ten years and is considering setting up networks in several countries for the exploitation of women, children and immigrants through prostitution, begging, theft, forced labor, and so on. After the December 1989 events, the literature highlights even in Romania an increase in activities of human trafficking, illicit operations facilitated primarily by the persons mobility, the developing of transport routes and induced by factors such as globalization and scientific or technical progress. These illegal markets developed, especially in areas affected by economic crisis, characterized by high vacancy stressed workforce, as shown in Table 2. Table no. 2. Regions in which there were recorded cases of trafficked victims No.t.Historical regions R1 N-E 1. R 2 S-E 2. 3. R 3 South Muntenia 4. 5. 6. 7. 8.

Number of Cases - 2005 - Percentage 197 14.8% 288 21.7% 194 14.6%

R 4 S-V Oltenia R 5 Banat R 6 N-V R 7 Centre R 8 Bucharest TOTAL

168 36 146 159 139 1327

12.7% 2.7% 11.0% 12.0% 10.5% 100%

Source: UNICEF, Raport Evaluarea Politicilor privind Traficul de Fiinte Umane in Romania, p. 63, http://www.unicef.ro/&files/evaluarea-politicilor-privind-traficul-fiinteleor-umane-din-romania.pdf

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Analyzing the existing data in this table, we observe that the numerous cases of trafficked victims were recorded in the S-E region (Constanta, Tulcea, Braila, Galati, Buzau, Vrancea), in Moldavia and the South of Muntenia (Prahova, Dambovita, Giurgiu, Ialomita, Teleorman, Arges. They are followed closely by Oltenia (Mehedinti, Olt, Dolj, Gorj and Valcea) and center zone (Mures, Alba, Harghita, Covasna, Brasov, Sibiu). According to the competent authorities reports, victims come mainly from the rural areas or poor families, being involved in this system by the means of attractive job offers, such as dancers, models, maids and so on. In Romania, the dynamics of human being trafficking is influenced by several factors of risk exposure, which is closely related either to social institutions (family) or legal institutions, among which may be mentioned [10.] (UNICEF, 2006, p. 80):  family and communication among its members;  local community affairs, particularly the youth employment problem, but also, the general problem of the unemployment;  low social capital, low trust in state institutions as an educational deficit consequence;  willingness to violate certain rules in the case of immigration or the risk emigration apperception. Those persons who acted illegally to the Romanian border (on both input and output) were mainly originating from: India, Bangladesh, Iraq, Pakistan, Turkey, Georgia, Moldova, Liberia, Morocco, Algeria, Cote d Ivoire,Russian Federation, China, Sudan, Congo, Nigeria, Chechnya, Venezuela, Serbia and so on. Thus, foreigners coming from countries with trend of migration (Indians, Iraqis, Afghans, etc..) use the following routes to reach the West [11.] (Guvernul Romaniei, 2006, p. 23):  Afghanistan - Iran - Iraq - Turkey - Bulgaria - Romania  Afghanistan - Iran - Iraq - Turkey - Bulgaria - Serbia - Croatia, at the same time remaining active the eastern routes. The traffic developed for sexual exploitation is the most common form of trafficking, where the victims are sold both within and outside the country in order to maximize profits, exploring new markets and avoiding controls exercised by the authorities. Human being trafficking generates substantial profits for the organized crime networks, profits that can be invested in both the traffickers origin or destination country [12] (Europol, 2009, p. 10) as shown in the below table. Table no. 3. The costs of human smuggling and trafficking charged by the European networks Routes

The average costs s in US$

1. Europe-Asia

16,462

2. Asia-Europe

9,374

3. Europe - Australasia

7,400

4. Africa - Europe

6,533

5. Europe – America

6,389

6. America - Europe

4,528

7. Europe - Europe

2,708

Source: Melanie Petros, The costs of human smuggling and trafficking, Global Migration Perspectives, No. 31, April 2005, p. 4, http://www.gcim.org/attachements/GMP%20No%2031.pdf.

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Analyzing the existing data it appears in this table that the most expensive route concerning the human being trafficking and the illegal migration is Europe - Asia, with an average cost of US $ 16,462. We consider that in order to make more visible the phenomenon of trafficking in persons and also to dismantle the existing stereotypes regarding the trafficked victims, it is necessary to intensify the awareness campaigns, especially by presenting more case studies. Moreover, according to the scholars, the presentation of case studies is the only technique that can change the existing perceptions and social attitudes regarding the human being trafficking. 3. CIGARETTE SMUGGLING With the European Union integration, Romania has become both a transit country and a destination for smuggled cigarettes, carried out with great intensity on the eastern, northern and southwestern country borders. Specialists in the field claim that high taxes imposed by the authorities in this industry have created a black market redirecting billions of dollars in the organized crime or extremist networks accounts [13] (Fleenor, 2003, p. 13). Organized crime groups traditionally involved in illegal drug trafficking have realized the potential of cigarette smuggling, in that it can be achieved equally high income and, in addition, it isn` t so strongly anti-social, the illegal activity undertaken in this context. Studies based on the government documents and interviews with the experts from the responsible institutions showing an inextricable link between smuggling and the criminal groups, a voluntary connection, not infrequently consented by even the producing cigarette companies. The cigarette smuggling profitability is based on a simple operating mechanism, but very difficult to refute by the competent authorities as the sale of these products is absolutely legal. Modus operandi is to acquire a considerable amount of cigarettes in the countries with low taxes and then selling them with discount in other regions avoiding the high duties applied to such products [14] (Horwitz, 2004, p. A1). The most common method of smuggling used in Romania is buying cigarettes from neighboring countries, especially from Ukraine and Moldova, where these goods are cheaper, and their subsequent placement in Romania, hidden in specially designed places. According to the Customs Police, cigarette traffickers are organized in real criminal groups with ties within the country and abroad and even at the border area, each of them having clear and specific responsibilities. We appreciate that an important element in having a real image of the phenomenon scale is given by the manufacturing companies reported losses in this industry. Generally, in this industry, the opportunity to obtain significant illegal revenues is marked both by the tendency in saling the counterfeit cigarettes, and the increase of saling these products on the Internet. According to officials of the European Commission Anti - Fraud Office, the cigarette smuggling is widespread in many EU Member States, Britain and Germany being the largest markets of contraband cigarettes as shown in Table 4. Table no. 4. Contraband cigarettes markets in the European Union Markets

1. Great Britain 2. Germany 3. Greece 4. Poland 5. France

Contraband % of fees cigarettes consumed paid by (million sticks) market 18,672.0 36.6 15,555.3 12,447.0 11,735.3 6,915.7

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6. Cech Republic

5,000.0

21.3

7. Romania

4,761.0

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8. Austria 2,700.0 19.9 Source: Euromonitor International, Illicit Trade. In: Global Report: Tobacco – World, 2008.

In Romania, the actions undertaken by the authorities has considerably increased in the recent years, multiplying the cases of contraband cigarettes seizures, while, in the early 2010, the manufacturers of tobacco industry appreciated the one billion euro losses because of the cigarette smuggling. The criminal groups involved in the tobacco industry obtain significant amounts of money they use to corrupt and intimidate, which is generating destabilizing consequences on the flows of money and exchange markets. CONCLUSION Continuing to gather information on the financial sources of the organized crime groups can serve both as a operational support to responsible institutions and in analyzing the long-term evolution of this phenomenon. We consider that in the current context, it became necessary to establish a complete image of the illicit activities composing the hard core of the underground economy in Romania, and achieving a better understanding of these networks evolution. Also, cooperation between states and, in parallel, establishing a severe legislation in this area are also, viable solutions to prevent and combat the illegal markets. REFERENCES: 1. Alexandru, D., “Moartea albă“ înghite miliarde de euro, Revista Bilanţ, nr.21, iunie 2006. 2. Engvall, J., The State Under Siege: The Drug Trade and Organised Crime in Tajikistan, Europe-Asia Studies, vol. 58, nr. 6, September 2006; 3. Fleenor, P., Cigarette Taxes, Black Markets, and Crime, Policy Analysis, p. 13, February 6, 2003; 4. Horwitz, S., Cigarette Smuggling Linked to Terrorism, Washington Post, June 8, 2004. 5. Laegreid, R., The Links between Transnational Organized Crime & Terrorism: A theoretical framework and a case study of the Liberation Tigers on Tamil Eelam (LTTE), SIS-794: Substantial Research Paper, April 29, 2004. 6. Petros, M., The costs of human smuggling and trafficking, Global Migration Perspectives, No. 31, April 2005, http://www.gcim.org/attachements/GMP%20No%2031.pdf. 7. *** Euromonitor International, Illicit Trade. In: Global Report: Tobacco – World, 2008; 8. *** Europol, Trafficking in Human Beings in the European Union: A Europol Perspective, June 2009, http://www.europol.europa.eu/publications/Serious_Crime_Overviews/Trafficking%20in %20Human%20Beings%20June%202009.pdf. 9. *** Guvernul Romaniei, Strategia Nationala Anti-Drog Romania 2005-2012, Bucuresti 2005, http://www.unicef.ro/&files/strategia_nationala_antidrog_2005-2012.pdf. 10. *** Guvernul Romaniei, Migratia si Azilul in Romania, Bucuresti, martie 2006, http://ori.mai.gov.ro/api/media/userfilesfile/ProiecteStrategii/Migratia%20si%20azilul%202006.pdf. 11. *** UNICEF, Raport - Evaluarea Politicilor privind Traficul de Fiinte Umane in Romania, martie 2006, http://www.unicef.ro/&files/evaluarea-politicilor-privind-traficulfiinteleor-umane-din-romania.pdf. 12. UNODC, World Drug Report 2000 / 2009, New York, NY: Oxford University Press, http://www.unodc.org/documents/wdr/WDR_2009/WDR2009_Statistical_annex_prices.p df. 14

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THE IMPACT OF MOBILE GOVERNMENT IN ORGANIZATIONS: PROMISES AND PITFALLS Ph. D. Professor Mircea GEORGESCU Business Administration Department, Alexandru Ioan Cuza University of Iasi, Romania [email protected] Abstract: The new developments in ICT along with the growth of mobile communication have developed new ways of interaction between the governments and the citizens. More and more governments are using information and communication technology especially Internet or web-based network, to provide services between government agencies and citizens, businesses, employees and other nongovernmental agencies. The paper try to present an introduction on the characteristics of mobile government and some major issues that justify the necessity of the mobile government and identify the potential that it possesses, but also the problems that concerns such an activity (trust, security risks, privacy risks). Adoption of mobile technologies by government organizations not only benefits the parties who use these services, but also has a positive impact in the productivity and costs of these organizations. Keywords: E-government, m-government, e-trust, mobile technologies

JEL Classification: H11, O33, O 38

INTRODUCTION Ideas about e-government sometimes amount to not a great deal more than government as usual plus information and communication technologies. The waves of e-government are rising through public organizations and public administration across the world. More and more governments are using information and communication technology especially Internet or web-based network, to provide services between government agencies and citizens, businesses, employees and other nongovernmental agencies. If we want to speak about m-government first of all we must define e-government. It is defined as “the use of information and communication technologies in public administrations combined with organizational change and new skills in order to improve public services and democratic processes and strengthen support to public policies” [COM, 2003]. E-Government does not mean:  to equal digitalisation with modernisation;  to replace analogous bureaucracy by digital bureaucracy. Almazan and Gil-Garcia after reviewing different ways to present the stages of egovernment, propose the following model : Table no. 1. Evolutionary approaches to e-government assessment: an overview E-Government Stage Presence

Information

Interaction

Additional Technological and Organizational Sophistication           

Limited government information; Few Web pages developed by single agencies; Static information about government structure and services More dynamic information (frequent updates); Greater number of web pages; Statewide portal as the entry point with links to most of the state pages; Forms that can be downloaded; Two way communication through electronic mail; Use of search engines; Use of chats, forums and other forms of interactive communication (service related); Some customization (citizen’s profiles, use of passwords)

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Transaction



Integration

  

Political Participation

   

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Online web services (secure and completely online), including accepting electronic payments; More customization ( use of passwords, citizen’s profiles); Portal organized according to people’s needs instead of government structures Service portal with a single checkout point o Multiple agencies, same function, different levels of government; o Multiple agencies, different functions, same level of government; o Multiple agencies, different functions, different levels of government. Political participation; Online public forums; Opinion surveys; Online voting.

E-GOVERNMENT VERSUS M-GOVERNMENT But, how can we define M-government? Mobile government definitions given in the literature vary slightly. Many authors describe m-government as “a functional subset of all inclusive e-government” [Arazyan, 2002], that vision saying also, that technologies used for m-government “are limited to mobile and/or wireless technologies” [Llalana, 2004]. For others authors, mgovernment “is a complex strategy for efficient utilization of all wireless devices” [Zalesak, 2003] with the goal of improving benefits to the parties involved in e-government. In conclusion, m-government may be defined as a strategy and its implementation involving the utilization of all kinds of wireless and mobile technology, services, applications, and devices for improving benefits to the parties involved in the e-government including citizens, businesses, and all government units. It`s clearily that m-government is not a replacement for e-government, rather it complements and completes it. M-government is building upon e-government efforts, and there are basically two important issues related to the transition from e-government to m-government [Kuscu, Kushchu, Yu, 2007]:  M-government is inevitable. The most important reason concern the citizen`s rising expectations for a better and convenient government services;  M-government is complementary to e-government (some of the m-government services are replications of e-government services on the mobile platforms). According the literature review [Yu, Kushchu, 2004] [Cilingir, Kushchu, 2004] the principles differencies between m-government and e-government are:  Convenient accessibility and availability:  One of the most important characteristic of mobile devices is they are always “on line”;  Mobile devices are designed to be mobile, that means the user carried them all the time;  The two characteristics mentioned means that citizens can use the online governmental services not only anytime but also anywhere.  Precision and personalisation of the delivered content  Mobile devices are used generally individual, we do not share this devices like a personal computer – that means we need personalized informations;  These type of devices is more friendly and familiar for the users, and the user don`t need specific skills.  Larger and wider user base  Practicaly the mobile devices offers a biger potential number of users of m-government comparative to Internet user community. Even smaller towns operate their own Web site with access to general public information, whereas larger cities and institutions generally offer a wider range of more developed Web based 16

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services. The quality of these services can vary significantly, for example, in rural areas, they have limited financial, technical and human resources in order to implement and deploy services with the same quality as large institutions [Leenes, Svensson, 2002]. So, we can conclude that the deployment of an open service platform, that can be shared by networked authorities and institutions in terms of technical resources as well as comercial exploitation, would armonize the quality of public services, and provide the conditions for low cost of m-government services. For developing m-government services a number of conditions are very important:  critical level of of mobile phone penetration;  reasonable cost of phone calls and text messages;  the liberalization of telecommunication sector,  distributed infrastructure to support mobile technology penetration. When we talk about m-government, we talk also about mobile tecnologies. The underlying technologies are dealing with four basic concepts of mobility [Roggenkamp, 2007]:  device mobility – deals with the continued access to services while beeing spatially mobile, moving from one physical location to another (granted for example via locally Wireless LAN access points or via standards such as GSM);  user mobility – the citizens must be mobile without physical constraints, the only requirement is to utilize an identification module;  service mobility – anytime, anywhere. More appropriately, this concept includes the idea of service delivery regardless of device and user specific settings;  session mobility – describe the capability of starting, pausing if it` necessary, and resuming a user session while switching between devices and /or services. When we try to improve the new Information and Communication Technologies for the citizens, we must answer at some important questions:  How technologically feasible are user wishes/needs?  What are the interdependencies between technological solutions and usage?  How can technology adapt to these needs/interdependencies? Despite substantial, increased investment in information technologies, no significant increase in productivity was observed. We can appreciate, we need a relatively long period for the benefits of IT investments to become discernible. Asignificant variability exists across organisations in regard to their ability to productively use information technologies. Therefore performance reflects processes and strategies as well as IT investements. Besides the reengineering of administrative processes to reduce bureaucracy and to improve the quality of government services, the implementation of m-government solutions requires organizational and citizen changes. Centralization vs Decentralization

Structures vs individuals

Team working

Profiles, skills, competences

Traditional vs Modern channels of Communication

Organizational change

Involvement processes

Traditional vs Elearning processes

Leadership processes

Figure no. 1. Organizational and citizen changes for successful M-Government 17

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M-Government have the ability to connect previously unconnected areas, information, and services from the government. It extends the benefits of remote delivery of government services and information to those who are unable or unwilling to access public services through the Internet, or who simply prefer to use mobile devices. In addition, the relatively lower cost of mobile phone technology versus Internet technology has drastically lowered the entry barriers for citizens in developing countries to be connected to government services. Mobile phones could be considered now as key technologies in adapting egovernment policies and programs. The actual model of mobile phones allow citizens to get access to government services virtually in any place covered by a mobile network. For example, Singapore's mobile penetration rate has reached a high of 98%. Today, the mobile phone can be used to access information and transact with Goverment while on the move. As part of the Mobile Government strategy, Singapore government has made many mobile services available to the citizens so that they can transact with the government while on the move. What are the services that government could delivered via mobile phone? Are they traditional services or new services? We can include in m-government services relating to:  health,  education,  employment,  police,  tax,  judicial and legal systems, etc. In the last years, payments and financial services are also possible through mobile phones, which drastically expands the opportunities to incorporate m-services into the everyday lives of citizens. Another important sector that mobile phone technology can also considerably expand is edemocracy and e-participation, engaging citizens in democratic decision-making through various polls, m-voting, and other forms of communication between citizens and the government. The United Kingdom and Switzerland have pioneered m-voting in local elections. In Asia, Korea leads the way in m-voting through its use in the selection of Presidential candidates. It is now estimated that 94% of countries in the world have some form of online services. The degree of e-government programs varies greatly from country to country but is continuing growing, like the Mobile conectivity versus Internet conectivity varies also with advantage for Mobile conectivity. M-GOVERNMENT PERSPECTIVES

Figure no. 2. Internet conectivity versus Mobile conectivity 18

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Why is increasing the demand for mobile services? There are several factors that year by year are vectors in this area [Riley, 2008]:  the convergence of wired internet and telecommunication networks, allowing information once only available on a computer to be received through mobile phones;  the penetration of mobile technology and the relative low cost of entry into mobile connectivity;  the shift towards higher data transfer rates and 3G services which promises to make more information available at faster speeds. However, the debate advantages/disavantages of M-Government, must start from some key questions, studied in the phase of designing mobile government.

Figure no. 3. Key questions when designing mobile government Carrying around a mobile has its advantages and its risks. Probably, one of the most enduring policy issues is privacy. In the development of e-government practices and principles over the years, privacy and security have become key factors to ensure success of online programs. Beyond privacy there are the security issues on a broader scale, where we are seeing the rise in spam, spyware, ad-aware, phishing, identity fraud and a host of other hacker activities (good or bad) that make people uneasy when going online. Citizens have a great concern about the privacy and security in m-government. The general issue is the convincement that their mobile phone numbers might be traced, when they send their opinions and inquiries to the government. The government must overcome the mistrust, and assure mobile users that people’s privacy is protected and the information will not be sold to third parties. Wireless networks are still considered vulnerable because they use public airwaves to send signals. For the success of M-Government strategy there are important barriers that are the key policy and technical issues that must be addressed in order to successfully implement the egovernment initiative.  Technical Barriers: 19

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 Security;  Digital Signatures;  System Maintenance & Integration;  Transition & Systems Interface;  Online Payment Setup.  Financial/Economic Barriers:  Start Up Costs;  Transaction Costs.  Other Barriers:  Customer Expectations;  Staff Availability, Training, Expertise;  Language Barriers;  Universal Access. Also, lack of standards and optimized data exchange protocols in mobile and wireless environments inhibit the potential of m-government. In this regard, developing a coherent mgovernment framework in the public sector is an important factor. Most of the European countries placed e-government services development high on their agenda. But even though the initiative is in its peek, the recent survey shows lack of awareness about m-government among the citizens. In this fashion, the development of m-government standard unites innovation of architecture, technology, feasibility and citizen’s education and awareness.

Figure no. 4. Government success In ICT promotion There are many benefits by using m-government, both for public sector and for citizens. In next table Casalo, Gunaliu and Flavian summarize the benefits associated with the implementation of m-government [Casalo, Gunaliu, Flavian, 2007].

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Table no.2. Benefits associated with the implementation of m-government Benefits for the public sector The public sector can reach citizens more easily and directly. Consequently the gap between the public sector and citizens is reduced It could be possible to carry out the public services more efficiently There is an enhancement of the image and reputation of the public administration Citizens commitment to their environment and to the public sector is increased

Benefits for the citizen The cost for the citizen in time and effort when interacting with the government is reduced as the gap between the two is decreased The citizen can interact with the public sector 24 hours a day, 365 days a year Public activism is promoted The variety of services offered by the public sector to the citizen can be increased Citizen mobility is ennhanced: the opportunity of accessing government information and services regardless of location or time is increased

A common mobile public services framework must first and foremost incorporate the following five principles [Antovski, Lj. & Gusev M.,2003]:  Interoperability;  Security;  Openness;  Flexibility;  Scalability Interoperability is based on bilateral agreements in which the rules for communication are defined for each new system that is connected. The core of interoperability is the stipulation of common data models and common protocols for exchanging data. The openness of the system is considered on several levels: open standards, open interfaces, open specifications and open source codes. Scalability should be built into a system from the start. It is important to be able to maintain both the functionality and efficiency of the solution if the need changes, for example in respect of user numbers, transaction volume or data quantity. Modularity and scalability must also relate to the nature and scope of the work. The data exchange format is based on the exiting XML standard. CONCLUSIONS In order to foster a successful implementation of m-government, the following key success factors emerge:  Descentralization for local m-government diffusion;  Central government support to local projects in order to promote standardization;  Soft skills, in particular leadership and communication;  Skills enhancement on the job rather than formal training;  Early involvement of people both internal and external;  Horizontal organizations and bottom-up approaches, but with strong commitment of top management. In conclusion, when implementing new technologies, governments should not force citizens to upgrade their current devices, but rather smart small with applications using current technologies and current bandwidth for data transfers or services. Starting small, but thinking big – basic mgovernment applications should be cornerstones of wireless strategies for governments worldwide. REFERENCES 1. Almazan-Sandoval, R., Gil-Garcia, R. (2006), E-Government Portals in Mexico, in Encyclopedia of E-Commerce, E-Government, and Mobile Commerce, Idea Group Reference, USA; 21

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2. Antovski, Lj., Gusev, M., (2003), M-Government Framework, at http://www.mgovernment.org/resurces/euromgov2005/PDF/5_R368AL.pdf, accessed 19.07.2010; 3. Berce, J., E-Government a window of opportunity for EU NMS, 2005, at http://fiste.jrc.es, accessed 02.07.2010; 4. Capra, E., Francalanci, C, Marinoni, C., Soft success factors for M-government, in Kushchu, I., Mobile government an emerging direction in e-government, IGI Publishing, London, 2007; 5. Casalo, L., Flavian, C., Giunaliu, M., M-Government initiatives at the local level: the case of Zaragoza, in Kushchu, I., Mobile government an emerging direction in egovernment, IGI Publishing, London, 2007; 6. Chien-Chih, Y., Janssen, M., The need for strategic management and business model design in government and public administration, Electronic Government, an International Journal, vol 7, Number 4 / 2010 7. COM, The role of egovernment for Europe`s future, Communication from the Commission, COM (2003) 576 final, Commission of the European Communities, September 26, Brussels, 2003; 8. EGov Monitor, from 11 february 2008, Privacy and Mobile Technologies: What are the risks, By Thomas B. Riley, Commonwealth Centre for Electronic Governance, Canada 9. Leenes, R., E., Svensson, J., S., Size matters – Electronic service delivery by municipalities? in the Proceedings: Electronic Government: EGOV 2002, Aix-enProvence, France, Edition Springer, 2002 10. Roggenkamp, K., Its` the Mobility, Stupid: Designing Mobile Government, in Mobile Government: an Emerging Direction in E-Government, IGI Publishing, New York, 2007; 11. Song, G., Cornford, T., Mobile Government: Towards a Service Paradigm in the Proceedings of the 2nd International, Conference on e-Government, University of Pittsburgh, Pittsburgh, USA, 2006, at http://mobility.grchina.com/ICEG_2006_paper.pdf, accessed 1.08.2010; 12. Sørensen, C. (2003) Research Issues in Mobile Informatics: Classical Concerns, Pragmatic Issues and Emerging Discourses, LSE, http://mobility.is.lse.ac.uk/html/downloads.htm; 13. http://www.insead.edu/v1/gitr/wef/main/fullreport/index.html.

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SOCIAL POLICY AND SOCIAL WELLFARE IN SLOVAK REPUBLIC Iveta HAJDÚCHOVÁ Igor STADTHERR Technical University Faculty of forestry, KERLH Zvolen, Slovak Republic Abstract: This article deals with social welfare question in Slovak Republic in historical context of social policy development as well as with analysing conditions for implementation of social welfare after Slovakia joined European Union. Our preface brings a survey of basic terminology related to social policy and social welfare. The first part focuses on historical development of social policy and social welfare. The second part and the conclusion describe principles applied to social welfare through social insurance and indicates problems with rising levies, going to the national budget, and other problems with social funds usage and fulfillments. Key words: social policy, social insurance, levies to insurance funds JEL Classification: H55

PREFACE In last decades there has been an abiding conviction that the mechanisms of free market based on general access to information with no protection of the government interests, represent the guarantee of rising productivity on the market as well as in whole economy. Lately it is more likely that free market mechanisms are not successfully used for collective goods. Due to that fact and because of its heterogeneity, public sector represents the main guarantee and the provider. This can be applied to various social phenomena such as: unemployment, poverty, social exclusion that are being permanently unsolved and differently interpreted. Even economic sciences are not rigid and consensual when presenting their opinions about development rate of “social guarantee” so that they would keep and improve economic development of national and perhaps even global economy. “ Social policy determines objective, legal, institutional assumptions and conditions for economic development by setting positive working and living environment for creating economic values, mainly by means of education policy, housing policy, health policy, employment policy etc. naturally appearing in human activity and as well as cultivation.” Nowadays mainly in consequence of the recession and unfavourable demographic development, it is necessary to discuss the theme of social welfare realised through social insurance. This article deals therefore with social welfare in SR in context of historical development of social policy as well as conditions for implementation of social welfare after Slovakia joined European Union. HISTORICAL DEVELOPMENT OF SOCIAL WELFARE Social welfare is an organic part of social policy, being the means of goals and tasks realisation in social policy. State economic policy is closely related and linked to social policy. State social policy is closely related and linked to social policy which provides sources and impulses for its development. The models of social development in the state are shown in chart no.1.

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Mercantilism (15. – 16. century) 1. WELFARE STATE State of public social services (16. – 19. century) Classical economy /18th century/

2. SOCIAL STATE Classical social state (the end of 19th and the beginning of 20th century)

LIBERAL MODELS Social charakter of state

INTERVENCIONALISTIC MODELS Social charakter of state

3. PROSPERITY STATE Prosperity state (2nd half of 20th century) Nekonzervative economy (70.s – 20.th century) 4. MODERN SOCIAL STATE Modern social state (beginning of 21st century

Figure no. 1 . The models of social development character in the state Since the 90’s of the last century European social policy follows the action programs also known as the Green and White Book (1993, 1995), which recommends certain social “convergence“. In the years 1992-1999 the process of social policy development, affected by two different principals, included in the contract of European Society (ES) following the Maastricht Treaty (1992) and Amsterdam contract of social policy (which Great Britain did not attend), based on the principles of European Social Charter (1961,1996) and Charter of Fundamental Labor Rights (1989). Social policy and social security in EU countries is apart from above stated normative adjustments influenced by the social policy of individual countries from European economic area (EEA) and mainly by international organisations such as the United Nations Organisation, the International Labour Organisation and the Council of Europe. SOCIAL POLICY OF SLOVAK REPUBLIC According to the model of Modern social state, the social policy character of Slovakia could be classified as transitive middle European type, focusing at maintaining employment and development of economy, where the state represents a guarantee of minimal social network and a partial employer. Nowadays the social policy and the social welfare in Slovakia are implemented according to the act § No. 461/2003 Coll. relating to social insurance legislation, defining social insurance, its scope, legislation, organisation and state supervision upon administration and legal actions in social insurance cases. This does not apply to Police Forces, National Security Authority, professional military soldiers and emergency soldiers whose social welfare is modified according to specific regulations. The act preserves established Social insurance and its administration. However, the act has been amended several times enlarging the scope of social insurance for unemployment benefits 24

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payments and pension insurance. The latter was divided into a 2nd pillar pension saving system and a 3rd pillar old-age pension saving system. Social Insurance governs various types of social benefits illustrated in Table 1. Table no. 1. Types of social insurance Type of insurance Sickness insurance:

Pension insurance:

Accident insurance:

Guarantee insurance:

Unemployment insurance:

Reason for insurance Insurance in case of income loss or reduction or providing income as a result of temporary sick leave, pregnancy and maternity leave. Old age pension is an insurance providing income at retirement age and in case of death, - Invalidity pension is an insurance in case of reduction of capacity to perform gainful activity due to a long term unfavorable health condition and in the case of death - The benefit provided to a damaged employee or death because of the work accident, occupational disease. - The insurance in case of the employer ´s insolvency - The benefit is provided for the employee to contribute to basic fund for pension insurance - Insurance in case of losing job and income resulting in unemployment and therefore the unemployment benefit is provided

Social Insurance revenues are mainly levies paid for social insurance, annuity assurance and other benefits from national budget of the Slovak Republic. Other revenues are those coming from the assets of social insurance as well as administrative funds. Increases of the revenues is due to increasing minimum and maximum base of assessments, which serve as the bases for the calculation of fund levies. Table no. 2. Insurance funds revenues Revenue in billions Sk Revenues in ordinary year - for sickness insurance - for pension insurance - for invalidity insurance - for accident insurance - for guarantee insurance - for unemloyment insurance - for solidarity reserve fund - other revenues and revenues from administration funding

2004

2005

2006

2007

2008

114,98

113,25

135,01

147,66

159,46

10,01

8,23

9,43

10,28

11,82

68,59

58,76

74,72

80,30

83,36

13,94

20,49

22,18

24,71

27,81

2,48

2,87

3,07

3,42

3,79

0,54

0,85

1,04

1,45

1,55

6,28

6,25

6,64

7,36

8,28

7,13

15,38

17,47

19,59

22,16

6,01

0,42

0,46

0,55

0,69

Social insurence expenses comprise of social insurance and annuity assurance benefits; benefits for accident insurence and unemployments benefits. Administration funding has been established for the financing all costs related to all activities of the Social Insurance Intitute. On the

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basis of expenditures level it is clear that the highest expenditures are benefits for old age pension, early old age pension and invalidity pension. The amounts of incomes and expenditures are given in regular values without inflation. The following table shows regular year expenditures of Social Insurance, without transferring incomes from previous years. Table no. 3. Expenses from insurance funds Expenses in billions Sk Expenses in ordinary year - basic fund for sickness insurance - basic fund for pension insurance - basic fund for invalidity insurance - basic fund for accident insurance - basic fund for guarantee insurence - basic fund for unemloyment insurence administration fund

2004

2005

2006

2007

2008

111,89

120,96

132,19

145,59

152,79

4,76

4,74

5,32

6,03

7,42

71,87

89,13

98,16

107,49

115,68

27,95

20,16

21,80

24,65

20,86

0,49

0,71

0,93

1,07

1,09

0,09

0,70

0,73

0,93

1,01

3,99

2,47

1,93

1,80

1,99

2,74

3,05

3,32

3,62

4,74

Expenses paid for fund benefits went beyond the revenue limit only in the year 2005. In other years the expenses are closely below the yearly limit of the revenues from the levies paid to Social Insurance. Comparison of revenues and experes of insurance funds

200 150 100 50 0

2004

2005

expences mld. Sk

2006

2007

2008

 revenuesin year

Figure no. 2. Comparison of revenues and expenses of isurance funds. INSURANCE PAYMENT Base assessments for Insurance Levy relate to the amount going to insurance funds, not only for the employee but also for the employer, relative to the gross wage of the employee. In fact, not all the taxable revenues are base assessments, for example revenues from the agreement concerning the job performance, jubilee benefit, in-work emergency fund payment, severance pay, retirement benefit, social fund payments. On the other hand, profit sharing is included in assessments even though they are not taxable.

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Base assessments are limited from the “top“. Maximum possible base assessments are used for sickness insurance and guarantee insurance nowadays amount to 1084,55€. The highest possible base assessment for pension insurance, invalidity insurance and unemployment insurance is the amount of 2892,12 €. There is no highest possible base of assessment set for an accident insurance. The employee pays from the base assessment together 9,4 % into sikness, pension, invalidity and unemployment funds. The employer pays together 25,2 % into the same funds as the employee, plus into a accumulated solidarity surplus, as well as guarantee and accident insurance. A retired person (beneficiary of old age pension or early age pension) does not pay either invalidity insurance or unemployment insurance) A retired person (beneficiary of old age pension or early age pension) does not pay either invalidity insurance or unemployment insurance. If the beneficiary of invalidity pension is not able to perform 70% of his gainful activity, he does not pay the insurance of unemployment. These levies are not even paid for him by the employer. Not all the free lancers have the compulsory insurance. Only half of the people, registered as free lancers in tax office, are obliged to pay insurance to Social Insurance. These payments depends on the their revenue earned in the previous year. Base assessments of freelancers is a half of the tax base levied in previous year (tax base = gross incomes lowered by legitimate expenses), while the amount is divided by months of entrepreneurship in previous year and could be lowered by life insurance payments. Base assessments are limited from the “top“ the same way as with employees. The freelancer pays from the base assessment together with 30,4 % for sickness, pension, invalidity insurance and reserve fund. A retired entrepreneur does not pay invalidity insurance. In contrast with the employees free lancers can have the lowest base assessment; nowadays it is a set amount 319,58 €. The lowest possible amount is then 96,90 € per month. This means that this amount has to be paid to Social Insurance every month also by the freelancer who had a higher turnover but in total made a loss or reached a symbolic tax base; this also applies when he or she pays the insurance as an employee. The social insurance is not paid from profit shares, bonuses paid by the owners of commercial companies, associations or members of statutory authorities as well as from the bonus for a Member of Parliament who is not being vacated from his legislative role, capital revenues (e.g. interests from deposits and loans), occasional revenues, (mandate contracts, contracts of artwork, other not named contracts), rent incomes and royalties. EXPECTED CHANGES IN SOCIAL WELLFARE Canceling the system of insurance funds will be considered after carrying out levy bonus, which will be paid by the citizens as the only solidarity levy. Compulsory system will stop being meritorious and will become fully solidarity. Existing benefits from social insurance will be replaced by a state social benefit set at the amount of minimum living wage. Special benefits will be paid to mothers with small children (an alternative to existing maternity leave and parental contribution) and invalids (an alternative to invalidity pension and other existing social contributions provided) Base of the assessment for levy bonus payment will be the same as the tax base of the employee. In gross income of the employee all taxable revenues will be included. A gross income of the employee will be increased by all the levies previously paid by the employer excluding guarantee and accidental insurance. For example, if the employee earns gross 1000 € per month after carrying out levy bonus he or she will have gross 1342 € per month. The base for tax calculation and solidarity levy will represent new gross income including an amount of levy bonus (state social contributions), which belongs to the employee and his family. From this base, solidarity levy will be calculated with the rate 9%.

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The employer will pay only guarantee insurance and accident insurance. At the same time a loss of the premium rate is expected due to a fact that nowadays the social funds are highly “profitable“. The base assessment of the freelancer will be the same as the tax base. It means that it will be an income lowered by legitimate expenses (levies will not be considered as legitimate tax expenses). The amount of levy bonus will then be added (to state social benefits) and it will belong to the freelancer and his family. The solidarity levy will be calculated with the rate 9% as for the employees. Concerning solidary levy calculation the base assessment will be limited. It can only go up to 10 times the minimum wage. The highest possible base assessment will then be 1 851,90 € per one month or 22 222,80 € per year. The highest possible amount for solidary levy that can be paid by the citizen per year will be approximately 2.000 €. If somebody has an income as an employee and as a freelancer at the same time, he or she will pay solidarity levy only once from the total base assessments. The lowest possible base assessments will not exist. The solidarity levy will be paid from all the revenues and all existing exceptions will be cancelled. The solidarity levy will be paid from all taxable incomes; this includes salaries of statutory authorities, bonuses of active partners, executive directors, from interests, occasional incomes, rent incomes or royalties. Base assessment will include profit sharing paid to personal entities. CONCLUSION Existing high insurance rates are excused because the system of the social insurance is meritorious. In principal a following rule for calculation of benefits is used: the higher the levies the higher benefits and vice versa. It means that if somebody pays the old age insurance from base assessments of 2 892,12 €; when he or she retires only the amount of approximately 2 200 € will be use in calculation. The system of social insurance consists of various funds but in reality it is only a smokes screen – every year the money from the surplus funds go to deficit funds. Implementation of the solidarity levy the role of existing social insurance will change a great deal. Solidarity levy says in its name that the meritorious-ness will not be present any more. The rate of these levies will be lowered by more than 50% in comparison to existing ones. In case of loss or no incomes, every citizen older than 15 years will be entitled to receive social benefits. The system with the only levy and simple rules will replace the existing complicated system of many funds and chaotic rates. There would be a possibility for the citizens to insure themselves against inability to work or loss of work with additional comercial insurance, voluntary sickness insurance and unemployment insurance should be preserved. The basic social security will be guaranteed by the state social benefit. Therefore the rates of voluntary insurance will be lower than the existing ones. BIBLIOGRAPHY: 1. Korimová, G. – Jakab, K. 2009. Basic values of modern social state. 2. Korimová, G. 2007. Assumptions for social economy . 3. JUSKO, P Basics of social policy II. issue. Banská Bystrica: Univerzity of Matej Bel, 2002. p.112. ISBN: 80-8035-575-3 4. KREBS,V. a kol. Scial policy. Praha: CODEX Bohemia, 1997. p. 328. ISBN: 80-8596333-7 5. MACKOVÁ, Z. and col. Basics of social security law. Bratislava: Prosperity, 2001. p. 299. ISBN: 80-968219-3-8 6. RIEVAJOVÁ, E. a kol. Social security. Bratislava: SPRINT – vfra Bratislava, 2006. ISBN: 80-89085-62-8 7. STANEK, V. a kol. Social policy. Bratislava: SPRINT – publishings, film and advertisment agency, 2002. ISBN: 80-88848-92-X 28

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8. ŠEBO, J. – ŠTRANGFELDOVÁ, J. Social security. Banská Bystrica: University of Matej Bel, 2008. str.30. ISBN: 978-80-8083-642-9 Summary This article we tried to discussed social welfare question in Slovak Republic in historical context of social policy development by analyzing existing conditions of social welfare after Slovakia. It brings a survey of basic terminology related to the topic: social policy and social welfare and the principles applied to social welfare through social insurance. We deal with existing high levies going to the national budget and other problems with social funds usage and fulfillment.

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EUROPEAN DYNAMICS INFLUENCE ON WORLD CRISIS Professor PhD. Cristian Valentin HAPENCIUC Stefan cel Mare University, Suceava, Romania [email protected] PhD. Student Elizabeth Lorena TCACIUC Stefan cel Mare University, Suceava, Romania [email protected] Abstract: Main aspect of the European economy is the one marked by the first stage of evolution of the global financial crisis. The main current problem for both the EU and each member state is making the calculation and analysis of complex issues arising from international economic crisis, towards identifying ways and tools useful for prevention or mitigation. Reform of EU budget in 2008/2009 is a key element within the period of European construction and its effects will be visible in the next financial perspective from 2014. Naturally, the return will not be uniform in all 27 Member States and will depend on financial and economic particularities of each country and meteorological factors. However, the Commission believes that EU economic recession ended in the third quarter of 2009, largely due to the exceptional measures for crisis imposed under the European economic recovery. Actual return will be more slowly, given the size and strength of the recession. Overall EU unemployment rate is approaching 10% in 2010 - a rate lower than anticipated - and the budget deficit is almost reaching 7.25% of GDP in 2010. Less optimistic news concerning among others - employment of working force will continue to decline by about 1% this year and will begin to rise than in 2011. Consumption also has not completely recovered. Although increases least, inflation is under control, partly due to wage stagnation. Keywords: crisis, economy, evolution, economic depression, crisis aftermath, economic outlook JEL Classification: G01

INTRODUCTION AND TOPICALITY OF THE THEME Term crisis was discarded in recent years because of overuse. Medicine, economics, psychology, sociology, diplomacy, international relations, etc.. each give different meanings of the concept of "crisis." The European economy is marked by the strong development of deep crisis and its effects on a strong shock recession and its member countries. The global economic crisis hit countries like Latvia, Hungary and Poland very much. Eastern Europe in recent years has been fuelled by large loans from Western banks. Now the good old days are gone, loans are not granted, the debts incurred shall be paid, and thus fill the crisis. Analysts are beginning to talk of a two-speed Europe. In fast Europe, those who have gone through the economic crisis with strong contractions, but moderate increases in deficit and uncomfortable. Daniel Tarullo, a U.S. Federal reserve governor, told the House subcommittee Congress that the crisis in Europe was a "potentially serious obstacle." Tarullo said financial turmoil in the worst possible case, but still unlikely - could lead to a resumption of freezing financial markets, witnessed in 2008." In the early nineties, no one would have suspected that strong Spain will be the locomotive of the crisis. Equally strong effects were poured and attributes on Greece, Portugal and Ireland. It is now possible that the whole Europe could contaminate by the "Greeks" crisis. Greece is regarded as an unprecedented event for a country that is part of monetary union, which is accused of falsifying their accounts. Greece's situation is not at this time, comparable to that of Spaniards. Nobody doubts the reliability of the Spanish government accounts, but some analysts have identified some common characteristics such as large public deficit, which raises fears that markets have put in the same package and criminalize the financing of Spanish public debt. Fears spread for a similar scenario as in Greece to Spain and Portugal, led to a decrease in confidence over the euro area, which in recent months has lost about 20 percent of its value. 30

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European countries and cultures seem to be too different to live under the same set of economic policies. While none of the European countries want American-style capitalism, some know better than others to manage their economic affairs in an orderly manner. Germany, Netherlands and Scandinavian countries, in particular, seem to be very good for sound economic management. Spain, Portugal, Italy and Greece fail to manage the smooth running of the economy, while France is in the middle - more competent than its neighbours in the south, but less efficient than the Germans. In Germany, inflation is associated with the two great disasters of the twentieth century. WWI Weimar inflation has led to devastating consequences poured on Germany, after World War II German currency became similarly worthless, and generations have lost their savings, for the Germans this event even today remains associated with the worst kind of irresponsibility and disaster. More investors need to understand that at least some countries of "PIGS" (Portugal, Italy, Greece, Spain) may not be willing or able to provide services or to pay existing debt. The spreading gap between the countries considered credit worthy offering that Germany and countries need credit and will pay interest. This is a political crisis for Europe, rather than a financial crisis, the only way "PIGS" have a rescue plan involving the Nordic countries led by Germany and France. Especially Germans, do not want to pay for some time because the Greeks were wrong and lied their way into the euro area, and for years have pursued selfish political and economic interests. Therefore, it is not normal for Germans that help the economy by paying up to 60 years, when the Greeks can retire at 55. DEVELOPMENTS OF EUROPEAN ECONOMY Studying the economic development of Spain looks like it is in a free fall in 2010, though now in the final quarter feels GDP growth but growth will nevertheless remain negative, between 0.1% and -1.1 %, "unless the Government will make structural reforms," predicted an economics professor at ESADE, Francesc Xavier Mena in a press conference. Mena also believes that Spain will not create jobs by 2013. Unemployment rates continue to rise in 2010, especially in the first quarter and more than 20% at the end of the year, double the global average. Spanish financial institutions, is facing "the most difficult year" and requires urgent merge, which will lead to a reduction of 25% of existing companies. In these conditions will be placed in the top rankings. Greek economy for the first time in sixteen years is caught between recession and financial meltdown. There were ineffective measures taken by government to tackle the crisis. In the first quarter of 2009, they lost 70,000 jobs, and despite the 28 billion offered by banks, this liquidity has not led to business support. Finally, the government implemented measures only managed to make even deeper recession, and worsen the financial crisis. Thus, growth this year will be negative the first time since 1993 and a deficit of around 6% of GDP, against a target of 3.7% and public debt will exceed 60 billion euro, against a target of 42 billion. These results represent the failure of government to strengthen public finances. The crisis left deep scars on Italy, with Greece having the largest debts in the EU. It has a debt of 1760 billion representing 117% of GDP. The dramatic reduction of jobs is another effect of the crisis that feels very hard and leading Italy to a place one immediately followed by Spain. Second place in the high number of unemployed, Spain has many unemployed youth - 85%, this imbalance is considered so serious that it calls for debate on the injustice between generations. In Italy there is no question of that debate, perhaps because it is not growing. Unemployment in Spain has followed a rapid avalanche leading to an increase of almost 20%, while the growth rate of unemployment in Italy was about two points above the European average (8.6% respectively) and less to the United States, which reach around 10%. 31

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In 2008-2009 the number of employees decreased by 11.6% aged between 15 and 24 years, fell 5.5% in the group age 25-34 years of older adults, working age has not experienced a recession on the number of employees which has actually increased. This happens because adults are employed for an indefinite period, and is very expensive to terminate such a contract regardless of the economic period. And it is due to the fact that it has the oldest population worldwide, according to CIA Yearbook, ranks third in the world (43.3 years), after Japan and Germany. International crisis in recent years is primarily the so-called economic crisis of paper. In many Western countries the crisis is also a crisis of "productive economy" and in this regard is very significant that the last decade, estimates the International Monetary Fund over the period 2000 2010 in 183 countries around the world, Italy, Portugal, Germany and Japan, respectively, occupy the fourth, seventh, eighth and ninth from the bottom, with a growth rate of 0.6 for Italy and 0.8 for the other three countries. German economy will grow by 3% in 2010, according to a review of the Bundesbank's forecast, issued in circumstances where investors have pushed up financing costs for borrowing by the government, under the new growth records. Germany is seen as an isolated success story in the euro area, with its status as a "safe area" reinforced after the negative estimates related to its surrounding countries and debt crisis that affected Ireland and southern European countries. The German government and its plan, is to reduce the budget deficit by 2013, from over 5% to 3% of GDP and by 2016 is going to reduce budget spending by 10 billion euro per year, to give an example to others countries in the euro area. Germany is also struggling with a large number of unemployed that came mainly from the production of cars. Following trials, the number of cars in 2009 fell by 750,000 to 4,700,000, while in 2010 the number of cars has fallen by 4.53 million. Portugal is facing a political crisis, is undergoing a debate regarding its budget. It recorded in 2009, a budget deficit of 9.3% of GDP but in 2010 it proposed cutting the deficit to 4.6% of GDP, in this case was forced to reduce costs and increase revenue by waiving the tax privileges and tax exemptions. Irish GDP fell at an annualized rate of nearly 5% in the second quarter, raising questions about the ability of the authorities in Dublin to generate sufficient tax revenues to reduce budget deficit. Ireland must pay over 4.5% more than Germany in order to borrow from the markets at maturities of ten years. Ireland, Portugal and Greece together represent only about 6% of GDP in the euro area, but the crisis in Greece in the spring showed the potential that even the small savings we have to arouse panic overall. Of the three, only Portugal's economy has advanced past quarter, although with an annualized rate of only 1%. The rest of the block appears to be largely a strong position. The region experienced an increase of almost 4% last quarter, although most economists expect a significant weakening of growth in this quarter and next quarter. Measures implemented to crisis: - Increasing the retirement age - Growth rate of VAT in Spain from 16 to 18% in Romania from 19 to 24% and in Portugal from 17.5 to 20 (in 2011) - Deficit reduction - Carry out bold and deep structural reforms to ensure a return to growth and future sustainability of public finances - Choosing the workplace to use one type of contract and create an emergency social pact to change the model of industrial relations, less centralized and closer to the company to lead to job creation. Greece took the additional steps: 1. To develop an enabling environment for private investment and entrepreneurship, a new culture in the business-friendly state and the society away from suspicion and mistrust which currently faces entrepreneurship and private initiative in Greece; 32

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2. Promoting a competitive tax framework for businesses to set tax rates low and stable levels of profits distributed in proportion to the countries of our region 3. Revival of private projects, foreign and domestic private investment and small and large infrastructure restart; 4. Formation of a national project in Greece for a new way to develop economic openness, based on value-added products and services, with objectives and a timetable and main lines of the areas which Greece has or can achieve competitive advantage; 5. Effective use of EU funds (10-12 billion €), which is stagnant government bureaucracy; 6. Normalization of Greece access to international capital markets and development of the liquidity situation on the Greek market; 7. Implement a comprehensive and bold plan for the use of large public assets, privatization, lease, rental and long-term strategic partnerships with the private sector. Public property in Greece is estimated at € 270 billion for use not only to reduce debt, but to strengthen growth prospects. In his speech, Financial Secretary, Mr John Sachinidis, developed the Government's economic policy program, which is based on three pillars: A. Financial Aspect, the goal is to reduce the deficit to below 3% in 2014. B. Opening of professions closed, eliminating 30 high barriers to entry and operation of enterprises, structural changes in social security, changes in labour relations, creating lasting and positive conditions for investment, a guide for policy interventions that will lead to long term economic development. C. The bank has already taken several measures to encourage healthy and strong capital base of banks. New program to support credit growth, by providing guarantees for the banking system worth 25 billion added to the programs already implemented in connection with the creation of the Financial Stability Fund. Conclusions: European economic prospects are not very optimistic. In Romania the economy relies on agriculture, leading to an increase in this sector over the next two years, this will lead to a reduction in construction and trade sectors. Inflation in the coming period will have a slightly downward trend.

Figure no. 1. Deficit developments in Romania In Romania has been reduced the budget deficit (as shown in fig.nr.1), which means a lot for the Romanian economy.

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Figure no. 2. Public debt developments in Romania External debt has grown during the installation crisis from 21.8 in 2009 to 27.4% of GDP in 2010 and is expected next year will grow by 2.9% (fig.nr.2), however Romania's public debt will remain one of the lowest in the European Union. 18

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Figure no. 3. Developments in the European Union deficit To reduce the deficit in 2011, Spain's austerity budget provides a 16 percent reduction in spending ministries and spending 7.9 percent of the state, outside the financial costs. It will also increase the tax on high incomes. Italy is the country that has the lowest budget deficit and has maintained such a trend. Greece has proposed in 2011 to reduce the country's budget deficit to 7.0 percent of GDP, exceeded the 7.6 percent target agreed in negotiations with the IMF and EU rescue. Spain had the most dramatic reduction of budget deficit, given that in 2012 plan to reach 3%. 2010

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Figure no. 4. Unemployment importance of most European Union countries 34

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Spain has the most disturbing number of unemployed, and the saddest is that 2011 is not a reduction in its forecast, more and more Romanian not returning home as jobs and the unemployment queues for aid are increasingly large. 140 120 100

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Figure no. 5. Evolution of public debt of the most important countries of the European Union Greece expects the economy to contract by 2.6 percent next year after falling 4.0 percent in 2010, staying in a recession for the third consecutive year. Evolution of GDP in the European Union Romanian GDP (-0.3%) did not follow the European trend of recovery as it had very slight growth in the first quarter of 2010 (0.2%) over fourth quarter 2009 - four times lower than U.S. rate economic recovery (0.8%). Compared to the first quarter of 2009, Romania’s GDP contracted by 2.5%, compared with 0.3% in the EU-27. In the first quarter of 2010 compared with the previous quarter, EU-27 GDP grew by 0.2% (in the U.S. increased by 0.8%); Also in the first quarter of 2010 compared with the first quarter of 2009, EU-27 GDP grew by 0.3%; Romania recorded a decline of 0.3% last quarter and compared to the first quarter of 2009 decreased by 2.5%. Romanian industrial production arose three times faster (3.6%) than the European average. CRISIS INFLUENCE ON THE DEVELOPMENT OF MILLENNIUM BANK IN ROMANIA Millennium Bank, a member of Millennium BCP Group, was founded in Romania on February 14, 2007 after receiving authorization for operation from the National Bank of Romania to conduct the full range of banking activities and, in particular monetary and financial operations. The Bank started its activity on Romanian market on October 11, 2007, simultaneous opening of 39 branches in Bucharest and in eight cities. Currently, Millennium Bank has 74 units in Romania addressed to individuals and companies through a wide range of products. In Romania, the Bank conducted banking and financial services to individuals and legal persons (internal and external customers), bank offering a wide range of services such as current account transactions, opening of deposit, VISA card issuing, funds transfer, mortgage loans, cash loans and other types of loans, financial leasing, operations and other documentation. Millennium BCP Group was founded in 1985 and operates in Portugal (the home), Poland, Greece, Romania, Switzerland, Mozambique and Angola. At the opening conference in Romania in 2007 Jose Toscano said: - The initial investment is 40 million and strategy development will be another 300 million to be invested by 2011 -Number of branches will reach 100 by the end of 2009 35

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- Assume a total loss of 140 million (-29 million euro in 2007, in 2008 - 45 million euro, from 2009 to 41 million euro and in 2010 to 25 million euro loss). - In 2011 the banking business will pass the 1 million euro profit and in 2012 will have a profit of 27 million. Banking activity has developed greatly during the period 2008-2010 and in this period the Bank has intensified its work and earns more and more customers. Unlike other bank, it has continued to credit the people and companies to layer-up to the present crisis. Loans grew from month to month and could be even higher if the 2009 would not have taken the decision to waive the financing personal loans with a higher risk. Granting this type of loan is best asked of the population and would have a greater volume of loans.

Figure no. 6. Evolution of monthly average volume of loans in 2008-2010 (in thousand RON) To calculate the monthly average volume of loans sold together each month and divided by the number of months. The monthly average has doubled in 2010 compared to 2008 this was due to the fact that it invested in media campaigns and brand promotion. Loan products offers were all reinvented and improved, and a great advantage in the placement of amounts is due also to trained and qualified personnel in various courses. The confidence gained by the bank during this period was demonstrated by the amounts drawn-saving, no one leaves his only savings but where it has full confidence. The amounts raised have led to an increase in customer base and popularity.

Figure no. 7. Evolution of monthly average volume of attracted sources in 2008-2010 (in thousand RON) Attracting resources is due to the fact that the bank charged an attractive interest rate, the evolution over the years has increased almost three times compared with 2008, and such amounts have been placed in funds raised. Millennium Bank's position has strengthened and increased in a time of crisis because it is part of a strong group with good management. 36

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In the period studied Millennium Bank has received the following stories: Products and services were very well received by both the public and by specialists in economics and finance. To this end, ATMs and ATMs Safe Deposit have been awarded at the Awards granted by the Financial Market in the category "Banking Product of the Year", and "Best Self-Banking solution on the market in Romania." Furthermore, in communication, Millennium Bank has received two Effie Awards - Gold for the campaign "Inspired Living" category "New Product” or "Service Introduction" and Bronze for the campaign to retail, "Rings" category Financial Loans. Project “Millennium Christmas Tree" developed in the winter of 2007, won the IAA for "the most grandiose event of the year." After only nine months of operation on the local market, Millennium Bank ranks among the top nine banking brand recognition indicator than assisted. Millennium Bank has assisted recognition of 71% and 17% spontaneous awareness, according to market research conducted by Daedalus Consulting / Millward Brown for Millennium Bank. The crisis has confused the work and proposed plans at the opening: - Expansion planned was reduced to 74 branches to be programmed as 100, it was decided to stop extending on the period of crisis; - In 2009, the Bank withdrew funding personal loans; - Number of employees reached 700, although was expected to reach 850; - The corporate team was reduced because the corporate lending segment was greatly reduced; - They retreated the cars for branches; - Set a budget for phones used by employees; - Was chosen to supply the branch ATMs are forgoing the specialist company; - Training courses have been made only to directors that they will take them to subordinates. CONCLUSIONS Millennium Bank during the crisis has gained notoriety and numerous reviews by products tailored to customer needs, continuously placing on the podium and compete with the strongest. I believe that its results would have been much better if the safety would not be abandoned personal loans that are in high demand and getting the most profit. You can offer under more restrictive rules, but still have the product on the shelf. The decision to open branches without cashier and fewer employees I think that was another idea that has not enjoyed much success. Firstly I think that no customer is happy to receive advice and gain confidence in a particular employee and then be sent to raise money to pay rates to another branch. Secondly, I think it is just not likely when a customer has to make a payment and send him to another branch. Bank management also understood this and in 2009 invested in making these types of branches in the branch for full time. They spent a lot of money and manpower to immobilize when the branches were closed. I consider that the decision of corporate withdrawal and reduction of credits team in this segment was wrong. Even if large companies were most affected by the financial crisis, they are the largest in banking and where banks refuse to help then it is clear that they do not like to go further. But this year they revised their work and began again to give importance to this segment. The measures they have taken have not affected employees regarding their wages, and it has to be a silence in this regard. Throughout this period the bank's management has invested in quality advertising and competitive products and made sure that its employees are being trained. Appearance of the bank, both inside and outside looks elegant and attractive, differs very much from its competition. I believe that this bank is successful because it increased its market share, asset value and reputation in a time of crisis.

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BIBLIOGRAPHY: 1. Armeanu, Stefan Daniel ; Stancu, Ion, cond. st.. Evaluarea riscului activitatii financiare cu aplicatii pe economia romaneasca. Bucuresti : A.S.E., 2005,cota 368.006 5 ARM, Sala Virgil Madgearu ; 2. Aglietta, Michel. Macroeconomie financiară: Finanţe, creştere şi cicluri. Crizele financiare şi reglarea monetară. Bucureşti: Coresi, 2001 3. Arnould, Daniel. Analyse des crises economiques d'hier et d'aujourd'hui. Paris: Dunod, 1989 4. Banca Nationala a Romaniei.Raport asupra stabilitatii financiare 2008. In : http://www.bnr.ro/ - Publicatii; 5. Băcescu, Monica. Globalizarea şi crizele financiare în tările emergente. În: Finanţe, bănci, asigurări: publicaţie pentru agenţii economici, mai 2004, v. 7, nr. 5 6. Bari, Ioan I. Restructurarea relaţiilor financiar-valutare internaţionale (teză de doctorat), Bucureşti: ASE, 2006, 195 p., cota 125504, Sala Virgil Madgearu; 7. Bari, Ioan I. Restructurarea relaţiilor financiar-valutare internaţionale (teză de doctorat), Bucureşti: ASE, 2006, 195 p., cota 125504, Sala Virgil Madgearu; 8. Belean, Pavel; Doba, Stefan. Deficitul bugetar: necesitate sau opţiune În: Economistul,februarie 2004, v. 14, nr. 1552, p. 8, 9. Blustein, Paul. The chastening : inside the crisis that roked the global financial system and humbled the IMF. New York: Public Affairs, 2001 10. Boscoianu, Mircea. Managementul crizelor pe pieţele financiare emergente. O abordare cibernetică (teză de doctorat). Bucureşti: ASE, 2003, 11. Feleaga, Niculae.Criza financiara la cumpana dintre secolele XX si XXI si guvernanta intreprinderii. In :Economie teoretica si aplicata, v. 13, nr. 9, 2006; 12. Managing fiscal stress: the crisis in the public sector. Chatham: Chatham House Publishers, 1980 13. www.lumeaestincriza.ro 14. www.cotidianul.ro/criza 15. www.crizafinanciara.com 16. www.wall-street.ro/criza-economica 17. www.mediafax.ro/economic 18. www.insse.ro 19. www.zf.ro/business-international

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THE EFFECTS OF TRANSITION FROM A TECHNICAL DIVISION OF LABOR TO A COGNITIVE INTERNATIONAL SPECIALIZATION Professor PhD. Ion IGNAT ”Al. I. Cuza” University of Iaşi, Romania [email protected] Lecturer PhD. Liviu-George MAHA ”Al. I. Cuza” University of Iaşi, Romania [email protected] Abstract: The evolution towards an informational society implied mutations in the competitive advantages of countries of the world, being advantaged those who produce goods with a high content of creativity, those who manage to fit in the modern patterns of international specialization and disadvantaged those who remain in traditional types. In the context of the increasing complexity of economy, the productive activity is oriented more and more to combining the specialized skills, requires strategies for the companies to rapidly acquire skills through a process of transforming information into knowledge. As a consequence, the very principle of division of labor will be renewed. It will transform from a technical and efficiency based sense to one based on competence and knowledge. Keywords: specialization, technology, cognitive, globalization, trade patterns JEL Classification: F10, F11, F16

INTRODUCTION In the last two decades of the XXth century and the first decade of the XXIth century in the world economy have emerged new economic and technical patterns which led to a evolution toward a society based on the use of technologies based on microelectronics, informatics, biotechnologies, new materials, Internet and other modern means of communication, a primarily informational society. The impact of the new technologies is, also, reflected in shifts in competitive advantages of countries of the world, being advantaged those producing goods with a high content of creativity. It raises new theoretical and practical questions about the optimal recovery of production factors, about the international specialization. The benefits of the international trade are not limited to international trade. Advantages or disadvantages arise as a result of flows of capital and labor, the last representing the trade with present goods to produce future goods. International trade with assets (equity or debt securities) enables each countries wealth diversification. Although, in general, all countries can gain from international economic flows, not all can benefit, because of the redistribution of income. Usually, there are advantaged the countries which manage to fit into the modern patterns of international specialization and there are disadvantaged those remaining in traditional ones. RESULTS AND DISCUSSIONS The very deep changes in global economics have occurred as a result of the process of renewal and modernizing of the economic structures in highly developed countries. The decisive moments in the acceleration of this process were "the Californian revolution of the microprocessor" and genetic engineering. These two represent, in the opinion of M. Richonnier, "the most spectacular component of a new technological revolution, announcing a third industrial revolution by itself' [4, p. 22]. The new industrial revolution has determined the restructuring of all production and consumption methods and has given birth to "the informational society, in which science, technology, educational and research staff play the key role" [4, p. 15]. The structural changes that have taken place in highly developed countries (USA, Japan, Western European countries) in the context of this revolution have had direct repercussions on the ways of participation to global labor division through such effects as: the increasingly extensive implementation of organological specialization models, the renewal and variation of inter and intra-

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disciplinary specialization topics, the appearance of a new stage in global labor division based on technological specialization, etc. The first effect derives from the fact that the structuring of production in a vertical way, on stages of the production process and on components of complex products, favors the involvement in the global labor division through specializations of an organological type. These are concerned with the typical components of products which were redesigned according to a modular concept. The standardizing and stylization of composing modules are designed in such a way as to allow the combination of the advantages of their production on a large scale based on automatization and robotization with the benefits of the variation of the range of end products obtained through their assembling. The renewal and diversifying of international specialization topics is due both to the redesigning of the technologies and production concept of traditional products and to the emergence of new activities and products. While certain industrial products which have become traditional continue to represent the object of international specialization of developed countries, they are obtained in an ever-growing proportion by the use of the new technologies that are specific to the third industrial revolution. The new technologies contribute to the revival of the steel industry, of the chemical industry, of electrical and telecommunications devices, of automobile production, etc. Nevertheless, within the new structures of international specialization of highly developed countries, the role of propulsion factor of foreign economic exchange, which has been played by the steel, automobile and chemical industries until recently, tends to be taken over by the new activities in the top fields. Out of the new activities, the largest amplitude and implications pertain to information technology, which has become a real industry in the center of which lies the electronic computer, as a "prototype of new products". Information technology, through the introduction of the microprocessor, has given a powerful impulse to telecommunications, air and space industry, electronics and microelectronics industries, to flexible systems production, to biotechnology, to semiconductors and new materials industries. In their turn, aeronautics and space ships industry have stimulated the production of new materials. These are obtained through the combination between some crystals of a certain metal in pure state (boron, etc.) and organic substances (plastic) or inorganic substances (silicone, glass, etc.). They are several times more resistant and lighter than usual metals (iron, aluminium, etc.) and are produced at lower costs. Referring to the importance of new materials, the director of the American design department of Air Force's Space declared that "the only huge progress of the past 300 years is the discovery of new space materials" [1, p. 31]. One of the consequences of the new materials and technologies is miniaturization, which is being practiced on an increasingly large scale not only by the USA and Japan, but also by the recently industrialized countries in South-Eastern Asia. According to P. Drucker, miniaturization determines a certain "decoupling" of the production of manufactured goods from the production of raw materials. This favors the modern ways of industrial specialization against traditional multifold models such as extraction-processing. Among other consequences determined by the evolution of the new technologies, several are worth mentioning here: the acceleration of the spread of information technologies, the compression of the economic environment, the technical and geographical restructuring of productive processes, the development of inter-company relations of a partnership type (involving various cooperative agreements and strategic alliances at the international level), the redefining of the ways in which the countries of the world insure their economic growth and development (rather associated with the new technologies than with the natural and energetic resources, production becoming more and more intensive in professional competences, etc.). These trigger essential changes in the principle of labor division, both at the company level and at the inter-company one. In the course of the expansion of information and knowledge technologies, we witness a de-multiplication of the capacity of transmission and processing of knowledge and information, as well as a process of specialization in these fields. Along the increase of the complexity of economic life, the productive activities are increasingly oriented towards the combination of specialized competencies. The rapid wearing off that competencies arc subjected to 40

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because of the acceleration of technical changes imposes on companies the elaboration of strategies for creating favorable circumstances for quick assimilation of competencies, through a process of transformation of information into knowledge. As a consequence of these changes at the company level, the principle of labor division itself will be renewed. It will evolve from a logical foundation based on technical skills and efficiency to one based on competence and knowledge. Thus, there will be a change from a technical or "taylorian" labor division to a cognitive labor division. The separation of the production activity will be increasingly based on segmentation in blocks of homogeneous scientific knowledge. This knowledge will be subjected to continuous and motivated evolutionary dynamics for the activity of research and transformation of information into new knowledge governed by a restrictive community of specialists. This new manner of separating economic activity according to the criterion of scientific competencies and knowledge is part of a logic for creating specific resources needed for use in a dynamic perspective, and not so much in the one of simple combination of production factors which is specific to the technical labor division. This change, although very unequal among different countries and economic sectors, will have determining effects on the regional and international localization of economic activity, including the economic relations among companies. Therefore, the determining factors of the international localization of activities envisaged by the cognitive labor division, will evolve from a logic based on comparative costs to a logic of the capacity for creating specific resources, or from a logic of combining generic factors to a logic of creating specific resources on a regional scale (meaning the subdivision of a country) or on an international scale. Any segment of the economic processes in sectors focused intensively on qualified labor and on scientific knowledge will only be located in regions whose benefits are not limited to the availability of generic factors (abundant and often poorly qualified workforce, natural resources), but are able to master the scientific training imposed by the new kind of labor division. (Generic factors are those which can be extended from one activity to another, while specific factors are those related to scientific knowledge which are more difficult to spread outside the frame of these scientific knowledge conglomerates and more easy to spread inside them.) Taking into account the lack of uniformity in spreading these new labor division patterns, there emerges the hypothesis that labor intensive sectors that are organized according to the taylorian labor division principle could now find their place in the process of regional integration, which will also cover countries that arc in the course of development, rather than in the process of globalization based on specific research and competencies. In other words, we may witness the coexistence of two types of capital and trade flow, each having its different nature [2, p.8]: a.) "globalized" flows among the highly developed countries of the Triad (USA, The European Union, Japan) and the newly industrialized countries of S-E Asia, which master elements of monopoly over specific competencies; these flows are largely related to the internal exchanges within the Triad; b.) "regionalized" flows among the countries which belong to the same regional area, with the possibility of extension to less developed countries, but which are endowed with different resources; the integrated areas may represent privileged locations for actions of international states and institutions with the purpose of favoring structural convergence of the member states (industrial and technological policies, financial transfers, investments in sectors that create foreign exchange, etc.), this kind of actions being able to favor the integration of less developed countries. Over the last decades, international specialization has developed within a context of ever increasing standardization of products, of targeting economies of scale, of configuring a relatively homogeneous demand and in an environment characterized by the capacity of companies to anticipate the quantitative variations of demand. On the other hand, in a more and more insecure environment, companies have had to cope with a dynamic flexibility, imposed by the changes in demand. Because of this fact, some important resources have been directed towards the field of information technology. This determining factor of international specialization is of a different nature than the factors which earlier facilitated economic exchanges among countries. The spread of

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technologies which involve these flexible processes has had two important effects capable of influencing the dynamics of comparative benefits: a.) a classical effect of technical progress - in terms of substitution of labor by capital, which entailed a decrease in work intensity of productive processes and, through this, of the relative importance of salary expenses in the manufacturing industry; b.) a specific effect related to the new information technologies - which made it possible to obtain different products at the same time, or at least to obtain large varieties of the same product, without involving high capital expenses. This has resulted in a change of the principle of labor division in production units, implying its evolution from a logical foundation based on technical skills and efficiency to one based on competence and scientific knowledge. The increasing role of information and scientific knowledge in the economic activity has determined a growth of the importance of production based on homogeneous competencies and sets of knowledge, which resulted in a functional reconstruction of productive processes. A selection of the relations among companies took place. Vertically structured integration, sub-contractual agreements and market relations are replaced by long term contracts or strategic alliances. These alliances will be organized within a coordinated network. From now on, the criterion of activity location will move from a motivational logic of benefits resulting from comparative costs to a logic of access to specific factors (qualified workforce, positive foreign relations, etc.) The effects of the technical changes favor the new specialization patterns; the criterion is not anymore simply restricted to cost minimizing. Companies will take into account more and more the access to specific factors which suppose the mastering of the necessary amount of scientific knowledge. This is the reason why countries whose only advantages are the availability of abundant and cheap workforce or of natural resources do not look attractive for the operations of dislocation performed by multinational companies. Dislocations continue to take place, but their determining factors take into account more and more the criteria of positive foreign relations, of quality, of competence and of costs. Moreover, the innovations of products which are necessary for intennediary consumption (new materials) generally favor exchange among highly developed countries and strengthen the positions of international specializations within the same field at the level of intennediary products. Thus, recent progress in the field of biotechnology already has repercussions over international trade in agricultural raw materials and first-line processed materials, among highly developed and poorly developed countries. New biotechnologies which appeared in the 70's and were spread in the 80's stand for a gcneric technology which influences numerous sectors of the economy in general and the agricultural and food industry in particular. The high level of the expenses for research and development and the availability of highly qualified staff transfonn biotechnology into a field which is reserved for the most advanced highly developed countries. These new products that are already on the market are often substitutes for natural raw materials. Multinational companies, which represent the key elements of the sector based and geographical orientation of international exchange of merchandise and capital, aim at the exploitation of specific competencies rather than at the simple mix of generic factors. The spread of the new production management patterns and of the new information technologies, which we have interpreted as a manifestation of the change of the labor division principle towards a logical foundation of competencies and scientific knowledge, is accompanied by phenomena of recovery of comparative advantages which used to be obtained by less developed countries, by the developed countries, in sectors considered traditional from the point of view of the neo-factorial theories of international exchange. The reduction of the specialization of the developed countries in such sectors should be irreversible and, moreover, it should lead to a wide transfer towards less developed countries, which are able to provide a large amount of work force. However, the recovery of the comparative advantages in these sectors by the developed countries triggers an international reconstitution of

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productive processes, of international and sectorial specialization types and of the economic activities relocation operations. Thus, the limitation of certain raw materials or any other production factors becomes relative. These substitution effects will mainly affect the mineral or agricultural raw materials exports from less developed countries towards developed countries; therefore, a long term specialization in scientific competencies can be followed by changes in the products specialization (the erosion of the natural advantages of the less developed countries). The product life cycle theory (Vernon - 1966, Krugman - 1978, Flam and Helpman - 1987) does not explain this paradox of the return of the advantages, on the same product, to the innovative country. We can exemplify here with the recovery of the comparative advantage of Switzerland, in the field of horology, back in the ‘90s of the previous century, after intense erosion, a decade before, which occurred as a consequence of the new industrialized countries in South-Eastern Asia. The revival of the so-called traditional or work-intensive industries demonstrate this transformation: a country which possesses specific resources which enable the manufacture of a group of products has a long term advantage. The reversibility of the specialization also occurs at the product level. The countries which possess specific competencies (innovation, human resources, positive foreign relations) can recover the once lost advantages in favor of less developed countries, which limited themselves to imitating these products. Although the above-mentioned theory presupposes a permanent loss of the innovative country's advantage over the imitated and delocalized product, the latest transformations demonstrate that the same country may as well recover the advantage over the product in question. It will introduce two types of innovation which will allow the recovery of advantage over the new types of the original product: procedure innovation and product innovation. The source of these innovations is the absolute advantage the country has in terms of researchdevelopment activities and cognitive resources. CONCLUSIONS This analysis of internationalization on the basis of specific competencies is mostly verified through the polarization-concentration of goods and direct foreign investment exchange between and within the Triad's development poles. The marginalization of the countries endowed with "natural resources” (work force and primary resources) is expressed by their being increasingly excluded from the international alliances and agreements regarding technology. At the same time, the changes in the orientation and the determiners of direct international investments at the beginning of the 90’s of the previous century, confirm the recoil of the logic of the international segmentation of the production processes, based on the exploitation of the advantages related to the comparative costs for the developing countries. As an effect, we witness an intense and rapid growth of direct foreign investments in the last two decades; however, this faces a double reorientation- geographical and sectorial- and a triple change- in terms of nature, determiners, and its forms. Geographically speaking, the developed countries are not only the main direct foreign investors, but they are also the main receivers. Countless studies demonstrate that the developed countries have been operating 95% of direct foreign investments since the mid-'80s of the previous century, and have been receiving over 80% back. This polarization of direct investments between developed countries is followed by the increase of the direct foreign investments, crossing at the intra-industrial level; as far as sectors are concerned, the contribution of direct foreign investments in primary sectors decreases in favor of the manufacturing industry and, more importantly, in favor of services, which represent over 40% of total investments, in contrast with 25% at the beginning of the 70’s of the previous century; while the nature of direct foreign investments, by the end of the 70%, used to be of the vertical integration type, at present, most of these investments are horizontal; some mutations, in terms of main determiners of direct foreign investments, correspond to all these changes, which took place in the complex context of geographical and sectorial orientation. A dramatic decrease of the traditional determiner's role, regarding the factorial endowment, can be noticed. Countless studies emphasize the great importance of technological advantages in the 43

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attempt to attract direct foreign investments; as far as the means or types of direct foreign investments are concerned, we witness an increase in the direct intermediary forms (join venture agreements, strategic alliances, mergers, acquisitions), at the disadvantage of the creation of majority subsidiaries. Thus, in the context of these fluxes, the acquisitions increased from 67%, at the beginning of the 80’s of the previous century, to 80%, at present. The activity sectors are not so intensely involved in the international segmentation of work based on specific competencies. While the scientific knowledge intensive sectors are much more globalized, the less intensive ones may find their own place, cither on a short or on a long term (as long as this inequality will last), in the context of some regionalized fluxes. The developing countries (Mexico in NAFTA) may find a means of international insertion on the basis of comparative advantages. The favorable context created by regional integration may stimulate this process. While globalization, determined by the activity of great multinational companies, can trigger a process of exclusion of the "naturally endowed" countries from the international fluxes, regionalization creates, at least on a short or medium term, the favorable conditions of a more active participation, on behalf of developing countries, in the global economic context.

REFERENCES 1. 2. 3. 4.

Cocora, E., Globalizare şi management, Ed. Feed Back, 2007, Iaşi Drucker, P., The Age of Discontinuity, Harper and Raw Publishers, New York Payne, R., J., Global Issues. Politics, economics, culture, Ed. Pearson Longman, 2007 Richonnier, M., Les metamorphoses de l’Europe de 1969 à 2000, Ed. Flammarion, Paris, 1985 5. ***, Region et developpement 1995. 2 Globalization et integration regionale, Ed. Harmattan, 1996

6. ***, Structures industrielles et mondialisation, Revuie Innovations Nr. 5, Ed. L'Harmattan, Paris, 1997.

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TRANSNATIONAL COMPANIES AND FOREIGN DIRECT INVESTMENTS Professor Ph.D.Maria MUREŞAN Academy of Economic Studies, Bucharest, Romania [email protected] Abstract: Foreign direct investments (FDI), especially those of transnational companies, take shape through the transfer of modern technology including machinery and fixtures, precise technical documentation and know-how flows (technical and managerial assistance) as well as creating new work places. All this make the direct foreign investments an advantage for both the investing countries and host countries. For the investing countries the advantages materialize first through the use of cheap technological and human resources and by providing a market for the products in the host countries. Meanwhile the countries receiving foreign direct investments are ensured full and effective use of available inputs and the creation of favourable conditions towards the development of their productive capacity for export and last but not least, to achieve the goal of reducing unemployment by creating new work places. Key words: transnational corporations, foreign direct investment, capitalization, mother-corporation, host country JEL Classification: F2, G1

1. INTRODUCTION One of the biggest pressure forces that country development and international trade unions face is the power and influence of the transnational corporations (TNC) as part of their response to globalization. Transnationality is a world economy phenomenon that manifested itself strongly in the XX century and enjoyed a rapid expansion in the early XXI century. Economic agents that have a decisive role in this process are the transnational corporations. At the end of the twentieth century, the total of TNC exceeded 60,000 throughout the world with over 800,000 subsidiaries outside the country of origin. In the '80, TNC action is characterized by increased regional integration (especially in Europe), and the investment climate relaxation in terms of legislation. The mid 80s give TNC a new dimension with the advent of new technologies for processing and transmitting information and local requirements development in terms of integration into local economic systems while giving particular value to the governments’ involvement. 2. THE EMERGENCE AND DEVELOPMENT OF TRANSNATIONAL COMPANIES The emergence and development of transnational companies is not only due to the industry. Such companies have expanded in many other sectors: banking, insurance, tourism, advertising, etc. Particularly intense has become the international activity of large commercial firms that open branches in more and more countries such as Metro Holding (Switzerland) - the largest wholesale company in the world, Sears Roebuck (U.S.) - the largest sales company by mail. In advertising, the most powerful transnational firms are those from the United Kingdom (Saatchi and Saatchi Co.) and Japan (Dentsu). Japanese companies are particularly strong in banking. In 1995 in the top 10 banks in the world, six were Japanese, including the Industrial Bank of Japan, Sanwa and Mitsubishi Bank. In life insurance the world leader in the same year was ING Group (Netherlands). Among the TNC leaders there are some that should be mentioned such as General Electric - for years at the top of the rankings – the U.S. oil giant Exxon, the Anglo-Dutch Royal-Dutch Shell, Ford to which U.S nationality is conferred, Toyota with Japan paternity - to call the first five of the world's industrial hierarchy. 45

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The size increase of transnational companies usually happens in the following ways: international integration horizontally or vertically and international conglomeration. The international integration on the horizontal is a characteristic of some companies such as General Motors, Ford, Toyota, General Electric, etc.. Firm size increases by merging or absorbing national or international firms acting in the same branch. Through such integration, the size and financial strength of the company increases without leaving the basic branch. American company General Motors has grown as a TNC by acquiring the companies Adam Opel in Germany and Vauxhall in Britain and by building assembly companies in various countries. By contrast, General Electric has expanded across the border through increasing participation in societies such as Bull (France), AEG (Germany), Olivetti (Italy) - all related to electronics. International integration on the vertical means increasing the size of the company through the acquisition or construction of companies in other countries, located in the "downstream" or "upstream" in relation to the mother-society activities. Exxon (former Standard), initially focused on oil refining business then turned its attention to the acquisition of crude oil supplies and to establishing oil exploitation companies as well as to developing its own distribution network across the globe . The pattern of the vertical integration is a characteristic usually of the companies active in primary products, the diversification of production characterizing both forms of integration. Growing by international conglomeration is especially characteristic to American companies, representing the "union" of companies from different countries, whose activities are mostly technological unrelated. In most cases the absorption is caused by purely financial reasons. The most convincing example is provided by International Telegraph and Telephone (ITT), the number one U.S. conglomerate which makes over 50% of its profit abroad. The forming method of the transnational corporations is the capital investment in other states economies. These direct capital investments in other countries may take the form of the acquisition of the control shares, the rising of a foreign subsidiary, the acquisition of businesses or building new ones. Most American and Japanese transnational corporations investments abroad are carried out in this way. Although TNC are companies characterized by a high level of production and capital concentration once established, they do not automatically turn into monopolies. For a company to become a transnational monopoly it is necessary that from the mother-society - foreign subsidiaries, at least two units located in different countries to hold "key" position in a given field. A good example is the International Business Machines company which is a transnational monopoly that dominates not only the U.S. market, but also the entire computer global market. A monopoly is the Anglo-Dutch company Unilever, but only in the margarine industry where it holds the largest share in world production and Nestle in the production of concentrates of soluble coffee. During its existence Nestle has focused on production, marketing and wholesale distribution of its products, avoiding vertical expansion - sales in supermarkets for example. To maintain control over all of this, headquarter managers handle all company acquisitions and decisions concerning the issue of new products of whose research is made by the units in Switzerland. Decisions are made based on groups of products, such as the chocolate group, the confectionery group, etc. In order to operate efficiently each geographical group must obtain positive financial results. Actually Nestle is trying to focus all revenues towards the centre in Switzerland, and there it will be decided in what currency will the revenues be processed and in which country will they be transferred. An important component of the development of transnational corporations is the products structure of the international trade which changes from one period to another. In the late '90s, the most significant international market segments, taking into account the developments in the value of product exports were in this order, vehicles, crude oil, petroleum products, airplanes, computers, telecommunications equipment, etc. After the war, the diversification of world trade has increased. At short intervals there were created new markets (computers, microprocessor, etc.) and currently we are witnessing the expansion of international markets of the industrial robots. The history of modern world trade demonstrates that constantly the first place on global market has been held by an industrialized nation. At the beginning of the 20th Century the supremacy was held by England

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which has played a long time the role of the industrial workshop of the capitalist world. Subsequently this place went to the U.S. International trade does not have the same role for all the industrialized countries. In some, especially those smaller in population and in territory, the share of exports in GDP is high: 63% in Ireland, 69% in Belgium, 89% in Luxembourg in 2007. At the other extreme lie the bigger countries with large domestic resources with a large domestic market, where this proportion is lower: 11% U.S., 18% in Australia in 2007. In the case of former socialist countries, reality has shown that in a production economy the role of international trade is a minor one. 3. THE GEOGRAPHICAL SPREAD OF TRANSNATIONAL COMPANIES (TNC) IN THE CONTEXT OF GLOBALIZATION At the beginning of the XXI century transnationality in the world economy has specific characteristics, reflecting on the one hand the degree of participation of different countries to globalization as well as the opportunities or lack of, specific to these economies (Tanasie, 2002). Thus we can highlight some features and the geographical distribution of the TNC: The TNC’s economic power and their degree of trans-nationality are different. The economic power measurement is usually done according with the volume of assets, while the transnationality depends on an index whose measurement is based on three indicators:  foreign assets related to total assets;  foreign sales related to total sales;  labour force used abroad related to total labour force. By analyzing the 100 biggest TNC in the world it is noticed that most of them come from developed countries, except for a single company from countries like Hong Kong, Mexico and Venezuela. Thus the economic power was held in 2002 at a rate of 91.7% by the world's three economic poles - U.S. 33.3%, EU 43% and Japan 15.4%. These percentages have changed in recent years in favour of small states and Japan. After the transnationality term (different than the term foreign assets) the 10 largest TNC in the world in 2009 were grouped in the following countries: four Swiss, two Canadian, one British, one Dutch, one Anglo-Dutch and one Swedish. The presence of small states in this ranking must be seen through the fact that these countries have the size of the domestic market comparably with the U.S. or Japan ones. The trans-nationalization process takes place in developing countries, but at a smaller scale compared to developed countries, highlighting the growth of foreign assets and sales. Research on the 50 largest TNSs from developing countries shows that they are smaller than their competitors from developed countries, thus the average of foreign assets from small states in this ranking has risen from $ 1.5 billion in 2009 to 1.9 billion dollars in 2007 but well below the $ 15.2 billion average of the 100 STN. The states considered small that are present in the 100 TNC group are: Hong Kong (10), Venezuela (1), Mexico (3), Malaysia (4), Republic of Korea (9), Singapore (8) South Africa (4) Brazil (4), Taiwan (2), Chile (2), the Philippines, Argentina and India each having one. For these countries, the share in the total of foreign assets is divided as 72.1% in South East Asia, East and South, 21.9% in Latin America and nearly 6% in Africa. TNC’s foreign assets exceed with almost 500 billion dollars the total GDP of the 49 lowincome economies (GNP per capita of $ 765 and below this value) taken together, including China and India, having together a population of over 3.1 billion inhabitants. Their sales abroad totals 2.0453 billion U.S. dollars and are 1.8 times higher than the exports of 107 countries with low and average income per capita put together ($ 1,138,800,000,000). 4. THE METHODS OF THE TRANSNATIONAL COMPANIES’ IMPLANTATION (TNC) IN THE WORLD ARENA The new European architecture led the transnational companies, especially American ones, to increase their investments in the member countries of the European Union. Upon the formation 47

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of the European Union, American capital was present in Western Europe since the early years after the war which represented a solid starting point for future activities. The international role of the dollar was one factor that facilitated the movement of the American capital. The dollar’s overvaluation policy, many years in a row on the European financial markets, has created very favourable conditions for the STN, the purchasing power of each dollar invested in Europe becoming superior compared to the situation in the U.S. In EU countries the implementation of American corporations is massive in the top departments where they can exploit their technological advance best: electronic, optical industry, precision mechanics and it is very low in sectors where the future is uncertain as steel, the extraction of coal, textiles, etc. In the 'interesting' sectors the created subsidiaries belong 100% to the American capital. In this category companies such as IBM, Xerox, Polaroid, etc. are included. There are sectors that traditionally belong to Western European companies and that have been particularly profitable, and are magnets for American capital: perfumery, photographic materials, pharmaceuticals. In those areas where French companies occupy a strong position, many of them are bought by American companies: Coty SA is controlled by Pfizer, Caron by Robbins Comp., Balmain by Revlon. In the pharmaceutical industry an example is the Abbott Laboratories which are over 110 years old. There are cases where American companies heavily implanted 30-40 years ago in certain domains (oil, automotive, chemicals) attempt to withdraw or to limit their work, by focusing all investments on highly specialised products. If Europe is an area invaded by the American TNC, the U.S. economy is also a magnet for Western European companies and especially the Japanese. The U.S. market advantages are multiple: ultramodern infrastructure, relatively low prices of raw materials and energy, efficacy of the communication systems, electronic information processing, all of this in addition to a high purchasing power. The U.S. market is most attractive for foreign capital and the U.S. Department of Commerce encourages investment in Europe. Until 1998 Japan, with all the dynamism of its post-war economic development, has not created a proper framework for foreign investment. The only industry branch under foreign control in Japan is that of the oil (60%). When the foreign capital is employed, its transfer outside of Japan is limited for the benefits from investments. The only advantage that the foreign capital has is that of over three years exemption on income tax, but only when new and important products for the Japanese economy are manufactured. Developing countries continue to represent one of the main areas of the TNC. Practical methods of TNC implantation on the world arena include a wide range, going from minority participation to full ownership of subsidiary capital. The strategy most favourable for the foreign implantation of U.S, Japanese and European firms is to acquire companies already functioning (one native example is that of Orange who took over MobilRom company on the Romanian market). This method of implantation gives time and financial resources, procuring skilled labour force this being the result of a management that knows the local market characteristics, etc.. Buying a corporation is finally determined by the relationship between the paid price and predictable profits. A unique way to implant a TNC is joint companies with the state agencies representatives (Mixed joint ventures) or joint enterprises (joint International Business ventures). Regarding U.E. evolution, companies and management, the forming of the single market and single currency has a decisive impact. The implementation of the single market had as a goal from the start the tariff and non tariff barriers elimination which slowed down the fast and efficient economic development of the EU countries. The influence that the single market and the euro have on businesses and management can be generally divided into three areas: economic, social and formative. Creating long-term European markets creates many advantages such as:  the acceleration and multiplication of investment;  forming dimensional economies;  achieving a higher capacity to negotiate with the other two large economic poles: the Japanese and the U.S. In terms of the relations of the transnational corporations with national states Dunning believes that in the post-war period there were three phases (Dunning, 1993): 48

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 The "honeymoon" in the '50s and the beginning of the'60s during which there was an overlap of interests between investors from the U.S. and the West European economies that were in post-war reconstruction. U.S. TNC at that time were building replicas of the mother-companies with a high degree of freedom and having as a motivation-the market. The produced output replace imports and their presence in these markets was desired;The "confrontation" - period regarding the relationship between transnational corporations and developing countries. The political independence increase of most developing countries during the ‘60s and ‘70s led to a better identification of their economic objectives and a greater reluctance regarding the presence of TNC in their countries. FDI were treated according to their contribution to satisfying basic needs and to improving the balance of payments and raising the technological level. Large transnational companies were perceived by the governments of the developing countries as foreign companies that transfer aboard huge economic rents at the expense of host countries and their investments introduced a foreign lifestyle to their national cultural traditions. Strategically the large TNCs acted by an excessive centralized decision of and by the guidance of their policy to a regional and global scale. During this time some restrictions were introduced for foreign investment and it even resorted to some expropriations of TNC assets. TNC strategies used a specific reserve to launch new projects in these countries and at technological transfer restrictions in an attempt to persuade host governments to change the policy on foreign investment;  The current phase is one of "reconciliation" in Dunning's vision. In the late '70s developing countries have felt a certain disappointment in the efficiency of their economic policies, disappointment that led to a change in the policy on foreign investment, in the attitude towards the market in general and particularly over TNC operations. Meanwhile TNC strategies have become more responsive to the socio-cultural characteristics of the host countries, thereby seeking to promote advantageous policies to both parties. This period proved the beneficial role of FDI and TNS role in promoting technical progress for the host countries. 5. THE EXPANSION OF TRANSNATIONAL THROUGH FOREIGN DIRECT INVESTMENTS (FDI)

CORPORATIONS

(TNC)

The international investment has four characteristic elements: profit - the purpose of investment, time – as the dimension of the recovery process, risk - as an expression of the economic decision and the nature of extra-unit international transactions (Popa, 1992). The real ways through which a trader can make an international investment:  building on a "vacant place" a company or a subsidiary of an existing one in another country;  the acquiring a foreign company or the merger with such a firm;  the creation of joint ventures;  the purchase of shares / debentures of a foreign market;  granting a financial credit to a trader from another country;  signing international contracts for leasing or franchising. Through the contact established between a issuing trader and the receiver foreign direct investment (FDI) and those of portfolio can be distinguished. FDI includes: the issuing agent transfer of the investment flow of control possibility and the decision over the receiver’s activity, the control over the transferred resources is of the investor, the investment is made outside of the country of origin but within the investing company and it represents a package consisting of finished and intermediated goods, capital, technology, management, access to markets (Dunning, 1995). When the existence of such a relationship is not taken for granted, it is about the portfolio investment which represents a purely financial investment, the control over the resources being transferred by the issuer to the receiver.

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Traditionally through FDI was provided the expansion of TNC which are defined by the IMF as: 'the investment which involve a long-term relationship that reflects the interests of an entity resident in an entity resident in another country than its investor, the direct investor’s role is to exert a significant degree of influence over the management of the enterprise resident in another economy. The minimum percentage of control accepted by most countries is 10-25% (10% U.S., 20% France and Britain, 25% Germany). Vice versa TNSs are often a vehicle for FDI. Thus, FDI as an important part of international capital movements (international lending process) represent the international capital flows in which a firm in one country creates or increases a subsidiary in another country (Krugman, 1991). The subsidiary not only has a financial obligation to the mother-company but it is part of the same organizational structures. The mother-company often ensures with capital its foreign subsidiaries hoping an eventual return. To the extent that TNC provides financial subsidiaries abroad, FDI is an alternative way to achieve the same goals as international loans, but it remains open the question of why FDI is preferred to other ways to transfer funds. There should be made the indication that the existence of TNC does not necessarily reflect a net capital flow from one country to another, STN sometimes collect money for the expansion of their branches in the country where the subsidiary perform better than in their country of origin. Moreover, there is a two-way road in the industrialized countries: U.S. firms expand their subsidiaries in Europe while European firms are expanding their subsidiaries in the U.S. A strong response to the preference of FDI in international loans is to allow the formation of multinational organizations, representing an essential goal that control is obtained. FDI started in the international economy since the early period of capitalism, but recording a real boom in international transactions in the last decades of the twentieth century, particularly due to development activities of transnational companies. The investment flows (Voinea, 2001) generally attached to the direct foreign investments are usually composed of:  the capital provided by investors to buy shares in a company abroad;  the reinvested profits from foreign economic activity (in proportion investor share to the capital);  the loans from the company –credits granted by the mother-company to its subsidiaries abroad. The foreign subsidiaries of transnational corporations can be funded (besides the sources mentioned above) through domestic market funds of the host country, but also through foreign direct financing through loans and by purchasing of bonds from sources other than the mothercompany. All these funding sources increase the transnational corporations subsidiaries production’s capacity by influencing the dynamics of the local markets but without being recorded as FDI, but as capital expenditure. The particularity of FDI is given by the control exercised by the investor over the assets in which the investment was made. Thus, FDI represented a transfer of an industrial package that included capital, technology, industrial organization, managerial expertise, marketing, etc. elements, transfer that allows the investor to exercise his right to control his investment. (Negritoiu, 1997). The foreign investor’s control depends on the share that he holds in that company. If this ratio is low, the control is replaced by a direct participation in the management and organization of production. Experts consider foreign direct investment a company in which the foreign investor owns or exceed a share of 10-25%, although the foreign investor participation is usually above 50%. Noteworthy is the fundamental difference between the foreign direct investment and the portfolio investment:  through the foreign direct investment the investor is directly involved in the management and organization of production, in the business activity monitoring; 50

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

the investment portfolio entitles the investor to receive only dividends without the possibility to control or manage the company he invested. To place the foreign investment (Vătăşescu and Albu, 1999) somewhere between one of those two types (foreign direct investment or portfolio investment) is sometimes difficult, between area there being a cohabitation in which boundaries can be difficult to delineate. Thus, the forms that foreign investment can take are:  the purchase of shares on a foreign market or issued by a firm in a third country;  the purchase of bonds on foreign markets or issued by a firm in a third country;  the establishing of a new company or opening a subsidiary in another state;  providing a financial credit for a foreign company or a company that operates on its own market;  the acquisition of a foreign company or merging with it;  the participation with capital in the making of a mix corporation. FDI are a characteristic feature of large transnational companies, therefore, experts consider that FDI theory overlaps the theory of transnational corporations, these being the main actors in the global economy although without FDI representing only the privilege of the transnational corporations. FDI is not only a capital transfer, "but rather an extension of the corporation from the country of origin into a foreign host-country. A business activity in a foreign country involves capital, technological and entrepreneurial experience flows which in combination to local factors, generate the production of goods or services for the domestic market or export. This package transfer remains under the control of the investing firm, as in fact the subsequent production and marketing activities conduced in the host country. "(Negritoiu, 1997) 6. CONCLUSIONS Business analysts considered the starting point of the theories on FDI is the work of John H. Dunning in 1958 regarding the U.S. companies investments in the UK manufacturing industry. But the first major contribution to studying the phenomenon of FDI is given by Stephen H. Hymer through his Ph.D thesis at the Massachusetts Institute of Technology in the U.S. which was presented in 1960 but published in 1976. During the past decades, the FDI phenomenon theorists have divided into two: a first group of Canadian economists formed by Mc Monis, Calvet, Hymer, Saforian Gordon, Fower, Shapiro, the other one being of British origin has as representatives Dunning , Buckley, Casson and Cantwell. These theories on the place and role of the foreign direct investment (starting from the causes that determine FDI flows) have been united by the works of AL Calvet (1981), J.A. Cantwell (1988) and Soul Lizondo J. (1991 - IMF study). This paper may be assigned into:  theories of the firm-monopoly advantage, internalization;  theories on macroeconomic development - market imperfections, the model of oligopolistic competition, the product life cycle. The economic literature in Romania the theories and developments on FDI have been questioned by economists, such as Mişu Negriţoiu, Anda Mazilu, Costea Munteanu, Daniel Dăianu, Ion Anghel etc. Some studies show that the investment ensures the increase of fixed and circulating capital as a movement of capital whose area of influence does not stop at national borders, becoming an international activity. The process of deepening economic and technological interdependence among the national economies transforms the investment in a common transnational activity.

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BIBLIOGRAPHY: 1. Calvet A.L., A Synthesis of Foreign Direct Investment Theories and Theories of the Multinational Firm, Journal of International Business Studies, Spring/Summer, Vol.12, no.1, 1981 2. Cantwell J.A., Theories of International Production, University of Readings, Discussion Papers in International Investment and Business, No.122, September, 1988 3. Dunning J.H., Multinational Enterprises and the Global Economy, Addison-Wesley Publishing Company, London, 1995 4. Lizondo S.J., Foreign Direct Investment, Determinants and Systemic Consequences of International Capital Flows, Research Departament Occasional Paper, No.77 International Monetary Fund, Washington D.C. 1991 5. Krugman P.R. , Obstfeld, M., International Economics – Thecry and Policy, second edition, Harper Collins Publishers Inc., 1991 6. Negriţoiu M., Salt înainte – dezvoltarea şi investiţiile străine directe, Expert Publishing, Bucharest,1997 7. Popa I., Tranzacţii internaţionale – politici, tehnici, instrumente, Recif Publishing, Bucharest, 1992 8. Tănăsie P., Reţelele politicii globale – coaliţie pentru schimbare, „Nicolae Titulescu” University Annals Bucharest, 2002 9. Vătăşescu M., Albu, C., Relaţii economice internaţionale, Ecologic Publishing, Bucharest, 1999 10. Voinea L., Corporaţiile transnaţionale şi economiile naţionale, I.R.L.I., Bucharest, 2001.

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EDUCATION - AN ECONOMIC GROWTH FACTOR Associate Prof. PhD. Carmen NĂSTASE University “Stefan cel Mare”, Faculty of Economics and Public Administration, Suceava, Romania [email protected] Highschool Teacher Alina HODOROABĂ Technical College ”Petru Muşat”, Suceava, Romania [email protected]

Abstract: Education is a strategic area of development. As part of the education system, higher education is the mechanism that can give to a society the resources necessary for its correlation with social and economic developments at global level. The truth that education is a factor of economic growth is not a new thing. During time, it was proved that investment in education, research and development, and health insurance is undoubtedly more profitable than the other inputs. The future of every nation depends fundamentally on the extent to which its system is able to provide to their citizens a performant level of training, which make them competitive worldwide. In higher education must meet the highest standards, with reference to a multitude of functions and characteristic activities - training, research, teachers, students, programs, resources, initiation, management etc. - all competing to achieve the major objectives which converge towards sustainable development of the country. Thus, the present paper emphasize within an international study, the importance of education in development and growth. Keywords: education, economic growth, international study, students, questionnaire JEL Classification: I23, C83

INTRODUCTION For the Romanian education system to perform and contribute to the economic development of the country, we considered that the first step in this respect is an objective analysis of the current situation of Romanian education. So, we conducted a study which aims to highlight the strengths and weknesses that are facing the Romanian higher education in terms of students. In this study were also analyzed options of students from 15 countries to regarding their option to continue their Masterate studies, and their interest to study in Romania. It highlights several priorities for improving quality and competitiveness of Romanian higher education. The study was conducted in two phases. The first phase of the study was conducted between 1.10-21.10.2009 on a sample of 408 students of which 206 Romanian students and 202 students from other states. After this period, the study was promoted during the Erasmus IP project INNO Natour - Innovation in Nature Based Tourism Services, held in Romania to the Faculty of Economics and Public Administration from Suceava, from 26 April to 7 May 2010, and to which was attended by 21 students from six countries: Austria, Finland, Italy, Bulgaria, Slovakia and Romania. For this study we used a random sampling unrepeatable via the Internet. Subjects completed questionnaires on-line available at the following addresses: http://spreadsheets.google.com/viewform?hl=en&formkey=dEtlcm9EQVdIeURaaFgxbDJrcTJEZF E6MA pentru studenţii români şi http://spreadsheets.google.com/viewform?hl=en&formkey=dGEwQ2xMNFp5dHcwVkFWa25Wd DlRdVE6MA pentru studenţii străini. Thus, the final study results are presented in this paper. OBJECTIVES OF THE RESEARCH: This research had the purpose to achieve the following objectives: 53

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O1: Finding the intention of the students to start a master; O2: Finding the availability of students to study in other countries; O3: Highlighting the factors influencing college choice; O4: Determining image of Romania and its education system from the perspective of students; O5: Identify the facilities that should be offered by the Romanian universities in order to be attractive to Romanian and foreign students. THE HYPOTHESES OF THE RESEARCH The hypotheses from which we started this research are: I1. Romanian modest position in international rankings of universities; I2. Romanian higher education suffers from a low international visibility; I3. A lot of students would like to study in another country; I4. Romanian higher education does not enjoy a good image among the Romanian students, even among foreign students; I5. Romanian universities can not provide, yet, the facilities provided by the prestigious European universities; SAMPLE CALCULATION Collectivity researched consists of all students who have studied or have been in contact with the academic community in Romania, or at least have heard of at least one university in our country. We clearly defined the two categories of students: Romanian students and the second group: foreign students. The formula for determining the sample is based on an alternative feature. z 2  p (1  p ) n (1) E2 Where, n = sample size z = corresponding theoretical probability value that is working with. For the probability of 95%, theoretical value is 1.96. p = proportion of individuals who possess the characteristic that is measured. E = margin of error. For a 95% confidence, the margin of error is set to 0.05. For a confidence level of 95%, a confidence interval (error) of 4% and a total population theoretically infinite, sample size is 600 units. For objective reasons of distance and material resources, human and time, we chose a value of 200 units per subcolectivity investigated, while, regarding foreign students, we considered a number of 15 countries of origin to ensure an increased representativeness. The questionnaire was applied on-line, from which we created a database of all responses recorded. Following the tabulation of responses in the database (in the two periods of study) have been validated a number of 429 questionnaires. Regarding the country of the student respondents, we decided to select 17 countries of origin to ensure a more credible research. Responses came from 22 countries, but given the fact that some countries such as Vietnam, Serbia, Moldova, Turkey had too few respondents to ensure the credibility of the study, we reached a total of 15 countries that can be viewed Table. 1. Regarding Romania, we intend to obtain responses from 10 localities, but after validation of questionnaires, the number of settlements reached is 9 (see Table. 2). The sample structure by age and sex can be viewed in Table. 3.

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Table no. 2 – The number of validated questionnaires and city of origin

Table no. 1 – The number of validated questionnaires and country of origin No of validated No. questionnaires 1. 15 2. 18 3. 15 4. 14 5. 21 6. 14 7. 16 8. 12 9. 12 10. 21 11. 10 12. 12 13. 12 14. 15 15. 10 TOTAL 217 Age

No of validated questionnaires 1 56 2 25 3 20 4 23 5 22 6 18 7 17 8 16 9 15 TOTAL 212 No.

Country Hungary Bulgaria Ucraina Netherlands Italy Germany Czech Republic USA Austria Finland Lithuania Slovenia England Spain Poland

34

Sex

Masculin Feminin

Romanian students 24,5% 71,16%

Foreign students 32,81% 45,31%

Romanian students 0,60% 3,06

Foreign students 9,37% 10,95%

Romanian students 0% 0,60%

Foreign students 1,56% 0%

 Research tool The questionnaire was designed both in Romanian for Romanian students and in English for foreign students. The questionnaire in Romanian language was composed of 15 items, including a filter question, five open questions, 4 closed questions and 5 mixed questions of identification. The questionnaire that was designed in English had 19 items, including a filter question, 6 open questions, 6 closed questions and 6 mixed questions of identification. We considered it appropriate to use a large number of open questions taking into account the cultural differences that may exist between the 16 countries (including Romania). INTERPRETATION OF RESULTS In what follows we shall present the results of research, structured on research method used and the research objectives pursued. O1: Finding the intention of the students to start a master The first question regarding the intention to continue studies with a master degree show results in unison. 86% of Romanian students and 89% of those foreigners are intending to continue studies with a masters degree, which indicates the desire for self-improvement, lifelong learning. (Chart no. 1.). From those who answered "no", the opinions vary a lot between Romanian and foreign group. Thus, when first told that it makes no sense because the theoretical knowledge and practice are not covered, and some are disappointed by the conditions and attitude of the teachers, the second specific desire work and enthusiasm to implement the knowledge already acquired.

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Foreign students

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11%

89%

YES Romanian students

NO

14%

86%

70

80

90

100

Chart no. 1. – Students' intention to continue studies with a Master degree When asked "In what area you intend to pursue a Master?" answers again are different in the two target groups. (Table no. 4) Table no. 4 – Areas in which students would like to study a Master Area

Categories Romanian students Foreign students

Social sciences, economics and law

Arts and Literature

Computer Science, Mathematics

Engineering and construction

Medicine and Pharmacy

Others

61,5%

7%

21,6%

3,5%

1,4%

4,9%

37%

8%

15%

15%

27%

17%

It is noted in the table above a malfunction in the sense that if all foreigners prefer areas grouped on balanced proportions, we infer that are preferred based on personal preferences or their abilities; preferences for Romanians go mainly towards the social sciences, economics or as they are recognized as main areas where revenues are substantial, even though it's hard to believe that all have the necessary skills. O2: Finding the availability of students to study in other countries In terms of study options, 57% of Romanian students prefer to study in another country, while 34% choose other city in the country, and only 28% wanted to stay to study in the city where they live. Approximately the same proportions and preferences to foreign students find that 59% prefer to study in another country than home country, 44% choose another city, while 25% wanted to remain in the city where they live. These high percentages come as a result of global factors listed above, but should not be downplayed the fact that a particularly important role is determined by accessibility studies, travel, the possibility of a better life and not least the spirit of adventure characteristic to that age are the reasons for a lot of students. Regarding the options for foreign students, we find that the majority of foreign students questioned would not want to go to study in another country because they are satisfied with the conditions offered by their university, the others stating other private reasons. Asked which country they would like to study the responses of two target groups are different. Thus, the first three countries in which Romanians want to study are: England, France and USA. (See Chart no 2.)

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As regards foreign students options, preferences among locations in their study are: Germany (9.41%), USA (6.93%) and Canada (6.44%). Surprisingly, Romania ranks eight in the preferences of students, on the same level as Finland, Italy and Austria. However, students who have chosen Romania as a study destination, are mainly those in Bulgaria and Ukraine, which are neighboring countries. This fact leads us to believe that the hypothesis of this study that the Romanian higher education suffers from a low international visibility. Thus, generalizing, we can say about the quality of Romanian higher education that is not so weak as is evidenced in various international surveys and research, but the problem of Romanian higher education may be closer to its international visibility and poor promotion. The internationalization of Romanian higher education was not based on an adequate marketing. 3,15

3,6

3,6

3,15

3,6

3,15

2,7 1,8

4,5

7,66

5,86

8,11

14,41 11,26

13,51

England France USA Spain Ge rmany Ne the rlands Italy De nmark Norway Canada Austria Be lgium Swe de n Ire land O the rs

Chart no 2 – The main destinations preferred by Romanian students O3: Highlighting the factors influencing college choice; Regarding the general appreciation of Romanian university education after which students choose the university, in terms of foreign students, the opportunities are first, the second is the conditions, and the least important criterion seems to be the location. Romanian students believes that the first two criteria are the opportunities and prestige, and the last place is the same, the location of the university. O4: Determining image of Romania and its education system from the perspective of students; Regarding the general opinion about Romania, 44% had a neutral opinion, 43% feel good or very good, 10% believe a bad or very bad, while 3% think they do not know the country well enough to formulate a general opinion. (Chart no. 3.)

3% 10% 43% 44%

Good or very good

Neutral

Bad or very bad

I don't know the country

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Chart no. 3. – Image enjoyed by Romania and its education system from the perspective of students If we consider the fact that 44% had an neutral opinion about Romania, we are again at the issue of promotion. Not only Romanian education, but not Romania as the country is not sufficiently promoted abroad. So, a lot of students will join the overall picture they have of Romania with the Romanian education picture. Asked if they imagined themselves studying in Romania, 49% of them said no, 29% considered this as a possible option, 13% said that they have imagined studying, and 6% did not know or refused to answer. (Chart no. 4)

50 45 40 35 30

49%

25 20 15 10 5

29% 13% 6%

0 Yes

Maybe

No

I don't know

Chart no. 4 – Option of foreign students studying in Romania Among the reasons stated by those who have answered “no”, most foreign students do not know the Romanian education system. Thus we could identify promotion as one of the main problems facing higher education in Romania. From Romanian students questioned about the quality of Romanian education, 36% feel good or very good, 38% had a bad or very bad opinion, 22% an indifferent opinion about the Romanian higher education, while 4% believe that depending on the domain studied. O5: Identify the facilities that should be offered by the Romanian universities in order to be attractive to Romanian and foreign students.

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0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

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100%

High study level

Others

Studies in an international language

Low taxes

Free time activities

High-tech labs

Practical studies

Cooperation with major undertakings

Chart no 5 – Facilities required by foreign students on higher education When asked "What features should you offer for the Romanian higher education to make you study here?" the answers we received were surprisingly similar to a high frequency content. We have considered all responses received, including multiple ones. The most tempting it seems to be a high level of research with highly prestigious and competent teachers (22.2%), followed by studies in a foreign language (14.4%) and studies fees as low (12%), leisure activities offered on campus and in town and country in general (10%). In other words we can pull off quality as first attraction, but are also important the possibility to adapt, studies fees and subsistence, and recreational opportunities as an important part of internships in a foreign country (Chart no. 5.)

0%

20%

40%

60%

Higher scholarships Interaction with field work Practical studies

80%

100%

Internationally recognized diploma Lower educatio n fees Others

Chart no 6. – Facilities required by Romanian students on higher education A key point of the research was to highlight the needs of the Romanian students vis-à-vis the Romanian higher education and what would cause them to stay and study in the country. It started from the premise that many valuable students prefer to leave the country because the opportunities there are not up to their expectations. Thus, they believe that to stay to study in Romania, higher education should offer more scholarships (25.4%), followed by internationally recognized diplomas (20.2%), interaction with domains employment (15.7%), lower education fees (14.2%) and practical studies (12.2%). We can see that Romanian students desires overlap to some extent with those of foreign students, but the priorities are quite different (Chart no. 6). CONCLUSIONS AND PERSPECTIVE OF RESEARCH IN THIS AREA This paper starts from the premise that in a society based on knowledge, the university aims to contribute to the welfare of the individual and socio-economic environment, generating and transferring them through education, research and innovation. Academic approach, as any socioeconomic approach, it needs to respond by presenting specific life cycle requirements. As a result of research done, we can identify the international promotion one of the main problems facing higher education in Romania. Romanian universities should be concerned about 59

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their correct position in international rankings, improve inter-university partnerships at European and international level, participate in international research projects and to attract foreign students by improving quality of education. Thus, the study shows that the Romanian education quality is not so weak as is evidenced in various international surveys and research, but higher education is more a problem of international visibility, which is based on poor promotion. The internationalization of Romanian higher education was not based on an adequate marketing. At present, it becomes increasingly obvious the link between education and professional training, innovation and correct stimulation of economic development on the one hand, and the amount and level of economic growth, on the other side. It has been proved beyond doubt that companies that have invested in education have reformed modernly the economies, recorded high growth rates and have redefined the foundations of sustainable competitiveness BIBLIOGRAPHY: 1. Miron, D., Sistemul românesc de învăţământ superior între starea de fapt şi deziderate, publicat în volumul Partnership in Bologna process. Experiences and future challenges, Editura Universităţii „Alexandru Ioan Cuza”, Iaşi, 2006 2. Munteanu, R. (coord), Analiza diagnostic – Universităţile şi mediul social-economic 3. Năstase, C., Popescu M., Boghean C., Scutariu A.L., Microeconomie: concepte fundamentale, Editura Didactică şi Pedagogică, Bucureşti, 2009 4. Popescu, S., Oportunitatea şi importanţa asigurării calităţii în instituţiile de învăţământ superior din România, publicat în Ghidiul calităţii în învăţământul superior. Proiectul CALISTRO, Bucureşti, Editura Universităţii, 2004 5. Todorescu L., Calitate în învăţământul superior – oportunitate şi importanţă, publicat în Buletinul AGIR nr 2-3/2009 6. Vlăsceanu, L., Trends, Developments and Needs of the Higher Education System of the Central and Eastern European Countries 7. Education Systems in Europe, http://eacea.ec.europa.eu/ 8. Publicaţia România în cifre 2009, www.insse.ro 9. The Times Higher Education www.timeshighereducation.co.uk 10. The World Bank Group, Beyond Economic Growth, Meeting the Challenges of Global Development, http://www.worldbank.org./depweb/beyond/global/chapter 17.html 11. http://spreadsheets.google.com/viewform?formkey=dEtlcm9EQVdIeURaaFgxbDJrcTJEZF E6MA - chestionarul aplicat studenţior români: 12. http://spreadsheets.google.com/viewform?formkey=dGEwQ2xMNFp5dHcwVkFWa25WdD lRdVE6MA - chestionarul aplicat studenţior străini. 13. http://www.aracis.ro/ 14. http://www.gandul.info 15. http://www.ziare.com

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STUDY OF SIGNALLING GAMES ON THE LABOUR FORCE MARKET OF EU-27, THE PURE STRATEGY CASE Prof. Ph. Stelian STANCU Department of Economic Cybernetics Academy of Economic Studies, Bucharest, Romania Prof. PhD.Tudorel ANDREI Department of Econometrics Academy of Economic Studies, Bucharest, Romania PhD Candidate Oana Mădălina PREDESCU Academy of Economic Studies, Bucharest, Romania PhD Candidate George Viorel VOINESCU Academy of Economic Studies, Bucharest, Romania Abstract: The paper addresses several key issues in the field of game theory, namely: determination of the perfect Bayesian equilibrium for signaling games - the pure strategy case; signaling on the labor force market; application of the signaling game on the labor force market of EU-27. The analysis of the perfect Bayesian equilibrium for signaling games - the pure strategy case has lead to the following conclusion: if the Sender strategy is unifying or separating then the equilibrium will be called unifying or, respectively separating. In the section Signaling on the labor force market, there are issues regarding the complete information case, where we suppose that the worker’s ability is common information for all players, but also issues regarding the incomplete information case. Three types of perfect Bayesian equilibriums may exist in this last model: unifying equilibrium, when both types of workers choose a single type of education; separating equilibrium, when the perfect Bayesian equilibrium is separating by itself, and hybrid equilibrium, if a worker chooses a level of education with certainty, the other one may randomly choose between joining the fist one (by selecting the level of education of the first type) and getting separated from him (by selecting a different level of education). This analysis allows us to draw the following conclusions: in case of signaling games on the labor force market, the pure strategy case, three types of equilibriums are available: unifying, separating and hybrid; as the worker’s ability is private information, this allows a low ability worker to pretend to be a high ability worker; the low ability workers find it more difficult to accumulate additional education requiring higher wages in return; besides the classical separating equilibrium, same as for the unifying equilibrium, there are other separating equilibriums implying a different educational choice by the high ability worker; sometimes the separating equilibrium becomes the limit of the hybrid equilibrium. The application is meant to strengthen, at least partially, given the lack of consistent data, the theoretical results. Key words: signalling games, feasible strategy class, perfect Bayesian equilibrium, incomplete information, sender, receiver, labour force market, competition among companies JEL Classification: C71, C72, C73

1. INTRODUCTION The principles of the game theory have been formulated for the first time during the `40 ties by J. von Neumann and O. Morgenstern in the paper Theory of Games and Economic Behaviour. Subsequently, this field has undergone an accelerate development mainly due to the contributions of Nash, J. F. (1950), Aumann, R. J. (1959), Harsanyi, J. C. (1970), Selten, R. (1975), Milgrom, P. and Stokey, N. (1982), Kreps, D. and Wilson, R. (1982), Aumann, R.J. (1990), Fudenberg, D. and Tirole, J. (1991), Reny, P. (1992), Ben-Porath, E. and Dekel, E. (1992), Banks, J., Camerer, C. and Porter, D. (1994), Kreps, D.M. and Sobel, J. (1994), Ben-Porath, E. (1997), Abreu, D. and Gul, F. (2000), Binmore K., McCarthy, J., Ponti, G., Samuelson L., and Shaked, A.(2002), Benaım, M. and Weibull, J. (2003), Benz, A., Joager, G., and Van Rooij R.(2005), Roth, A. E. (2007), Josephson, J. (2008), Balkenborg, D., Hofbauer, J., and Kuzmics, C. (2009).

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2. DETERMINATION OF THE PERFECT BAYESIAN EQUILIBRIUM AS FOR THE SIGNALLING GAMES, THE PURE STRATEGY CASE These types of games suppose the presence of two players, namely: - the leader, the one who holds the private information, also called signal sender, E; - the follower, the one who receives the information sent by the leader (sender), also called signal receiver, R. Definition 1. The signalling game is a dynamic game with incomplete information where new data are added and existing information is completed. The following steps are taken when performing the game: P1. Nature chooses a type t i for the signal sender, E, out of a set of feasible types T  (t1 , t 2 ,..., t i ,..., t I ) according to the probability distribution p (t i ) , where p (t i )  0 for any i and p (t1 )  p (t 2 )  ...  p (t i )  ..., p (t I )  1 . P2. The signal sender notice the type t i and chooses a message m j out of a class of feasible messages M  ( m1 , m 2 ,..., m j ,..., m J ) . P3. The signal receiver notice the message m j (but not the type t i ) and chooses an action (strategy) s k out of a class of feasible actions S  ( s1 , s 2 ,..., s k ,..., s K ) . The results are a function of  E (t i , m j , s k ) , for the signal sender, respectively  R (t i , m j , s k ) , for the signal receiver. Remarks: 1. Sometimes the classes T, M and S are intervals; 2. The feasible message class depends on the nature choice type, while the feasible strategy class depends on the message selected by the signal sender, E. Figure 1 renders an extended representation of a simple case: T  (t1 , t 2 ) , M  (m1 , m2 ) , S  ( s1 , s 2 ) and Pr ob(t1 )  p . In signalling game: - a pure strategy for the signal sender, E, is a m(t i ) function specifying the message to be selected for each type that the environment may choose; a pure strategy for the signal receiver, R, is a s (m j ) function specifying the action to be selected for each message that the sender may send. s1 [p]

m1

Signal sender, E t1 m2

s1 [q]

s2

s2 p Receiver

Environment

s1

1-p

[1-p] s2

Receiver

m1

s1

t2 m2 Signal receiver, R Figure no. 1. 62

[1-q] s2

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Figure 1 renders a simple game where the Sender and the Receiver benefit, each of them, by four pure strategies: Strategy of Sender 1: plays m1 if the environment chooses t1 and plays m1 if the environment chooses t 2 ; - Strategy of Sender 2: plays m1 if the environment chooses t1 and plays m2 if the environment chooses t 2 ; - Strategy of Sender 3: plays m2 if the environment chooses t1 and plays m1 if the environment chooses t 2 ; - Strategy of Sender 4: plays m2 if the environment chooses t1 and plays m2 if the environment chooses t 2 ; - Strategy of Receiver 1: plays s1 if the Sender chooses m1 and plays s1 if the Sender chooses m2 ; - Strategy of Receiver 2: plays s1 if the Sender chooses m1 and plays s 2 if the Sender chooses m2 ; - Strategy of Receiver 3: plays s 2 if the Sender chooses m1 and plays s1 if the Sender chooses m2 ; - Strategy of Receiver 4: plays s 2 if the Sender chooses m1 and plays s 2 if the Sender chooses m2 . Comments: - the first and forth strategy, at the Sender level, are called unifying strategies, as each type sends the same massage; - the second and third strategies, at the Sender level, are called separating strategies, as each type sends a different message; - there are also the models with more than two types to be selected by the environment, the so-called partially unifying strategies, where all types belonging to a given type set send the same message, but different type sets send different messages; - as for the game with two types to be selected by the environment (see Figure 1), we also have mixed strategies (hybrid strategies), where t1 plays m1 but t 2 randomly chooses between m1 and m2 . Signalling criterion 1: After having noticed any massage m j out of M, the Receiver shall have a certain confidence on the types that could have sent m j . The probability distribution  (ti / m j ) shall be attached to this confidence, where  (ti / m j )  0 , for each ti out of T, and

  (t

t i T

i

| m j )  1.

Signalling criterion 2R: For any message m j out of M, The Receiver strategy s  (m j ) shall maximize the expected utility of the Sender, given the confidence  (ti / m j ) on the types that could have

sent

mj ,

this

meaning

s (m j )

that

solves

the

optimum

problem:

max   (ti | m j ) R (ti , m j , sk ). sk S

ti T

Signalling criterion 2E: For each ti out of T, the Sender message m (ti ) shall maximise his utility, given the Receiver strategy s  (m j ) , this meaning that m (ti ) solves the optimum problem

max  S (ti , m j , s  (m j )). m j M

For the messages of the equilibrium class, by applying the third criterion to the Receiver confidence, we will obtain: 63

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Signalling criterion 3: For each message m j out of M, if there is any ti out of T so that m (ti )  mi j, then the confidence of the Sender as to the set of information corresponding to m j shall follow the Bayes rule and the Sender strategy, therefore its probability distribution being p (ti ) . rendered by:  (ti | m j )   p(ti ) t i Ti

Definition 2. A pure strategy represents a perfect Bayesian equilibrium in a signalling game, if the triplet [m (ti ); s  (m j );  (ti / m j )] complies with the signalling requirements (1), (2R), (2E), and (3). Conclusions: 1. If the Sender strategy is unifying or separating then the equilibrium will be called unifying or, respectively, separating. 2. The four possible pure strategies rendered by Figure 1, representing perfect Bayesian equilibria in this game with two types to be selected by the environment, and two messages are: (1) unifying on m1 ; (2) unifying on m2 ; (3) separating with t1 playing m1 and t2 playing m2 ; and (4) separating with t1 playing m2 and t2 playing m1 . 3. SIGNALLING ON THE LABOUR FORCE MARKET Corroborating with the steps taken in performing the signalling game, described at point 2, the carrying out of such a game on the labour force market looks as follows: P1. The environment determines the productive ability of a worker,  , which may be high, H, or low, L,. The probability for   H is p; P2. The worker discovers his ability and selects a level of education, e  0; P3. Two companies notice the worker education (but not his ability) and simultaneously advances wage offers to the worker; P4. The worker accepts the biggest of the wage offers. We go further from the ascertaining that the wages are higher, on average, for those workers with many years of studies. This tempts us to construe the variable e as years of studies, the differences within e being seen as differences in the performance quality of a student and not as his individual length of studies. As such, e measures the number and types of the subject matters assumed and the calibre of the marks and distinctions acquired all along an academic programme. The school attendance costs, if any, are supposed to be independent of e, so that the cost function c( , e) measures non-monetary or psychical costs. The main assumption of the model is that the workers with low ability find the signalling more expensive than those with high ability. Therefore, the education marginal cost is higher for the low ability workers than for the high ability ones: for each e, ce ( L, e)  ce ( H , e) , where ce ( , e) represents the marginal cost for a worker with ability  and level of education e. In order to construe this assumption, we take a worker with the level of education e1 , to which a wage w1 will be paid. The increase of the wages necessary in order to compensate this worker for an increase in education from e1 to e2 shall be also calculated. The answer depends on the ability of the worker: the low ability workers find it more difficult to accumulate additional education requiring higher wages in return. Competition between companies turns the expected profits to zero. One way to deal with this hypothesis is to replace the two companies at P3 with a single player – the market, which makes 2 just one wage offer w and gets the profit q ( , e)  w .

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In order to maximize the expected earning, as required by the Signalling criterion 2R, the market shall offer a wage equal to the expected production of a worker with education e, given the market confidence on the worker ability, after having noticed e: (1) w(e)   ( H / e)  q( H , e)  1   ( H / e)  q( L, e) where  ( H / e) is the market assessment on the probability for the worker ability to be H. Complete information case We suppose that the worker ability is common information for all players. Thus, the competition among the two companies at P3 involves the fact that a worker with ability  and education e, gets a wage w(e)  q ( , e) . Therefore, a worker with ability  , chooses the level of education e for solving the optimum problem: max{q ( , e)  c( , e)} e

With the solution e ( ) and therefore w( )  q ( , e ( )) . Incomplete information case Returning to the assumption that the worker ability is private information, this opens the possibility for a low ability worker to pretend to be a high ability worker. Two cases may rise: - the first case where w ( L)  c[ L, e ( L)]  w ( H )  c[ L, e ( H )] ; - the opposite case, where the low ability worker is supposed to envy the wage offered within the complete information case and the education level of the high ability worker, this meaning that: w  ( L)  c[ L, e  ( L)]  w  ( H )  c[ L, e  ( H )] . Three types of perfect Bayesian equilibria may exist in this model: - unifying equilibrium, when both types of workers choose a single type of education, called ed . The Signalling criterion 3 implies that the company confidence after having noticed ed shall be the priority confidence,  ( H / e)  p , implying that the wage offered after having noticed ed shall be wd  p  q ( H , ed )  (1  p )  q ( L, ed ) (2) In order to complete the description of a unifying perfect Bayesian equilibrium, we shall: - specify the confidence of the companies  ( H / e) for educational choices e  e d outside the steady state, determining the remainder of the strategies of the companies w(e) by (1); - demonstrate that the best answer of both types of workers to the strategy w(e) of the companies is to choose e  ed . Thse two steps represent the Signalling criterion 1, respectively 2E, as above-mentioned. If the company confidence is 0 if e  ed  ( H | e)   (3)  p if e  ed Then (1) determines the company strategy as q ( L, e) if e  ed w(e)   (4) if e  ed .  wd Therefore, a worker with ability  chooses the level of education e to solve the optimum problem: max{w(e)  c( , e)} (5) e

With the solution ed max{q ( L, e)  c ( , e)} .

or that e representing the solution of the optimum problem

e

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Thus the triplet [e,  ( ), w(e)] , [e( L)  ed ; e( H )  ed ] representing the strategy of the worker, the confidence  ( H / e) given by relationship (3) and the strategy w(e) , for companies, given by (4), form a unifying perfect Bayesian equilibrium; - by replacing ed by e~ within the relationships (3) and (4), the resulting confidence and the company strategy, beside the strategy [e( L)  e~; e( H )  e~ ] for the workers, represent another unifying perfect Bayesian equilibrium. - separating equilibrium, when the perfect Bayesian equilibrium separating by itself implies the strategy [e( L)  e  ( L); e( H )  e  ( H )] for the worker. The Signalling criterion 3 determines the confidence of the company after having noticed any of the two levels of education (namely,  ( H / e  ( L))  0 and  ( H / e  ( H ))  1 ), so that (1) implies that w(e  ( L))  w  ( L) and w(e  ( H ))  w  ( H ) . In order to describe these separating perfect Bayesian equilibria, we shall: - specify the confidence of the companies  ( H / e) for educational choices outside the -

steady state (values of e different from e (L) or e (H ) ), subsequently determining the remainder of the strategy w(e) of the companies by (1); - demonstrate that the best answer for a worker with ability  to the strategy w(e) of the companies is to choose e  e  ( ) . A confidence meeting these requirements is given by: 0 if e  e ( H ) (6)  ( H | e)   1 if e  e ( H ). And the company strategy becomes: q(L,e) if e  e ( H ) (7) w(e)   q(H,e) if e  e ( H ). As e (H ) is the best answer of the high ability worker to the wage function w  q ( H , e) , this remains the best answers in this case too. As for the low ability worker, e  (L) is the best answer of that worker when the wage function is w  q ( L, e) , so that w  ( L)  c[ L, e  ( L)] represents the biggest earning the worker is able to reach, out of all choices of e  e  (H ) . A specification of the confidence of the companies outside the steady state class, supporting this equilibrium-related behaviour, is that the worker has a high ability if e  ed and a low ability otherwise, the probability distribution being given by: 0 if e  ed  ( H | e)   1 if e  ed .

q(L,e) if e  ed The company strategy becomes w(e)   q(H,e) if e  ed . Given this wage function, the low ability worker answers the best: - by selecting e (L) and earning w (L) ; - by selecting ed and earning q(H,ed ) . Same as for the unifying equilibria, there are other separating equilibria implying a different educational choice by the high ability worker.

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For exemplification, let e~ be an educational level higher than ed , but sufficiently low that the high ability worker would rather signal his ability by choosing e~ than let other believe that he is a low ability worker: q ( H , e~ )  c ( H , e~ ) is biggest than q ( H , e)  c ( H , e) for any e. If we replace ed by e~ in  ( H | e) and w(e) , then the resulting confidence and company strategy, beside the worker strategy [e( L)  e ( L); e( H )  e~ ] are also a separating perfect Bayesian equilibrium. Let consider, given the company confidence relating to the educational level, e  (ed ; e ( H )) , as strictly positive but low enough, so that the resulting strategy w(e) be placed under the indifference curve of the low ability worker, through point (e ( L); w ( L)) . - hybrid equilibrium If a worker chooses a level of education with certainty, the other one may randomly choose between joining the fist one (by selecting the level of education of the first type) and getting separated from him (by selecting a different level of education). We analyse the case when the low ability worker makes a random choice. We suppose that the high ability worker chooses the level of education eh (where h means hybrid), but the lo ability worker randomly chooses between eh (with the probability ) and eL (with the probability 1-). The Signalling criterion 3 (rendered in the extended form in order to allow for mixed strategies) determines the company confidence after having noticed eh or eL , the Bayes rule leading to:6 p (8)  ( H | eh )  p  (1  p ) and the usual conclusion after separation reduces to  ( H | eL )  0 . 4. APPLICATION OF THE SIGNALLING GAME ON THE LABOUR FORCE MARKET OF EU-27 Considering, at the level of several countries of EU-27, the following indicators: Table no. 1.

France Spain Italy United Kingdom Germany Czech Republic Poland Hungary Bulgaria Romania Albania

Education index 2007 0,978 0,975 0,965 0,957 0,954 0,938 0,952 0,96 0,93 0,915 0,886

ed

H

L

0,852528 0,849528 0,839528 0,831528 0,828528 0,812528 0,826528 0,834528 0,804528 0,789528 0,760528

13,692 13,65 13,51 13,398 13,356 13,132 13,328 13,44 13,02 12,81 12,404

10,758 10,725 10,615 10,527 10,494 10,318 10,472 10,56 10,23 10,065 9,746

and identifying also the following functions: q ( , e)  a  e  , for   L , respectively   H ; be , for   L , respectively   H . c( , e)   67

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the results below have been obtained: Complete information case a2 e ( )  2  3 4b

France Spain Italy United Kingdom Germany Czech Republic Poland Hungary Bulgaria Romania Albania

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Table no. 2.   for a  1 , b  1 1,575602 1,57399 1,56859 1,564244 1,562608 1,553824 1,561515 1,565877 1,549394 1,54102 1,524566

  for a  1 / 4 , b  3 / 4 3,277144 3,27379 3,262561 3,253521 3,250118 3,231847 3,247845 3,256917 3,222634 3,205216 3,170993

The highest level of ability, for both scenarios, is registered by France workers, followed by Spain, the lowest levels coming to Albania and Romania. Incomplete information case Table no. 3.

eL 0,852528 0,849528 0,839528 0,831528 0,828528 0,812528 0,826528 0,834528 0,804528 0,789528 0,760528

Unifying equilibrium 1 eH roL=p roH=p 0,978 0,5 0,5 0,975 0,5 0,5 0,965 0,5 0,5 0,957 0,5 0,5 0,954 0,5 0,5 0,938 0,5 0,5 0,952 0,5 0,5 0,96 0,5 0,5 0,93 0,5 0,5 0,915 0,5 0,5 0,886 0,5 0,5

w 3,451499985 3,440912561 3,40562115 3,377388022 3,366800598 3,310334341 3,359742316 3,387975445 3,282101212 3,229164096 3,126819004

Table no. 4.

eL 0,852528 0,849528 0,839528 0,831528 0,828528 0,812528 0,826528 0,834528 0,804528 0,789528 0,760528

Unifying equilibrium 2 eH roL=p roH=p 0,978 0,3 0,3 0,975 0,3 0,3 0,965 0,3 0,3 0,957 0,3 0,3 0,954 0,3 0,3 0,938 0,3 0,3 0,952 0,3 0,3 0,96 0,3 0,3 0,93 0,3 0,3 0,915 0,3 0,3 0,886 0,3 0,3

68

w 3,368363609 3,358031205 3,323589859 3,296036783 3,285704379 3,230598226 3,27881611 3,306369187 3,203045149 3,151383131 3,051503228

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Tables 3 and 4 present the unifying equilibrium for two scenarios considered. It is ascertained that the highest level of w, for both scenarios is registered by France, followed by Spain, the lowest levels coming to Albania and Romania. 4. CONCLUSIONS This analysis allows us to draw the following conclusions: - in case of signalling games on the labour force market, the pure strategy case, three types of equilibrium are available: unifying, separating and hybrid; - as the worker ability is private information, this allows for a low ability worker to pretend to be a high ability worker; - the low ability workers find it more difficult to accumulate additional education requiring higher wages in return; - beside the classical separating equilibria, same as for the unifying equilibria, there are other separating equilibria implying a different educational choice by the high ability worker; - sometimes the separating equilibrium becomes the limit of the hybrid equilibrium. The above-rendered application is meant to strengthen, at least partially, given the lack of consistent data, the theoretical results. BIBLIOGRAPHY 1. Abreu, D. and F. Gul (2000), “Bargaining and Reputation”, Econometrica 68, 85-117. 2. Aumann R.J. (1990): Nash equilibria and not self-enforcing. In Jean Jaskold Gabszewicz, Jean-Fran_cois Richard, and Laurence A.Wolsey, editors, Economic Decision Making: Games, Econometrics and Optimisation, pages 201/206. Elsevier 3. Aumann, R. J. (1974), “Subjectivity and Correlation in Randomized Strategies”, Journal of Mathematical Economics 1, 67-96. 4. Aumann, R. J. (1959), “Acceptable Points in General Cooperative N-Person Games”, pp. 287-324 in Contributions to the Theory of Games, Volume IV (Annals of Mathematics Studies, 40) (A. W. Tucker and R. D. Luce, eds.), Princeton: Princeton University Press. 5. Banks, J., Camerer, C., Porter, D. (1994) “An experimental analysis of Nash equilibrium in signaling games”. Games and Economic Behavior, 6(1):1{31. 6. Ben-Porath, E. (1997), “Rationality, Nash Equilibrium and Backward Induction in Perfect Information Games”, Review of Economic Studies 64, 23-46. 7. Ben-Porath, E., Dekel, E. (1992) “Signaling future actions” Journal of Economic Theory, 57:36{51, 1992. 8. Benz, A., Joager, G., Van Rooij, R. (2005) “Game Theory and Pragmatics”, Palgrave MacMillan. 9. Benaım, M., Weibull, J. (2003): “Deterministic approximation of stochastic evolution in games”, Econometrica 71, 873-903. 10. Balkenborg D., J. Hofbauer and C. Kuzmics (2009): “Refined best-response correspondence and dynamics”, mimeo., Kellogg School of Management, Northwestern University. 11. Fudenberg, D. and J. Tirole (1991), “Perfect Bayesian Equilibrium and Sequential Equilibrium”, Journal of Economic Theory 53, 236-260. 12. Harsanyi J. and R. Selten (1988) “A General Theory of Equilibrium Selection in Games”, MIT Press, Cambridge, USA. 13. Harsanyi, J. C. (1967/68), “Games with Incomplete Information Played by ‘Bayesian’ Players, Parts I, II and III”, Management Science 14, 159-182, 320-334 and 486-502.

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14. Harsanyi, J. C. (1973), “Games with Randomly Disturbed Payoffs: A New Rationale for Mixed Strategy Equilibrium Points”, International Journal of Game Theory 2, 1-23. 15. Heifetz A., C. Shannon and Y. Spiegel (2007): “What to maximize if you must”, Journal of Economic Theory 133, 31-57 16. Josephson J. (2008): “Stochastic better-reply dynamics in finite games”, Economic Theory 35, 381-389. 17. Kreps, D.M., Sobel, J. (1994) “Signalling”, In Robert J. Aumann and Sergiu Hart, editors, Handbook of game theory: with economics applications, volume 2 of Handbooks in Economics - n. 11, chapter 25, pages 849/868. Elsevier 18. Kreps, D. and R. Wilson (1982a), “Sequential Equilibrium”, Econometrica 50, 863-894. 19. Kreps, D. and R. Wilson (1982b), “Reputation and Imperfect Information”, Journal of Economic Theory 27, 253-279. 20. Myerson, R. B. (1978), “Refinements of the Nash Equilibrium Concept”, International Journal of Game Theory 7, 73-80. 21. Milgrom, P. and Stokey, N. (1982), “Information Trade and Common Knowledge”, Journal of Economic Theory 26, 17-27. 22. Nash, J. F. (1950), “Equilibrium Points in N-Person Games”, Proceedings of the National Academy of Sciences of the United States of America 36, 48-49. 23. Nash, J. F. (1951), “Non-Cooperative Games”, Annals of Mathematics 54, 286-295. 24. Nash, J. F. (1950), “The Bargaining Problem”, Econometrica 18, 155-162. 25. Nash, J. F. (1953), “Two-Person Cooperative Games”, Econometrica 21, 128–140. 26. Reny, P. (1992a), “Backward Induction, Normal Form Perfection and Explicable Equilibria”, Econometrica 60, 627-649. 27. Roth, A. E. (2007) “Deferred Acceptance Algorithms: History, Theory, Practice, and Open Questions”, International Journal of Game Theory, forthcoming. 28. Selten, R. (1975), “Reexamination of the Perfectness Concept for Equilibrium Points in Extensive Games”, International Journal of Game Theory 4, 25-55.

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CHANGES OF INNOVATION BEHAVIOUR IN SLOVAKIAN FORESTRY Mgr. JUDr. Zuzana DOBŠINSKÁ Technical University Zvolen, Slovakia [email protected], Ing. PhD. Zuzana SARVAŠOVÁ National Forest Centre Zvolen, Slovakia [email protected], doc. Dr. Ing. Jaroslav ŠÁLKA Technical University Zvolen, Slovakia [email protected] Abstract: The present study describes the situation in the Slovak forestry sector comparing innovation activity in two different periods (2002 and 2009). The ownership type appeared to be important for the innovation activity of forest holdings. Higher innovation activity was reported by state-owned enterprises, contradicting the hypothesis based on the theory of property rights, according to which the highest entrepreneurial and innovation activity could be observed in private holdings. Instead, innovation correlated positively with the holding size. The results concerning fostering factors for forest holdings to introduce successful innovations indicate the necessity of cooperation, information exchange and the support of public and EU sources. The main obstacles for adoption and application of innovation are lack of finances, tax load and environmental legislation. The comparison between the two periods shows that innovation activity has increased from technological innovation to products and services. Wood still remains the main product of forest holdings. In comparison with 2002, in present the importance of bio energy becomes visible. Key words: innovation, product, service, forestry, product mix, market expectations JEL Clasification: Q23

INTRODUCTION Forestry sector is often considered as a mature, “low-tech” industry which invests comparatively little into research and development and is mainly an innovation user. However, developments in the sector have led to a widely shared perception that past practice might not necessarily bring future success. Interest by society in recreation or environmental, including biodiversity, protection has grown in the last decades (Rametsteiner et al., 2010). This opens up opportunities for innovations in the forest sector. Innovation is vital to economic growth and development. Through innovation, new products are introduced to the market, new production processes are developed and introduced, and organizational changes are made. Forestry is an important source of income for forest owners and for employees in rural areas. The future of the people, who make a living in rural areas from forestry, will considerably depend on how individuals and institutions react in view of the changes, how forest owners and managers obtain new knowledge and put it into practice in forestry, and how institutions, especially forest administration, extension services, forest research or other institutions best deal with emerging changes. The restructuring of forestry and the development of wood prices tend to have a negative impact on employment. To compensate for the negative impacts, product and service innovations based on the multifunctional use of forest and the efficient use of the growing stock of wood can provide new opportunities for rural employment (Rametsteiner and Weiss, 2004). The objective of the presented study is to compare the effects of innovation activity and entrepreneurship behaviour in the Slovak forestry sector in the years 2002 and 2009 with the accent on the successfulness of the innovation, product mix and market expectations of forest owners. The study also seeks to identify fostering and impeding factors to innovation.

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THEORETICAL FRAMEWORK Entrepreneurship is widely defied as a process by which individuals pursue opportunities without the regard to the alienable resources they currently control (Hart et al., 1995). Irrespectively of its opportunity-based or necessity-driven nature, the main features of the entrepreneurship include an autonomous behaviour of enterprises, creativity, target- orientation, initiative, novel approaches in nonstandard situations, ability to make decisions in uncertain situations, and the will to take and carry a risk (Šálka et al., 2006). The OECD (2005) defines innovation in its Oslo Manual as “[…] the implementation of a new or significantly improved product (good or service), or process, a new marketing method, or a new organisational method in business practices, workplace organisation or external relations.” The minimum requirement for an innovation is that the product, process, marketing method or organisational method must be new to the firm (or significantly improved). A common feature of an innovation is that it must have been implemented on the market or when it is taken into use by customers. New processes, marketing methods or organisational methods are implemented when they are brought into actual use in the firm’s operations (OECD 2005). The Oslo Manual distinguishes four main types of innovation – product, process, marketing and organisational innovations – which are further sub-divided. Institutional innovation as a separate category was added by Weiss et al. (2010). A product innovation is the introduction of a good or service that is new or significantly improved with respect to its characteristics or intended uses. This includes significant improvements in technical specifications, components and materials, incorporated software, user friendliness or other functional characteristics. A process innovation is the implementation of a new or significantly improved production or delivery method. This includes significant changes in techniques, equipment and/or software. A marketing innovation is the implementation of a new marketing method involving significant changes in product design or packaging, product placement, product promotion or pricing. An organisational innovation is the implementation of a new organisational method in the firm’s business practices, workplace organisation or external relations. An organisational innovation is the result of strategic decisions taken by management. Business model innovations would be included under this category. Besides the above classified types of innovation that refer to innovations on a firm level, the concept of institutional innovations is of increasing relevance when analysing policies and institutions. Institutions are understood here to denote “the rules of the game”. Institutional innovations refer to innovations in the public/policy sphere. Institutional innovations may include new or adaptation of existing organizations, new or significantly modified rules as laid down in laws, decrees or policies as well as new or significantly modified procedures in developing and implementing policies (Weiss et al., 2010). There is a growing consensus in the innovation system literature that innovation is an institutional process (Lundvall et al. 2002, Edquist, 2001,) and that it is not only the entrepreneur that is responsible for the innovativeness of the firm. They have to be embedded in a system of institutions that can support them. A system of innovation has, usually in the context of national innovation system research, been defined by the leading researchers in the field with different areas of emphasis. Some common characteristics of systems of innovation approaches are their emphasis on innovations and learning, interdependence and non-linearity, differences between systems and non-optimality as well as holistic and interdisciplinary approach. Innovation system approaches are considered a conceptual framework rather than a formal theory. Specific analyses in national innovation system research are directed to deepening the understanding of certain types of flows or structures and processes in innovation systems, especially human resource flows, institutional linkages, industrial clusters and innovative firm behaviour. For researching innovation and innovation policies in forestry, the approaches of sectoral innovation systems and regional

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innovation systems are of particular importance, putting emphasis on the sectoral institutional system in the former or regional networks in the latter (Rametsteiner and Weiss, 2004). Basic functions of an innovation system are (Edquist and Johnson, 1997): (a) reduction of uncertainty by means of information, (b) cooperation and conflict management, (c) provision of pecuniary and nonpecuniary incentives. The theory of property rights (Notrh and Thomas, 1997; Leiphold, 1980) links the performance of an economic system with the correspondence between competences and responsibilities in decision-making regarding economic activities. A large divergence between the competences and responsibility should reduce motivation to the economic outputs and weaken thus the functionality of an economic system. This divergence is large in a state property, the medium one in a common property, and the lowest one in a private property. The state enterprises are supposed to be the least output-motivated according to this theory, which might influence negatively their entrepreneurial and innovative activity. The output motivation in collectively held enterprises depends on the number of co-owners and transaction costs of their cooperation. The private enterprises are expected to be the most output-motivated thanks to the lowest divergence of competencies and responsibilities. The above mentioned anticipates a hypothesis that innovation activities according to the ownership categories are in the following descending order: individually owned holdings, common properties, state enterprises (Šálka et al., 2006). MATERIAL AND METHODS For the analysis of the situation of innovation and entrepreneurship in forestry in Slovakia, following materials were used: modified questionnaire RPC EFI INNOFORCE from 2002 on the Survey on innovations and entrepreneurship of forest holdings (Lacko and Vinca, 2002). Respondents were chosen by random from the database of forest holdings. The non-state forest holdings and branches of state forest enterprise represented the basic population of the survey. Their owners and managers who are responsible for the management and product or process-related decisions, were the target information sources. Questionnaires were sent by regular mail and email surveys in state and non-state forest holdings during the year 2009. Data collected in 2009 were analyzed by descriptive statistic method. Results from the year 2002 (Lacko and Vinca, 2002) and 2009 were further analysed, compared and evaluated (figure nr. 1).

Database of forest holdings

Questionnaire

Analysis

Results of questionnaire from 2002

Comparison

Evaluation

Figure no. 1. Methodological framework The questionnaire in 2002 was sent out by mail in the random sample of 1072 forest owners and managers. The response rate was 25% (in total 268 respondents). In 2009 questionnaires were sent out by mail: random sample of 500 forest owners and managers and e- mail: 193 email-

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available forest owners and managers. The response rate was 37% (in total 257 respondents). Respondents´ structure is shown in the figures (nr. 2 and 3). The questionnaire was broadly focused on innovation but for the purposes of this study we chose following areas: innovation activity, successfulness of innovation, product mix and market expectation of forest owners and managers for the future (medium-term period – 5 years and longterm period – 30 years).

Figure no. 2. Respondents’ structure according to the form of forest ownership in 2002

Figure no. 3. Respondents’ structure according to the form of forest ownership in 2009 RESULTS The ownership type appeared to be important for the innovation activity of forest holdings. The empirical observations contradict the hypothesis on the highest entrepreneurial activity and innovation in private forests, medium in forests owned by municipalities and land associations, and low innovation in the state owned holdings, however. The highest overall innovation activity was revealed in the state-owned enterprises, intermediary in the municipal forests, and lowest in the holdings owned by land associations and individuals (compare with Šálka et al., 2006). This can be explained by the lack of disposable financial resources for the non-state forest owners. As we can see, the innovation activity has slightly increased in 2009. We can state, that there has been a positive shift towards innovation in forest enterprises (figures nr. 4 and 5).

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Figure no. 4. Innovation activities in 2002

Figure no. 5. Innovation activities in 2009 The types of innovations which were successful can be divided into three categories: products, services and technological or organizational innovations (tables 4 and 5). Technological and organizational innovations have the biggest share on the successful innovations in the year 2002. The higher intensity of technological innovations in 2002 can be explained by the continuing transition to a market economy, where technological innovations are undertaken continuously as new technological means or principles become available (Šálka et al. 2006). As the transformation process in Slovakia continues, innovations become more product oriented (figure nr. 6). Product innovations have doubled from 17% in 2002 to 34% in 2009.

Figure no. 6. Successful innovations in 2002

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Figure no. 7. Successful innovations in 2002 Round wood remains the most preferred product in both periods regardless of the managed area (figures 6 and 7). In enterprises managing a larger area the product mix shows a greater variety than smaller enterprises. They offer a larger scale of offered products and services. Small enterprises (less than 500 ha) prefer round wood and rental to other products. Some of them stated that they do not offer any products because they manage the forest for self-consumption (17 in 2002 and 21 in 2009).

Figure no. 8. Product mix in forest holdings in 2002 In 2009 small and medium sized enterprises are more engaged in innovation and offering new products (figure 8). Other wood product, game, non-wood products and services have a bigger share in the product mix. Recreation and tourism also gained a more important role. The positive shift towards non-wood products offer is a result of adopted strategic documents (such as NFP, RDP) which emphasise sustainable forest management and the importance of the forestry sector in rural development (figure 9).

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Figure no. 9. Product mix in forest holdings in 2009 Regarding the market expectations of forest owners in 2002 wood and drinking water were considered as the main gains that forests can provide. In long term period recreation, environmental services and carbon sequestration was identified (figure 10).

Figure no. 10. Market expectations for forestry in 2002 In the year 2009 (figure 11) bio energy gained a significant role in the market expectations. This is in accordance with the aspirations on the utilization of alternative energy resources. On a global level, the forest biomass resource potentially available for energy is vast. Forests are the main source of energy globally for domestic use & many industries. This opportunity was also recognized by the Slovak forest owners. Wood still remains the main product but other gain a more important role.

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Figure no. 11. Market expectations for forestry in 2009

From the evaluation of both surveys following fostering and impeding factor could be identified (table 1 and 2). Cooperation remains one of the most important fostering factors in the innovation process in both periods. In 2002 the lack of information was identified as one of the impeding factors but changed into fostering factor in 2009. Table no. 1. Fostering factors in both years Fostering factors in 2002 1. 2.

Fostering factors in 2009

Cooperation with customers, suppliers

1.

Supply of technological and organizational services 3. 4.

Support from public sources

Opportunities for further education

4.

Organizational changes 2.

Cooperation

3.

Information

Support from public and EU sources

Lack of financial resources is a permanent issue in the innovation process. EU funding mechanisms became an important financial tool for innovation implementation. In recent years the environmental legislation became larger and presents one of the most visible impeding factors for innovation in forestry.

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Table no. 2. Impeding factors in both years Impeding factors in 2002

Impeding factors in 2009

1.

Lack of own finances

1.

Lack of financial sources

2.

Lack of finances from other subjects

2.

Tax load

3.

High capital costs

3.

High investments and operating costs

4.

Lack of information about possible new products and services

4.

Laws on nature and environmental conservation

5.

High operating costs

5.

Risk of sales and marketing

DISCUSSION Generally, the innovations were more common and usually more sophisticated in the state forest enterprises branches in Slovakia. Their high innovation activity does not correspond with the theory of property rights and can be explained by a positive effect of an enterprise size allowing accumulation of financial resources. The innovation activity of forest holdings in Slovakia and other Central European countries appeared comparable in general as well as according to the product, technological and organizational innovations. There is a limited innovation activity in forest holdings, especially in small ones. Innovations are often incremental and not new for the sector. Another research on this subject in Central Europe undertaken by PC INNOFORCE shows that the most important fostering factors as seen by innovative forest holdings in Central Europe were cooperation, availability of information on innovations and forestry subsidies (Rametsteiner et al., 2005). Cooperation within the sector is also important for Slovak forest holdings but information is seen as a fostering factor only in the 2009 being amongst the impediments in 2002. The most significant impediments for innovative holdings were sale ability risks, lack of information on sales markets, lack of own funding, high costs and tax load. For non-innovative forest holdings the main impediments were lack of own funds, high costs and lack of information (Rametsteiner et al., 2005). The barriers to innovation are similar in Slovakia and other Central European countries. CONCLUSION The ownership type is important for the innovation activity of forest holdings. Large forest holdings were more engaged in innovation process than smaller holdings. Innovation correlated positively with the holding size, when forest larger holdings innovated more than smaller ones. Therefore there is a need for the smaller forest holdings to cooperate between each other. Technological – organizational innovations have dominated in 2002 but were overrun by products and services. In the future, it is assumed by the forest holdings that an increase of importance of drinking water and bio energy will be present which was visible from the 2009 results. Fostering factors for innovations are interactions within and between enterprises and institutions and the main obstacles for adoption and application of innovations are based on financial aspects. There has been a shift towards innovation from 2002 in 2009 which is visible in the successful innovation cases. Forest holdings in accordance with the strategic objective 4 of the 79

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National forest programme of the Slovak republic: Increasing long-term competitiveness and priorities strive for increased competitiveness and economic viability of multifunctional forestry by the means of innovating, offering more non-wood forest products, supporting the use of forest biomass to produce energy and cooperation with other forest land owners. ACKNOWLEDGEMENTS This contribution is the result of the project implementation: Centre of Excellence „Adaptive Forest Ecosystems“, ITMS: 26220120006, supported by the Research & Development Operational Programme funded by the ERDF and the Slovak Research and Development Agency under the contract No. APVV-0692-07. REFERENCES 1. Edquist, C., Johnson, B., 1997. Institutions and organisations in systems of innovation. In: Edquist, C. (Ed.), System of Innovation: Technologies, Institutions and Organisations. Pinter/Cassell Academic, London. 2. Edquist, Ch., 2001. The system of innovation approach and innovation policy — an accoun of the state of the art. Lead paper at the Nelson Winter Conference, DRUID Aaborg, June 12– 15, 2001, draft version of paper downloaded from http:// druid.dk/conferences/nw/ on 10.08.2010 3. Lacko, M., Vinca, R. 2002. Innovations and entrepreneurship in Slovakian Forestry. Final report on results of forest holdings and institutional system surveys. Forest Research Institute, Zvolen. 4. Leipold, H., 1980. Wirtschafts-und Gesellschaftssysteme im Vergleich. Gustav Fischer Stuttgart. 5. Lengrand, L. (2002) Innovation tomorrow. Innovation policy and the regulatory framework: Making innovation an integral part of the broader structural agenda. Innovation papers No 28. Directorate-General for Enterprise. European Communities. 6. Lundvall, B.-A., Johnsson, B., Andersen, E.S., Dalum, B., 2001. National systems of production, innovation and competence building. Paper at the Nelson Winter Conference, DRUID Aaborg, June 12–15, 2001, paper downloaded from http:// druid.dk/conferences/nw/ on 10.08.2010 7. North, D.C., Thomas, R.P., 1977. The First Economic Revolution. Economic History Review 30, 223– 242. 8. OECD 2005: Oslo Manual: Guidelines for Collecting and Interpreting Innovation Data, 3rd Edition. 9. Rametsteiner, E., Weiss, G. 2004. Innovation and Entrepreneurship in Forestry in Central Europe. Draft paper presented at “Sustain Life – Secure Survival II” Conference, 22-25 September 2004, Prague, Czech Republic, downloaded from http://www.boku.ac.at/innoforce/publications/I&E_ForestryCE_Prag04.pdf on 07.09.2010 10. Rametsteiner, E., Weiss, G., Kubeczko, K., 2005. Innovation and Entrepreneurship in Forestry in Central Europe. European Forest. 11. Weiss, G., Salka, J., Dobsinska, Z., Aggestam, F., Tykkä, S., Bauer, A., Rametsteiner, E. 2010. Integrating Innovation in Forest and Development Policies: Comparative Analysis of National Policies acrossIn: Rametsteiner, E., Weiss, G., Ollonqvist, P. & Slee, B. (eds.). Policy Integration and Coordination: the Case of Innovation and the Forest Sector in Europe, 10; OPOCE, Brussels, 41-86. 12. Šálka, J., Longauer, R., Lacko, M. 2006. The effects of property transformation on forestry entrepreneurship and innovation in the context of Slovakia. In: Forest Policy and Economics 8 (2006), 716– 724.

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ROMANIA’S INVESTMENT POLICY Lecturer PhD. Oana CHINDRIS-VASIOIU The Ecological University in Bucharest, Romania [email protected] Abstract: At the moment Romania's economic policy aims to gradually reduce the economic gaps that separate it from developed world economies. In the current international environment, characterized by the internationalization of economic processes, output and financial capital flows, foreign direct investments (FDI) are an important source of profits that can ensure sustainable economic growth. The increase of FDI inflows both in Romania and in other countries consist of the implementation speed and success of the market economy. Successful schemes for privatization and economic restructuring as part of a successful transition from better economic performance would certainly enhance any type of investment, including FDI. Key words: investment policy, foreign direct investment, gross domestic product, private company, European integration JEL Classification: F21, O16

1. INTRODUCTION Analysing economic performances expressed through the GDP recorded by transition economies in the past years, in general, and by Romanian economy, in particular, and using the result to project a trend for the next few years it is very clear that the private sector is still alarmingly below national needs and an economic recovery can not be achieved without this sector. The transition towards a market economy is accompanied by a dangerous instability and uncertainty management especially for companies with wholly or partially owned state capital. The physical and moral usage of the fixed assets is pretty advanced in these businesses, many of them are still being made using machines from the 70s generation, which highlights the acute need of an upgrade, the need for urgent projects and investment activities to ensure the replacement of old equipment with other more modern and state of the art. International investments have had a strong impact in the last three decades over economic growth, foreign trade and over the productive structures in almost all countries. In a broad sense, the investment is any use of an asset as capital for a profit. As the assets are real or financial, investments as well can be real (in property, capital goods, etc.) or financial (securities). To be more accurate the investment represents the purchase of property, shares, bonds or depositing money at financial institutions to ensure an income (interest, dividends, rent etc.) and capital growth. An option on prioritising between FDI and domestic investment can only be in favour for the absolute priority of domestic investment. Any economist must be convinced from the beginning that only the endogenous factor - domestic capital accumulation and encouraging local investors may give national economy content and a future in terms of independence, sovereignty and equality in global economic relations. This strategy is closely linked to the taxing policy and the national concept of macroeconomic strategy. It is also an attribute of power and a component of the transition to a market full of integration opportunities into the economic and political European and Euro-Atlantic structures (Andrew, 2009). On the other hand paid capital is located mainly in non-strategic areas (trade, banking, services, tourism and hotels) while in production and especially the basic industries, the paid capital is not paid according to the one paid-in. Not paying this capital is either the expression of the uncertainty of the foreign investor conception or the questionable quality of some investors easily accepted by the Romanian partners, or their lack of information on the basic rules of foreign economic or cooperation relations. All this reveals in fact the areas where the resuscitated structures in Romania should be empowered to participate effectively and competently and support the Romanian investor. 81

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2. CONCERNS REGARDING THE INVESTMENT POLICY OF ROMANIA Romania has serious drawbacks compared to neighbouring states with a similar political situation and economic system and especially with the very developed states of the EU. Yet it is easy to understand that joining the EU and being in the same group with some powerful states involves and requires a genuine training which would give the right of a genuine partnership. Integration without an improvement of the major gaps, at least technological, legislative and structural is not acceptable both for the undeveloped states and the EU. Besides some research circles give Romania a number of sanctions regarding the analysis of opportunities for integration, reported in the current situation. In the studies of a South-Eastern European Company near the University of Munich, a reference institution for political and economic circles in West - Europe, Romania is not portrayed in appositive light its economic situation being described as "a desolate picture... hardly able to feed its people." Romania, as all countries in Central and Eastern Europe, also has a series of objective and subjective reasons behind the interest in foreign direct investment from which we can especially learn the following:  The need for capital technological upgrade, economic recovery after the restructuring imposed by the transition to a different economic system, the market economy is a first big motivation to attract foreign interest. The transition to a market economy requires several essential moves in the economic structures. The implementation of private property as preponderant in the economy becomes a request of the first degree of the transition. Without a rapid alignment of the global economy modern requirements, the economies of the former communist states are likely to enter a dangerous setback.  Enforcing and using new leading methods is a necessary component of a successful restructuring transition. Among the synergist factors with determining effects in the economic growth and development, a young and innovative management is considered to have a positive role according to the Japan Economic Research Centre. Also, former German chancellor and renowned economist Helmut Schmit stated years ago that the rapid progression of the post-war German economy was based on a good organization of the economic activity and production as well as the specific discipline of these people.  The access to the Western market with its high demands is also a serious motivation to attract FDI. Products obtained by foreign participation in the production process have much easier access to foreign markets, especially if and when they join the foreign investors’ achievements in the country of origin. In many cases the result of such cooperation, which is intended to make investments and joint products, can enjoy certain facilities entering the markets of the developed countries facilities that can target different authorizations, approvals, assimilation etc.., as well as customs and fiscal facilities or others. 3. STRATEGIES TO ATTRACT FOREIGN DIRECT INVESTMENTS (FDI) IN ROMANIA In Europe, where Romania makes more than half of its export and imports it is easy to imagine what certain isolation would mean. Romania's integration into European and Euro-Atlantic political and economic structures is not only a matter of tactical options, but first, a widely accepted strategic problem. Aware of the importance of this membership and Romania’s integration into the European economic concert, in Romania a consensus was reached by all major political forces by signing the joint declaration at Snagov, which has legitimized the accession strategy and proved the full credibility that Romania has to enjoy in Europe and worldwide in the irreversible transition process, to a market economy (Prelipceanu, 2006). 82

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Regarding its economic relations, Romania has consistently moved towards the development of trade links and cooperation with the Western continent. Romania's political and economic interests are intertwined with those of the whole Europe, by its geopolitical position, by its present and future economic importance, being at the crossroads of the most important trade routes. When over 50% of its foreign trade is conducted in relations with Western European states, Romania needs the European market and the latter needs Romania (Prelipceanu, 2006). The vast majority of foreign investors want to avoid contacts with state ownership, in whatever form it is presented, offering instead the option of purchase. The purchase of companies, as a form of direct capital investment abroad, implies by definition a quasi-total or full takeover of a foreign company whether executed through direct negotiation or making the purchase of shares which is from the beginning subordinated to the expansionist strategies of major transnational concerns with great economic power, holding multiple channels of market information and influence including the nationals policies of the receiving states of such investments. Moreover, the management of some companies where the state holds the controlling stake is not entirely free to act being constantly conditioned to a number of representatives of power, with less ability to understand and meet specific needs of the company, but with great influence in decision making. The emergence of new private companies, even if they have less economic and financial power, is also likely to attract new foreign investors, knowing that the foreign investors who want to expand in other markets are often small and medium enterprises. A study revealed that, for the first time in America, companies primarily interested in new investments are businesses with fewer workers than 200 (Dunning, 993). According to that study the companies that want, for the first time, to invest in East – European countries, represent about 20% of the potential investors, while 80% of whom are among those who have already invested in this geographical area. It is very important that that the private sector, including even the co-operative companies or other associations, acts as an important factor with decisive impact on Romania's macroeconomic development. 4. THE EVOLUTION OF FOREIGN DIRECT INVESTMENT (FDI) IN ROMANIA DURING TRANSITION During 1992-2009 foreign investment in Romania increased, their stock reaching from 87,3 million dollars in 1990 to 41,001 million dollars at the end of 2009. The average and relatively small foreign capital volume per firm is consistent with the orientation of these investments, mostly directed towards sectors with greater opportunities for rapid recovery such as trade, tourism, investment and services, food and light industry, sectors that do not require large investments. The evolution of FDI flows is influenced by the events occurring internationally and nationally in the political and economic scene and by the foreign partners' confidence in a country's development strategy. In 2009, the most important component of foreign direct investment attracted by Romania was "reinvested profit" (33.9% of total FDI), followed by "equity" (33.8% of total FDI) and the component "other capital", meaning the loans granted by the mother- company to the affiliated structures in Romania (32.2% of total FDI). Romania's attractiveness as a destination country for foreign investors was manifested by the number of companies with foreign participation in the new capital registered in 2009 meaning 11,719. In comparison to 2005 it is noticeable an increase of 13.9% of the foreign partners interest to establish new companies in Romania. Foreign investment in Romania mostly comes from the European Union (over 59% in value and 39% in number of investors). The greater share in the value structure than in the physical structure shows that these investors have allocated specific higher volumes in each investment, thus 83

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demonstrating the reliability and the perspective security of those partners. Such conclusions are also drawn from the analysis of the investments from North America accounting for 10% of the investment volume and 6% of the total number of investors, while the foreign investments from Asia and particularly from the East show small specific investment dispersed in a large number of companies. The structure of FDI in different fields related to the amount of companies with a foreign participation paid-in capital during January 1991 - December 2009, places industry on the first place with 52%, followed by professional services 21,7%, trade 14,9%, transport 7,1%, tourism 1,8% Construction 1,7% and agriculture 0,9%. The orientation of FDI towards the industry is due to the advantages offered by Romania in this field, such as lower land prices than in other countries in the region, developed infrastructure, skilled and cheap workforce, the existence of production capacity and tradition in this field. In the last two years a great boom was noticed in the auto component industry due to foreign investments. Many companies have expressed their intention to invest or have already invested in this field: the Japanese company Yazaki opened two auto parts factories in the Industrial Park Ploiesti the amount of the investment being 16 million U.S.$; Draxlmaier German group, as a result of the 15 million dollars investment opened the auto parts factory in Hunedoara and the German company Ruwel announced its intention to make an investment involving the opening of a factory of auto parts worth 80 million euros in the industrial park in Cluj.It is also noticeable that for the companies with foreign capital participation the industry is a intensive area in capital and not in the number of companies, which creates premises for the industrial sector to be characterized by the products with a high added value and with a high degree of processing (Dragomir, 2004). Regarding the classification of companies with foreign capital participation by the country of origin of the investors, the most important are Netherlands, Austria, Germany, France and Italy. 5. CRITICAL ASPECTS OF FDI IN ROMANIA Some failures claimed by the foreign investors, who also are not specific only to Romania, but also to other economies of developing countries must be taken into consideration and should be removed through appropriate measures. The right to dispose of the lands on which are FDI found is a problem highly upbraided to the Romanian legislation and as well as the Bulgarian one, especially in the cases of some 100% foreign capital investment. The leasing term of 99 years or throughout the life of the investment is seen as an agreeable solution of compromise. The discussions with many small and average sized foreign investors reveal that they are not particularly interested in buying land which is an anticipated expense with a long term recovery while leasing is a current expense, immediately noted in costs and thus recovered in short time. The bureaucracy in the enforcement of some laws is also upbraided not only to Romania but also to Poland, Czech Republic and Bulgaria which especially consists of long series of research, approval, justification and last not least the extension of activities when it comes to capital increase by reinvesting the profits etc. The state of economic and currency instability is also a serious impediment by the lack of safety to the feasibility study findings especially related to investment recovery opportunity and the guarantee of achieving the desired profit. Romania's economic situation in recent years and the prospects that can be foreseen are likely to eliminate the like the above concerns for the Romanian economy. According to the data published by the National Bank of Romania in the Annual Report on the Payments Balance and the Investment Position of Romania after the economic decline during 1991-1992, when GDP dropped to 28.8 mild. U.S. dollars (1991) and to 19.6 Mild. U.S. dollars (1992), the growth trend appears starting in 1993, this indicator being of 26.4 Mild. dollars in 1995 the trend being to upgrade in the following years.

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A propaganda with a greater support and a larger distribution to which the need to use renowned channels through their efficiency and their reliability degree is added is just as necessary as the mentioned measures in the law or macroeconomic, to give the FDI in Romania the effective and beneficial impulses to the Romanian economy. The lack of documentary material on Romania in the libraries of the economic research institutes in Europe must quickly be remediated for studies on Romania to stop being based on inaccurate and sometimes deliberately distorted information, by persons or institutions from the outside that not always carry the best intentions. Regarding the domestic capital accumulation and privatization, as priority and decisive factors the present implemented measures having more permissive and less incentive nature were ultimately reflected in the creation of a large number of private firms in most of the national economy sectors. 6. ASPECTS RECOVERY

AND

PROPOSALS

TO

ACCELERATE

THE

ECONOMIC

Several measures can be proposed that have also been presented in other papers or debates and also discovered from the direct observation of some specific activities (Chiţoiu and Bran, 2004)  The improvement of tax legislation embodied in reducing the general level of taxation is the first condition of these perspectives. The argument often put forward by some experts that the tax pressure in Romania is lower than other states cannot be supported by an economist who wants to be correct. Not the tax burden is decisive, but the amount of income that remains to the contributor for survival and for accumulation. A percentage, (being it either, 40% or 60%) which would remain to the Romanians is not as valuable as a percentage - of 30% or 45%, remained to the Swedish or Japanese, for example. The income tax annulment for the part that is reinvested in certain sectors is an effective and efficient motivation. In other states practice there are many convincing examples. Post-war West Germany has also successfully applied income tax and the results have justified that direction.  Another feature may be the time change in the VAT payment. Its payment when the goods are delivered and its collection are actually a credit given to the state by the entrepreneurial. When regarding imports this fact is even more eloquent, as the importer pays VAT at the border and then it will be recovered over several months at the dissolution of the imported goods. When imported goods are investments goods this not only makes the economic situation of the importer harder, but also leads to the rise of the investment having effects on both production costs and on the investment capacity of the Romanian investors. This leads to an importer to require relatively high interest loans for paying VAT and then, if the goods are not immediately charged he can ask after three months for the VAT refund related to the not sold goods (meaning the amount of fixed means invested), which, if it is reimbursed, then this is still due for the next month, interest on the loan for payment of the VAT paid as a cost incurred. So the entrepreneur credited the State 3 to 4 months with VAT, without any interest while he pays the bank interest due (by 5-6% per month).  By revising some clauses in the policies regarding income taxes and local taxes entrepreneurs could be given more chances to develop their businesses  An important field in the process of economic recovery and implementation of a market economy could be monetary stability and government support in guaranteeing investment loans than could always warrant with the investment itself. Such practice could be quite an advantage for the Romanian investor looking for external partners and foreign investment.  The quality of the investments made by foreign investors is an issue in which economic research still has something to say. At a first glance a series of matters appear that require further discussions. Naturally that from the foreign investor’s point of view any purchase of assets or real estate represents an investment. Things get complicated when it comes to purchasing assets from the point of view of the receiving countries national economies. The simple sale of output capacities that will be privatized and paid for by a foreigner is considered a classic trade transaction, in which 85

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a good is sold and a price is charged. The national economy reduces its material assets and receives some money, which in the beginning is not considered an investment. According to the current legislation these amounts can be used in any other purpose although in accounting they can be compared to the amortization of production means and should be, by law, intended only to restore the stock of tangible assets. But since the State is reducing its role as primary investor - excluding economic entities of strategic importance in the state administration, which, however, have their own funding from development projects - the proceeds from the sale of assets in the privatization lose their identity and become sources of coverage of other budget destinations. In such a case, the sale of assets through privatization, while attracting foreign investment, is not be considered an investment. This means that for a foreign investment to really fulfill its part production capacity of material goods or services needs to be created and of course this should result in jobs and increasing the stock of inputs. Regarding the proceeds from the sale of assets in the privatization process, either in RON or a foreign currency, they can and should be stored and managed separately towards their role as sources of investment financing. This would be fully consistent with the accounting law, as well as government decisions related to accounting that state clearly that the proceeds of asset sales, and sales of components or parts of fixed funds annulments should turn into development sources and investment sources to rebuild and increase the stock of used fixed funds. Considering the above mentioned, it is suggested to establish a National Fund for Reinvestment and Economic Development, fueled by sales of production capacity and other assets to be privatized, either in foreign or domestic currency and intended solely for funding new productive investment projects.This fund should also be supplied with amounts from abroad in the form of various grants or reimbursable loans, to support the transition process. The investment activity that took place in Germany after the Second World War thanks to the Marshall Plan may be used a reference point. The following rules and conditions of use should be taken into consideration (Creţoiu and Chirila, 2000): 1. The existence of viable, verified and documented projects, subject to approval by an advisory body composed of experts and neutral parties. They must respond to the real needs of the national economy such as creating jobs in areas affected by unemployment, production of quality internationally competitive goods required by the domestic market and especially foreign markets, to be represented by private entrepreneurs, especially young people, that have been trained to manage and implement the proposed project, to join the national or regional strategic programs of macroeconomic policy etc.. 2. The existence of a moral guarantee from the investor or group of associated investors, including material guarantees resulting from the project or from other forms of guarantee. 3. Personal contribution from the investor with his own capital, or obtained through association with others, to ensure proper management of the capital received. 4. Keeping the investment mortgaged until the recuperation of the invested capital from the national fund. 5. Establish a loan system which completely prevents access to cash, the loan being used only to pay bills that accumulate during the development of the project 6. The interest rates will not be larger than the necessary needed for the administration of these funds, without any profit. 7. The de jure administrator must be the Ministry of Finance, but controlled by a certified and knowledgeable State authority. 8. Other conditions which ensure the use of these funds exclusively for projects submitted and endorsed by the authorized bodies with their verification and certification. 9. The fund must be made whole again gradually upon receipt of payment rates or portions of assets sold or loan repayment and then redirected to other productive projects. These are just some components of a strategy designed to encourage investments and create a solid foundation for attracting foreign investors. 86

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7. CONCLUSIONS Romania, together with other Eastern European countries should replace arbitrary rules with strong institutions with a legal regulation that inspire confidence and respect. Good laws and institutions to make them functional represent a good start. The target is difficult to achieve because transition economies are still struggling with a constant tension between, on one hand, the need of a strong government to enforce laws and impose new ones and, on the other hand, the need to restrict government power to make room for individual rights. Market-oriented incentives must complement laws and institutions facing the same direction. Strong involvement related to the EU integration stimulates the need for laws and patterns of market-oriented legislation. Romania's desire to enter the EU was fulfilled, and this motivates and will motivate further the adoption of economic laws that meet EU requirements in areas such as tariffs, trade and competition policy. BIBLIOGRAPHY: 1. Andrei L.C., Economie europeană, Editura Economică, Bucharest, 2009. 2. Chiţoiu D., Bran P. (coord.), Stimularea investiţiilor internaţionale prin facilităţi financiare valutare şi vamale, Editura ASE, Bucharest, 2004. 3. Creţoiu Gh., Chirilă M., Economie mondială, Editura Porto-Franco, Galaţi, 2000. 4. Drucker P., Societatea postcapitalistă, Editura Image, Bucharest, 1999. 5. Dragomir C., Afaceri economice internaţionale: probleme, provocări şi perspective, Editura Expert, Bucharest, 2004. 6. Dunning J., Multinational Entreprise and the Global Economy, Edison-Wesley Publishing Company, Wokingham, England, 1993. 7. Frois G.A., Economie politică, Editura Humanitas, Bucharest, 1998. 8. Prelipceanu R., Investiţiile străine directe şi restructurarea economiei româneşti, Editura Lumen, Iaşi, 2006.

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COHESION POLICY AND GREEN ECONOMY Professor PhD. Florina BRAN PhD. Cristina POPA Associate Professor PhD. Carmen Valentina RADULESCU Bucharest Academy of Economic Studies, Bucharest-, Romania [email protected] Abstract : The international literature reveal numerous debates on sustainability of EU Cohesion Policy, among this debates another issues is reveal the absorption capacity of member state. According to the objectives of Cohesion Policy the financial programmes will contribute to economical growth, absorption of best available technology, create an attractive business environment and jobs. More than 30% of the regional policy budget for 2007-2013, €105 billion will be invested in the "green economy”. The paper synthesis the main aspects of cohesion policy and analyses the investment in green economy. Key words: cohesion policy, green economy, recycling, waste treatment, renewable energy, EU JEL Classification: H41, Q18

INTRODUCTION The national and international literature already study the impact of cohesion policy to economic growth (Kalliores, 2005; Zaman 2010; Matei, 2010; Bradley 2006, Ciupagea; 2007) possible economic effects of structural funds analyzed on econometric models, reveal different scenarios, some studies report a positive impact, others a non-significant one or even a negative one. The sustainability of the Structural and Cohesion was also subject to many study (Wilkinson, 1997; Berger,2004; Etkins, 2008) An recent study (Ecorys, 2009), funding has been questioned by NGOs who claim that EU funds have subsidized an energy-intensive type of development and the danger is that the same pattern will be repeated in the New Member States in the 2007-2013 period. According to them, EU funds could play a positive role in the fight against climate change if systematically directed towards energy efficiency, renewable energy and lowemission transport, which, it is claimed, is not happening. According to the study, only 1% of funds are allocated to energy efficiency and renewable energy, respectively in the draft Operational Programmes. While most of the New Member States are not having problems with reaching their Kyoto target, investments in emission-intensive infrastructure may lock in the countries on unsustainable pathways and limit the potential to contribute to the large-scale emission reductions necessary post2012. Poland, which is highlighted as a case in point, in its own EU SDS reporting mentions the growth in emissions that is catalyzed, by the resources of the Cohesion Fund and Structural Funds of the EU. CONTEXT Damages to the environment have been growing in recent decades. Every year, some 2 billion tones of waste are produced in the Member States and this figure is rising by 10% annually, while CO2 emissions from our homes and vehicles are increasing, as is our consumption of polluting energy. As the effects of global warming confirmed the international scientific consensus, the new sectors of the green economy accelerated their growth worldwide. Technological innovation is needed to shift from fossil fuels to renewable energy, recycling and redesign industrial processes. One of the major tasks of the Union is to ensuring sustainable development, to maintaining a high level of environmental protection, furthermore environmental 88

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protection requirements must be integrated into the definition and implementation of community policies. The cohesion policy is currently the second largest issue in terms of budget, following the common agricultural policy, and has grown consistently over time. The overall ambitions of the regional policy is to increase cohesion and to “reduce disparities between the levels of development of various regions”, enhancing economic development, increasing levels of employment, improving environment and eliminating inequalities. Cohesion policy in all its dimensions is regarded as an integral part of the Lisbon and Gothenburg. Furthermore, EU SDS promotes the integration of climate change and energy objectives in the cohesion and structural funding. COHESION POLICY OBJECTIVES Cohesion policy has 3 major objectives, as follows: Convergence objective concerns, first of all, those regions whose GDP is less than 75% of the community. Within this objective it is envisaged the economic growth for the least-developed regions, through investments in the development of long term competitiveness, employment, sustainable development and also development of institutional capacity and public administration efficiency. Regional competitiveness and employment objective (15% funded in the budget for structural funds and cohesion) - aims to regions not eligible under the Convergence objective. Through programs funded by the European Regional Development Fund, Cohesion Policy supports the regional to anticipate and promote economic change in industrial and rural areas by strengthening their competitiveness and attractiveness. Under the new program financed by the European Regional Development Commission proposes strict intervention and focus on 3 priorities: innovation and knowledge based economy, environment and risk prevention, accessibility and services of public interest. European territorial cooperation objective (financed with 5% of budget for structural funds and cohesion) - refers to: transnational cooperation; cross-border cooperation; interregional cooperation. The programming budget is supported by structural instruments (European Regional Development Fund, European Social Fund and Cohesion Fund) and two complementary actions (European Fund for Agriculture and Rural Development and the European Fisheries Fund). Since October 2008, the Commission has proposed a series of measures to speed up the implementation of European cohesion policy programmes for the 2007-2013 period to ensure that all cohesion policy resources are fully mobilized to support Member State and regional recovery efforts. One of the major objectives of European Economic Recovery Plan together with Cohesion Policy targets investments that strengthen the EU long-term competitiveness is green technology and energy efficiency. As a response to the economic crisis, the cohesion policy foresees that all EU Member States and regions would be able to get EU regional development funding for energy-efficiency and renewable energy investments in housing. Cohesion policy can facilitate transition to a smarter and greener economy across Europe. By mobilizing territorial potential and complementing EU policies, cohesion policy can contribute to maximize the impact of other EU priorities. FINANCIAL SUPPORT FOR “GREEN ECONOMY” With a financial envelope of over €350 billion for the period 2007-2013, cohesion policy provides considerable support to public investment by the EU's Member States and regions. The €105 billion dedicated to green projects and jobs is almost three times greater than the sum allocated in the 2000-2006 budgetary period.

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A large part of the envelope €54 billion is designed to comply with EU environmental legislation. 25

23

20 15 10 6

4.8

5

4.2

0 Railways

Clean Renewable Energy urban energies efficiency transport

Figure no. 1. Investment for a low carbon economy, bln. Euros Source: European Commission (2009)

Improvement of water and waste management alone accounts for €28 billion of the total. €48 billion of the funding has been earmarked for measures aimed at achieving EU climate objectives and creating a low carbon economy (fig.nr.1). According to the EC, in a difficult financial year, the investments will be an important instrument in the long-run employment and revitalization of local economies and the enforcement of the EU commitment to fighting climatic changes. Through the EUR 48 billion bound for the achievement of objectives established by the EU in the limitation of the effects of climatic changes and promotion of a less polluting economy, the cohesion policy has a substantial contribution to the objective of reduction by 20% the emission of greenhouse gas until 2020, compared to the levels of 1990. Romania and Bulgaria are investing the highest proportion of Cohesion Policy funds on environment-related projects, at 45% and 42% of their allocation respectively. These investments include environmental major projects, which also contribute to protecting and creating jobs in the EU. Environment allocations comprise these categories: -Eco-innovation in small and medium enterprises -Railways -Promotion of clean urban transport -Renewable energy -Energy efficiency, co-generation, energy management -Waste management -Water management -Promotion of biodiversity and nature protection -Integrated projects for urban and rural regeneration -Other

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United Kingdom Sw eden Finland Slovakia Slovenia Romania Portugal Poland Austria Netherlands Malta Hungary Luxembourg Lithuania Latvia Cyprus Italy Ireland France Spain Ellada Estonia Germany Denmark Czech Republic Bulgaria Belgium

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15% 10% 9% 33% 38% 44% 24% 26% 7% 16% 37% 37% 12% 35% 34% 35% 31% 17% 22% 35% 27% 35% 16% 6% 40% 41% 13%

0%

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20%

30%

40%

50%

Figure no. 2. Investments in Environment Comparing to Their Total Indicative Budget Allocations for 2007-2013 Source: http://www.energy-cities.eu/IMG/doc/MS_investments_in_environment_green_economy_plan.doc

For Romania the higher investment are for water management: 2.776.532.160 Euros and railways: 1.718.455.590 Euros.

Other

Integrated projects for urban and rural regeneration Promotion of biodiversity and nature protection

Ecoinnovation in SMEs

Railways Renewable energy Energy efficiency, cogeneration, energy management

Water management

Waste management

Figure no. 3. Cohesion policy investment in environment, Romania 2007-2013, in Euros Source: European Commission (2009)

The Cohesion Policy is also helping to create new market openings for local economies by enabling them to seize the opportunities created by the need to tackle climate change as new potential sources of growth. Nearly half of the Member States (Austria, Bulgaria, the Czech Republic, France, Germany, Hungary, Italy, Poland, Portugal, Romania, Slovakia, Slovenia and the UK) have integrated indicators for the reduction of greenhouse gas emissions into their Cohesion Policy programmes. France, for example, has developed a unique carbon evaluation tool to monitor CO2 emissions produced by all projects funded with EU support. Romania included integrated indicators of reducing greenhouse gas in national programs due to the European cohesion policy. Promoting eco-innovation and new green jobs, especially in small and medium enterprises, ranks high in the priorities for support for the regions. The Cohesion Policy is contributing €3 billion to the promotion of environmentally-friendly products and production processes in SMEs. 91

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One of the clear aims of funding for research and innovation is to boost overall investment in green technologies. CONCLUSION Cohesion policy has a key role to play in smoothing transition to a low-carbon economy and enhancing environmental quality. Through Cohesion Policy's objective to deliver sustainable growth, jobs and competitiveness is support green economy and the environment. Even the cohesion policy offer opportunities for development of green economy, the success to achieves the cohesion policy objectives is represented by capacity to absorb funds in an effective manner. Unfortunately, for Romania Romania's capacity to absorb European Funds, has proved to be reduced, and the comparison with other Member States at a similar moment, draw a warning, regarding the modest place occupied by Romania, in comparison with other European countries. Thus, in the first year of accession, according to analysis made by the Romanian National Bank, the rate of absorption was only 21,7%, while other admitted countries in 2004, like the Czech Republic, Poland, Slovakia, Hungary, recorded a nearly double, around 42% in the year in question. One of the major issue identified by European Commission is incapacity to ensure co-financing for project. REFERENCES 1. Hazel Henderson (2007) Growing the green economy – globally, Int. J. Green Economics, Vol. 1, Nos. ¾ 2. Jana Cicmanova (2009) Cohesion policy backs "green economy" for growth and long-term jobs in Europe, http://www.energy-cities.eu/cohesion-policy-backs-green 3. Paweł Samecki (2009) Orientataion paper on future cohesion policy 4. Popa Florina (2010) Absorption capacity of Structural Funds in Romania, Studies and Scientific Researches, Economic Edition, nr.15 5. Rojanski V, Bran Florina, Grigore Florian, Ioan Ildiko (2006) Cuantificarea dezvoltǎrii durabile, Bucureşti, Editura Economica 6. Zaman Gheorghe (2009) Structural fund absorption: a new challenge for Romania?, Romanian Journal of Economic Forecasting – 1/2009 7. Magnus Ekbom (2010) Catching up? A study on the effects of the European Union’s regional policy during 2000−2006 8. COM(2009) 295 final, Sixth progress report on economic and social cohesion, Bruxells 9. European Commission (2009). Cohesion policy backs ‘green economy’ for growth and long-term jobs in Europe. Press releases IP/09/369 10. ERNST & YOUNG (2009) Romania monthly economic review 11. Ecorys (2008) Progress on EU Sustainable Development Strategy, Bruxells, disponibil http://ec europa eu/sustainable/

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ASPECTS REGARDING HISTORICAL EVOLUTION OF INTERNATIONAL FINANCIAL FLOWS Lecturer PhD. Carmen BOGHEAN [email protected] Lecturer PhD. Florin BOGHEAN [email protected] The Faculty of Economic Sciences and Public Administration, Ştefan cel Mare University of Suceava, Romania Abstract: The capital, under all its forms, is probably the economic resource with the highest degree of mobility in the economic context of the new millennium. The capital flows are nowadays common presences on international circuits and also on national, intersectorial or intrasectorial direction. Not just the volume of the capital flows and their motion speed are in a permanent ascendancy, but also the easiness with which they transform (direct investments, portfolio investments, bank and non bank credits, bonds) according to the characteristics of the host environment and the interest towards the holder’s profile. Key words: financial globalisation, international financial flows, financial crises. JEL Classification: D53

INTRODUCTION If in the first half of the past century and in biggest part of the second half, the first coordinate – the one of the national economy through inter and intrasectorial transfers- was the dominated one, and the „stars” of international changes and flows were the merchandises and services, in the last decades the international circulation of capitals represents the type of cross border transaction that registers the most rapid growth. At the same time, if in the past the capital flow was understood only as a financing form of the current account, nowadays, the international distribution of capitals determines more and more the exchange course and the international rates of the interest that, on its turn, influences the evolution and the structure of the international trade. During the last 20 years, the capitals flow met an extraordinary development, the transaction costs diminished, and the allurement of capitals makes nowadays the object of a more and more intense international competition. Ever since, the liberalization measures became indispensable in engaging foreign capital, in order to ensure the integration in the international economy and promote the development of a competitive financial sector. 1. HISTORICAL EVOLUTION OF FINANCIAL FLOWS From the historic point of view, we can talk about for the first time about systematic and significant international flows of capital from the second half of the XIX - th century, when more governments and rail road companies emitted bonds with fixed interest mainly on the capital market of Great Britain, and also on the capital markets in France and Germany. Subsequently, at the end of the XIX-th century, the direct foreign investments, especially those coming from the USA, began to compete from the value point of view with the portfolio investments. In the same period, the international flows of capital exceeded as importance the commercial ones, fact that coincided with the moment in which capitalism became a worldwide economic system. After the end of the First World War that produced a discontinuity in the evolution of the financial flows, in the years 1920, the combination of direct foreign investments and portfolio investments progressed positively, being aimed especially towards the USA and Europe. The great depression of the years 1930 made that such international investments to diminish in a significant way, 93

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their place being taken by speculative capital movements that meant to carry out the evolutions of the currency courses. At almost one decade from the end of the Second World War, in the years 1950, the international capital flows reappear under the form of direct foreign investments and later, of the international financial markets. This time, the main form of the international capital flows was that of loans with variable interests, in comparison with the previous periods when predominate the bonds with fixed interest. The system of Bretton-Woods induces, for a long period of time, the so called Triffin paradox, according to which the international liquidities can only grow in conformity with the deficit of the American external balance of payments and the weakening of the dollar. But for a short period of time, the American capital exports evolved in a way converse towards the evolution of the internal cycle characteristic to the USA, and that attenuated the negative repercussions at an international level. After turning to the system of flexible exchange rates, this adjuster mechanism is more and more weak, because of the „blow up” of the short term capital movements, but also because of the influence the speculative operations had on the exchange courses. (Brakman, S., Garretsen, H., 2006) The development of the operations specific to the international capital flows is carried out through certain specific institutions, according to the nature of the carried out operations (investments or loans). In the case of short or long term portfolio of investments the used institutions are banks or stock exchanges. In the case of the international operations with short term capital connected to the valorisation of the differences of currency, the used markets are the currency ones. The international currency market is the biggest market in the world, its volume being able to exceed 1,5 trillion dollars per day and the main present feature of this market is the strong movement towards Internet that is supported by all the important banks in the world. (Stolnik, B., 2000) In the case of the direct foreign investments we can not talk about certain specific markets, but only about specific operations developed by investors in another country than the resident one. As some promoting agencies of the foreign investments are made of significant facilitators of the foreign capital flows towards the receiver country, they can be considered the „equivalent” of some markets. The internationalization (globalization) of the financial markets does not mean only the coverage of the entire globe with a services network, but also the integration of these markets at a global scale. In this context, capitals gain an unseen before mobility, their transfer being carried out through pressing some computer buttons. The development of the financial markets determined and a meaningful growth of the transactions volume that exceeded the international trade of goods and services. If in the past the majority of the financial transactions were correlated and determined by commercial exchanges, in the present, between the two types of flows appeared a detachment. As part of the global financial markets, the capital flows have as source private and state companies, and also international organizations. These organizations can come from the system of the Organization of United Nations (The International Monetary Fund) or can be cooperation organisms or interstate economic integration such as the European Union or the North- American Free Trade Agreement. (Divecha, A., et al. 1999) Of course, if in the case of the international organizations the generated capital flows have a smaller share and are generated on the basis of certain well defined and relatively slow mechanisms, the flows generated by the private companies have a much bigger share, and also a bigger mobility. If to the commercial international flows (of goods and services) participate all the countries of the world, we can not the say the same thing about the measure of applying them to the international flows of capital. The participation to the worldwide economy through investments or external loans of capital is characteristic only to those states that reached a high level of development. In the present, the transactions on the most important financial markets exceed the value of the international trade with goods and services. Thus, many economists believe that we witness a new phenomenon: the two sides of the worldwide economy- the real one (goods and services) and the financial one (symbolic or nominal) tend to be less interdependent. (Levich, R.M., 2000) 94

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The international financial flows are the result of the capitalism development on a superior scale. There is at least one critical dimension in which the international capital flow before 1914 differs a lot from what we see nowadays, with important implications for, periphery (countries in a process of development). In order to see this comparison we must make the difference between the net and gross international financial assets flows. A gaze over data reflects the fact that the difference between net and gross was very important in the last years, but absolutely with no importance in the globalization era before 1914. The reason is simple. In the last part of the XIX-th century, the main financial flows were the investments of long term capital, unidirectional. There was one exception to take into consideration: The United States of America, where the capital inflows and outgoes were high. But in most cases, the key creditor inflows, especially in Great Britain, but also in France and Germany, engaged to finance other countries in order to gain more capital. Thus, they developed a one way position in their portfolio. In 1914, the share of the Argentinean assets in the portfolio of Great Britain was very high, but through comparison, the Argentinean holding of British assets were minor. Thus, the XIX-th century was under the sign of international assets diversity through the main creditor, nations such as Great Britain. At a first approximation, the total amount of assets and the position of bond were very close to net in that far away period. The years 1980 and 1990 are obviously, very different. For example, The United States of America became in this period the biggest net debtor in the world. But while being responsible for the biggest national stocks of gross foreign bonds, The United States held also the biggest stocks of gross foreign assets. In the period after the war and until recently, the net capital flows among countries became smaller than before 1914, but there was bigger volume of assets in the purpose of diversifying / sharing risk. (Obsfeld, M. Alan, M. Taylor, 2005) In which concerns the orientation of the international financial flows, the most important flow remains the North- North one but in the last years there must be mentioned the apparition and intensification of the South- South flows, as a consequence of the cooperation among the Arabian countries, exporters of oil and the developing countries, flow that, in the last period of time surpasses as dynamics the North-North one. The world economy can be seen as an amount of the connections between the economic activities developed at a large scale. In the present, the way in which people from a country on the globe obtain and spend their incomes, the way in which they make savings and transform them in wealth are related to the people’s incomes, expenses and savings from other countries. Sporadically, such international connections existed even in the preceding centuries but, in the contemporary worldwide economy these connections extended their coverage area, they intensified and changed their nature at scale with no precedent. On the other side, the economic conditions of each country are strongly influenced by the development of the world wide economy. This correlation is felt through the international trade, through the world wide production and the international financial relations. Other important connections that connect the economies of different countries in a global entity- worldwide economy- are represented by the mobility of the labour force and the diffusion and the international transfer of technology. Even if these connections connect each country to the world wide economy, it must be underlined the fact that they do not produce uniform results, in consequence the economic growth is not uniform, in each period some countries developing more than others. The direct foreign investments became in the last years the most important source of external financing for the developing countries and even an important financing source for the developed countries. Many companies do not limit themselves only to the import and export of goods and services but, they find it appropriate the forming of permanent enterprises in foreign countries. There could be a few reasons for such an action: for ensuring the safety of deliveries, it could be more profitable for the company to produce by itself the products than to by them from the local producers or it could be “empire- building” (gaining the control over certain projects and initiatives on order to hold the control) from the part of the company management. (Institute of International Finance, 2009) 95

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There are certain advantages of producing in other countries: cheaper production factors (especially labour) that could facilitate the manufacturing of the product for the needs of the present market. In the second phase, the local production replaces the exports, but there is, usually a third phase in which the goods manufactured in a foreign factory are exported in other countries from the region or even back in the origin country of the company. Most developing countries have taken advantage of favourable external conditions to implement domestic policies designed to reduce their vulnerability to financial turmoil and reversals in capital flows. In particular, countries have reduced their external debt burdens and lengthened the maturity structure of their debt. Several have bought back large amounts of outstanding debt, using abundant foreign exchange reserves, and refinanced existing debt on more favourable terms. The market for sovereign debt has evolved significantly, as governments debt turned from borrowing externally to borrowing domestically, usually in local currency. Creditors` assessment of creditworthiness of developing country borrowers remains positive, as reflected in spread on emerging market bonds and bank loans, which have hovered near record lows. By these measures, most developing countries have clearly improved their ability to deal with moderate shocks that may accompany changes in the international credit environment. 2. FINANCIAL FLOWS IN EMERGING MARKETS The as we see already the 1970s marked the beginning of a new era of financial globalisation, the likes of which have not been seen since the period running up to the First World War. By the mid-1990s, increased global liquidity, the liberalisation of trade and capital accounts, and the search for high-yield investment opportunities caused private sector capital flows to the developing world to vastly surpass levels of official sector development aid. We need however to define what we understand by an emerging market. Strictly speaking the concept as we understand it in the article is related to the countries included in JP Morgan’s Emerging Markets Bond Index (EMBI), produced since the mid 1990s. However if we take an historical point of view, some of the most well known emerging markets of today were quite developed and sophisticated economies in early 1900s: Argentina for example ranked by that time as one of the most developed countries and the United States looked by the early years of the 20th Century as the pure prototype of an emerging economy. Even today some of the most established OECD countries are hard to classified: Turkey, South Korea and Mexico are all emerging economies and also OECD countries while some have been arguing that European or OECD countries like Greece could be classified as emerging economies. But even the notion that emerging markets are also economies that have specific propensities to suffer economies crises is also questionable This diagnosis is in some ways less straightforward than sometimes is assumed because it is not a priori clear whether recent crises are more frequent or deeper than in the past, or just triggered more readily. Like in the past, serial defaulters continue to be alive, the massive historic default of Argentina in 2001, for example, being the fifth of a long series of defaults. Historically, they are not only occurring in emerging markets, although during the 20th Century they became less frequent in the more advanced economies. Sudden stops of capital flows and financial crashes abound, even if during the past decade they remained below the historical average. Political cycles and financial crises continue to go hand-in-hand in emerging markets and asymmetries of information continue to play an important role. (Nieto and Santiso, 2007). The main reason is that, despite all the structural changes since the earlier period of high capital mobility, the potential sources of cyclical variability in capital flows remain the same: divergent macro-economic conditions in capital-exporting and capital-importing countries, and crises in individual capital-importing countries Curiously, emerging markets (EM) countries – the subset of developing countries most integrated in the system of global finance – are now receiving more private capital than they can effectively employ, making them net capital exporters to the United States. One might well expect such abundant access to foreign capital to bode well for EM economic growth and financial 96

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stability. However, the long-term growth effects of financial openness for emerging markets remain a matter of academic debate. Whatever the answer, it is clear that EM countries have often paid a high short-term price for relying on foreign capital, as a long list of EM financial crises attests. We can ‘think of capital flows as a medicine with occasionally horrible side effects. (Rodrik, D. 2002) The role played by private capital markets and financial institutions in generating the occasionally horrible side effects’ of global capital flows warrant greater attention. The prevailing literature and policy discourse place too much blame either on the EM countries or on policy failings of the official and multilateral sectors. Suggested reforms to the global financial system to date have focused largely either on institutional and policy changes required of EM countries or on international crisis-resolution procedures which would only come into play once a crisis is already well under way (Roubini and Setser, 2004). The modern era of financial globalisation has at least two notable features: first, the high volatility of financial flows for EM countries and frequency of financial crises; and second, the fact that it has largely bypassed low-income developing countries. Regarding the second point, we can describe the curious pattern of today’s global capital flows as primarily a ‘rich–rich’ affair and contrast it to the pre-1914 era when capital flowed mainly from rich to poor countries, and in far greater amounts relative to saving and investment. FDI comprises the largest share of total private flows to EM since the mid-1990s, the rest comprising portfolio equity and debt, commercial bank lending, and other instruments such as trade credit and derivatives. Not surprisingly, FDI has been significantly more stable than non-FDI private capital flows: based on the Institute of International Finance’s data, the standard deviation of annual changes in FDI inflows to EM countries from 1978 to 2005 is 0.25 versus nearly 9.0 for non-FDI flows. (Institute of International Finance, 2006) FDI to be significantly less volatile than bank lending or portfolio flows. Correspondingly, FDI is widely viewed as having positive long-term productivity and growth effects for developing countries, even among scholars who argue against the benefits of other types of capital flows.

3. CONCLUSION AND PERSPECTIVE World growth is moderating and financial markets are signalling a turn in the financing conditions facing the developing world. As these developments make themselves felt, 2008 is likely to be a year of adjustment for capital flows to developing countries. After recovering from the sharp contraction of 2001-20002, private flows weathered several episodes of global volatility and passed through a full cycle of global monetary easing and tightening to reach a record level of 647 billion dollars in 2007, up 17 percent from 2006. Total capital flows, including lending by official creditors, levelled off at 5 percent of GDP in 2005-2006, just below in 5.25 percent level reached in 19951997, before the East Asian crisis. Developing countries have come to account for a large share of the growth of word output and trade, a fact that in increasingly recognized by international investors. Their economies grew more than 7 percent in 2007 – more than twice the 3 percent rate of growth in high-income countries. The expansion was particularly evident in China, where output increased 10.7 percent, and India, which grew 9.2 percent. But the strong performance was broadly based, with all developing regions growing al least 5 percent. With almost half the year over, it is clear that net private capital flows to emerging economies in 2009 will be down substantially from 2008. Net flows are now projected to be about $141 billion for the year as a whole, less than half of the $392 billion estimated for 2008, and far below the record level of $890 billion in 2007 (The institute of International Finance, 2009). Our new estimate for 2009 is down somewhat from the last one in January, which was for $165 billion. Estimated flows for both 2008 and 2007 have also been revised down, however, so the underlying change in our forecast is not that material. In a sense, this lack of a significant further downward revision is encouraging, sine it implies a degree of stabilization in flows following a phase of sharp deterioration, especially in the months immediately following the disorderly failure of Lehman 97

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Brothers in mid-September 2008. This stabilization is indeed evident in a whole series of highfrequency indicators, including both asset prices and available weekly and monthly data on capital flows to emerging economies. Following a phase of net outflows between October 2008 and March 2009, flows to emerging markets appear to have improved somewhat over the past two months, albeit to levels far below the early months of 2008 (and certainly well below those of 2007). This recent dynamic in capital flows mirrors what we believe is happening in the broader global economy. Following six months of alarming decline, measures of global output are now contracting more slowly. This stabilization in turn reflects a huge degree of policy stimulus - both monetary and fiscal - put in place across the global economy in recent months. In aggregate, global growth is likely to resume later in 2009 and continue, albeit at a very moderate pace through 2010. The return to positive growth seems to be happening earliest and most decisively across a number of large emerging economies, especially in Emerging Asia and, to a lesser extent, Latin America, which is helping bolster confidence in flows - especially portfolio equity flows - to emerging markets. Net portfolio equity inflows are expected to strengthen by about $118 billion, net, in 2009. In line with these relative global business cycle trends, net private capital flows to emerging economies are projected to revive in 2010, to be about $373 billion, net. The main turnaround is expected to come from debt-related flows, attracted, in part, by the persistence of wide nominal interest rates differentials between emerging and mature economies. REFERENCES

1. Brakman, S., Garretsen, H.,(2006) Nations and Firms in the Global Economy, An introduction to International Economics and Business, Cambridge University Press. 2. Divecha, A., Drach, J., Stefek, D, (1999) Emerging markets: A Quantitative perspective, Journal of Portfolio Management New York. 3. Levich, R. M., (2000) The importance of emerging capital markets, Working Paper, Stern School of Business, New York University. 4. Nieto, S. and Santiso, J. and (2007), “The Usual Suspects: Investment Banks’ Recommendations and Emerging Markets,” OECD Development Centre Working Paper, 258, January. 5. Obsfeld, M., Alan M. Taylor, (2005) Globalization and Capital Markets, Working Paper, 8846. 6. Rodrik, D. (2002), ‘Who Needs Capital Account Convertibility?’, in Should the IMF Pursue 7. Capital-Account Convertibility?, Princeton Essays in International Finance 207 (Department of Economics, Princeton University). 8. Roubini, N. and B. Setser (2004), Bailouts or Bail-ins? Responding to Financial Crises in Emerging Economies (Washington, DC: Peterson Institute for International Economics). 9. Stolnik, B, (2000) International Investments, Fourth Edition, Addition-Wesley Publishing Company, Reading-Massachusetts. 10. ***World Bank, Global Development Finance, (2007) The Globalization of Corporate Finance in Developing Countries, The International Bank for Reconstruction and Development, Washington. 11. ***Institute of International Finance, (2009) Capital Flows to Emerging Market Economies, June 11, (available at www.iif.org). Washington, DC

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LANDMARKS OF REGIONAL DEVELOPMENT IN THE E.U. Assistant PhD. Student Adrian Liviu SCUTARIU Ştefan cel Mare University of Suceava, Romania [email protected] Highschool Teacher PhD. Student Lucia Hedviga PASCARIU Cooperation Highschool Botoşani, Romania [email protected] Abstract: Regional development policy strengthens the role and responsibilities of local public administration and of regional organisms in the economical and social development of localities and developing regions, at the same time, diminishing the implication of governmental institutions in these matters. We have in view the diminishing of present regional imbalance, emphasizing the stimulation of balanced development and the revitalization of disadvantaged areas (with delayed development). The main idea is that the minimization of disparities can occur only through the regions’ gaining of competitive capacity. Furthermore, we will succinctly present the manner of creating the medium size regions (NUTS 2) in the E.U., which can or cannot have an administrative role and differ in size. Their main part is that of running regional politics. The Structural Funds aim at accomplishing certain objectives, among which the convergent objective has a considerable share regarding financial allotments. The role of the member states is that of creating Operational Programs for accessing funds, which are to be adopted by the European Commission, and once adopted, they are to be implemented. Keywords: regions, regional development, Structural Funds, convergence, competitiveness, cooperation. JEL Classification: R58

1. INTRODUCTION The creation of medium size territorial units in the European Union (named regions) has followed the efficient absorption of community funds for regional development and the possibility of interpreting and researching the regional statistics. On the other hand, the present tendency in the E.U. is that of decentralizing the decisions. With the diminishing involvement of governmental institutions, the regional development policy strengthens the role and responsibilities of local public administration and of regional organisms in the economic and social development of localities and development regions. This policy is an important component of local autonomy, being oriented towards the diminishing of existing regional disequilibrium, laying emphasis on the stimulation of balanced development and on revitalization of disadvantaged areas (with delayed development).If, in the beginning, this policy considered that the balancing of the development can be produced through territorial distribution of economic growth, presently, it is considered that the minimization of disparities can be obtained only by acquiring a competitive capacity by these regions. The regional development policy is one of the most important and complex policies of the European Union, a status arising from that, through its objective of reducing the existing economic and social disparities among the various regions of Europe, it acts on some significant areas for development, like the economic growth and the SMEs sector, transport, agriculture, urban development, environmental protection, employment and educational training, education, equal chances etc. One of the short comings to which the regional policy of the E.U. could constitute a solution, is that of an unique market in which the protectionist barriers are missing, which could deepen the regional disparities, thus endangering the political, social and economic stability. The measures brought by the above mentioned politics have the purpose of strengthening the competitive capacity of poorer regions. The existence of some large differences among the U.E. regions regarding income and development has lead to the creation of regional policy, by which resources from rich areas are 99

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transferred to the poorer ones. The aim of this policy is the modernization of disadvantaged areas, so that they will not be left behind from the rest of the Union. In addition, this policy is also an instrument of financial solidarity and an important cohesion force of economic integration. Solidarity presumes bringing benefits for the less wealthy regions and their inhabitants, and the cohesion is translated through the fact that all would have to gain from the reduction of regional gaps. 2. THE GENERAL CONTEXT OF REGIONAL DEVELOPMENT POLICIES Considerable differences between the prosperity levels also exist among some U.E. countries. The most prosperous regions from the point of view of GDP/inhabitant are the urban ones (like London, Brussels and Hamburg), and the riches country, Luxembourg is over seven times richer than Romania and Bulgaria, the poorest member states of the U.E. The membership to the E.U. and en efficient regional policy could bring results; for instance, Ireland, which had at the moment of adhesion, in 1973, a GDP of 64% from the Union’s average, presently has one of the highest GDP of the E.U. The regional policy has established as a priority the rapid bringing of the standard of living to the community average in the adherent countries after 2004. The disparities among the regions can have different causes derived from the geographical distance, social and economic changes, or a combination between the two. Among the effects of underdevelopment we can enumerate the higher unemployment rate or the inadequate infrastructure, and part of this state of being is also the consequence of the former centralized and planed economy. The transformations of regional policy can be observed in all E.U. members, and certain administrative problems have generated the reform of the regional European policy after 2006. In this respect, on the basis of experience and of economic results, it can be said that the realization of the economic and social cohesion in a extended Union represents the main challenge of the moment, next to the transformation of the European Union in “the most dynamic and competitive economy in the world” (the Lisbon Strategy). The relaunching of regional policy, manifested through certain economic development policies at a regional level which are to consider all the regions of a state (not only those left behind), will generate economic growth and competitiveness at a national level, and only partially at regional level, with enhancing the disparities among the regions of the respective state. This kind of approach to development regional policy is more and more present within the E.U. member states. The current stage (1) of research in the field of the instruments of regional policy, shows that, from the perspective of the European expansion, it is very necessary the constitution of a new model of regional development. Thus, if the literature dedicated to industrial regions, to clusters and transference networks, offers a clear image over the manner in which economic regional development is undertaken, the concept linked to the “region of knowledge” or the “region of science” does not clarify if innovation or knowledge have a more territorial dimension rather than a functional one, and not even on the manner in which the latter can become the object of the strategies elaborated by local and/or regional authorities. The previous papers which have approached the problem of instruments of regional policy showed that the target objective of European regional policy was the realization of interregional equity at a national level, by reducing disparities regarding income and economic growth of the regions. The regional development policy at the level of the European Union does not reduce the role of regional policy of each member state, it has a complementary character to the policy of every state and functions on the principle of the partnership between the European Union and each member state, between member states, as well as between local authorities and the different active organizations at regional level and those existing at national level.

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The modifications and the importance of growth regarding the regional policy of the E.U. member states, reveal the efforts which are made in the direction of reducing the existent inequalities between the living standard of the citizens of the Union and the central stage of these preoccupations within the national economic policy. 3. THE REGIONS IN THE E.U. Although the majority of the European states were and still are unitary states, the concept of “Region” as political and administrative entity has appeared relatively recent, in the context of accepting the idea that, local authorities must freely administer the local problems. Also, there exists in the E.U., federal states as Swiss and Germany, where federalism was the manner of carrying out the national political project during the XIXth century In Austria, federalism was introduced in the Republican state, through the Constitution of 1920, Belgium formed as federal state in 1993 as a consequence of the high development of regionalism, and in Italy the existence of regions is established in the Constitution. In countries as France and the U.K., the region has only existed as a means of economic action of the central government. In the seventies, different reforms emerged (in Belgium, Spain, France and Portugal) which brought regionalization into attention. Thus, the unitary state seems to be the exception; with the integration of a new country in the E.U. the regionalization process tends to generalize. The regional policy has brought in view the idea of regionalization and instituting this new territorial level of power permitted the access to new financial resources. The regions are regarded as space or territorial level of putting into practice of regional policies and of their corresponding programs, and their existence is viewed as a condition of accessing the resources. As a consequence, the communitarian regional policy, sustained by structural funds, with the objective of realizing political and social cohesion, had a decisive influence on promoting the regional idea in Europe. The emerging of Communitarian regional policy which has as objective the removal of regional inequalities, has given legitimacy to regions and to those institutions which represented their interests, leading to the definition of statistical areas for measuring the regional economical situation and being as well a basis for the intervention criteria of the Community (the Nomenclature of Territorial Units for Statistics, NUTS 1, 2, 3) Presently, the decentralizing of the decision is an idea mutually acknowledged, and regionalization has become a common tendency of the evolution of territorial organization of the European States, the regions being the structures charged with insuring the institutional convergence of the member states of the European Union). Although, the emerging of regions is not a consequence of regional development policy of the E.U., the consistent funds destined for the carrying out of its general objective (obtaining the economical and social cohesion by eliminating and preventing the unbalances between regions) had an important contribution over regionalization, establishing strategies, plans and regional development programs for distributing and using resources efficiently. At the present time, the regions became, within the E.U., partners of the European Commission in elaborating and developing of communitarian policies financed from Structural Funds. The Nomenclature of Territorial Units for Statistics, (NUTS) was created by the Eurostat (the Statistics Office of the European Union) in 1981, with the aim of having a unique and coherent scheme of the territorial repartitions in view of unifying regional statistics and making possible the application of regional policies in the European Union. The Nomenclature NUTS is structured on three levels, as following: NUTS-1, NUTS-2 and NUTS-3. Each state (NUTS-0) is organized in one or more regions at NUTS-1 level, which are divided in one or more regions NUTS-2 and in a similar manner with NUTS-3 regions. These aspects have received a legal base and a more detailed regulation in 2001, then being established the minimum and maximum thresholds for the dimensions of regions: - NUTS-1: between 3 and 7 million inhabitants; 101

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-

NUTS-2: between 800.000 and 3 million inhabitants; NUTS-3 : between 150.000 and 800.000 inhabitants The delimitation of regions according to NUTS is made after the administrative criterion, which means that certain geographical areas with administrative authority of taking political or administrative decisions. If in a state there are no administrative units of proper size for NUTS, then the NUTS regions will be created by joining a number of smaller existing administrative units. Along with the administrative criterion, it is used, as previously seen, the one referring to the number of inhabitants. As a matter of fact, it can be observed that many of the regions are nonadministrative. Up to a certain extent, this fact restricts their participation as legitimate entities from a legal and institutional point of view to the process of making decisions; there is the danger that certain regions remain just simple instruments of national governments or of European institutions. The criterion regarding the number of inhabitants is just orientative; there are some NUTS 2 regions with a population of 500.000 inhabitants (Cornwall in the U.K.) and other with almost 10 million inhabitants (Lombardy in Italy). Thus, what is considered important is the correspondence between the effective population and the optimal necessary of economical resources. From the point of view of the geographical characteristics, the level of economic development, the intensity of the social problems, the member states of the European Union manifest a wide range of preoccupations regarding the establishment the type of regional inequalities which the afferent policy approaches. In this context, conceptualizing regional problems varies from one country to the other, but, in fact, three types of disparities are considered: physical- geographical, economic and social. 1. The indicators of physical-geographical disparities primarily concentrate on the disadvantages determined by the physical environment: peripherality, the distance from the markets, the climate and the effects of physical disparities on the population density and on the migrating patterns. 2. The indicators of economic disparities refer most frequently to the GDP/inhabitant, to the structure of economic activities, infrastructure, economic perspectives. The most important indicator of regional disparities remains the GDP/inhabitant, considered by the European Commission as the key-criterion for determining the existence and amplitude of regional disparities. 3. The indicators of social disparities primarily reflect the considerable importance which is laid upon the level and occupational structure, as well as that of unemployment in the context of regional policies. Although, the level of unemployment is strongly tied to the economic welfare of a region, unemployment is also used as an independent indicator of estimating social disparities, considering its impact on the individual and on society. It can be said that the regional development policy is one of the essential elements of the E.U. because of the role it has in assuring the general development and in realizing the economic and social cohesion. It seeks the strengthening and consolidation of the cohesion at the level of each country, as well as at the level of the whole European Union, using for the latter conjugated financial contributions, on behalf of the states and of the Union. 4. THE THREE OBJECTIVES OF THE REGIONAL POLICIES The year 2000 brings forth the unification of geographical areas and the periods of investment programming through Structural Funding and national policies. The classification of regions which can be eligible for accessing these funds and the allotted quantum it is made on the basis of national indicators: the level of GDP/inhabitant and the level of unemployment, both reported to the E.U. average. Starting with 1994, a new introductory objective of the Structural Funding has been introduced, which permitted the eligibility of regions with a density lower than 12,5 inhabitants/km2, a necessary decision, because of the adhesion of Sweden and Finland. In the context of the expansion of the E.U. and of the increasing importance of regional policy during the period of 2007 – 2013, the regional expenses will have a share of 35,7% in the 102

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E.U. budget, that means an allotment of funds of 347,41 billion Euros. This effort concentrates on three objectives (2): convergence (81,54%), regional competition and occupation of labor market (15,95%), as well as European territorial cooperation (2,52%); which are grouped in what is called the cohesion policy.

Figure 1. The Distribution of the budget of the Structural Funds according to objectives Source: http://eufinantare.info/politica-coeziune.html

The convergence objective aims at stimulating the conditions which favors the growth and the factors which lead to the real convergence for the Member States and the less developed regions. The regional competition and the occupation of the labor market can be attained through a double approach: on the one hand, through the development regions which will help the regions to anticipate and promote economic change, and on the other hand by creating more jobs, which will be sustained by adapting the labor force and by investing in human resources. The European Territorial Cooperation will consolidate the cross-border one (through local and regional mutual initiatives), the cross-national one (laying emphasis on the integrated territorial development), as well as inter-regional cooperation (through experience exchange). The recipients of these funds are especially the central and est.-European countries, plus the regions from other E.U. states which have special needs. 51% of the total regional expenses between 2007 and 2013 will be destined for the 12 countries which have adhered starting with 2004, even if they represent less than a quarter of the total E.U. population. The money comes from three different sources, according to the nature of the assistance and the type of beneficiary: The European Fund for Regional Development (EFRD), the European Social Fund (ESF), the Cohesion Fund; these financial resources cover the three above mentioned objectives as we can observe in the following figure. Objectives Convergence Regional competition and occupation of the labor market European Territorial Cooperation

Structural Funds ESF ESF

EFRD EFRD

The Cohesion Fund

EFRD

Figure 2. Objectives and structural funds Source: http://ec.europa.eu/regional_policy/policy/object/index_en.htm

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The whole E.U. is under the incidence of one or more objectives of the Cohesion Policy. The NUTS 2 regions whose GDP is lower than 75% from the community average, are eligible for financing within the frame of the convergence objective. All the regions which are not under the incidence of this objective or of the transitional assistance are eligible for financing within the objective of regional competition and occupation of labor force. The objective European territorial cooperation comprises: cross border cooperation (for the NUTS 3 regions along the internal borders and some external ones too, as well as those with maritime borders separated by a distance of maximum 150 km), cross national cooperation and interregional cooperation (for all E.U. regions). The present rules presume that the funds must be spent in accordance with the priorities of the European Union regarding the promotion of competition and the creation of work places (the Lisbon Strategy). The Commission and the member states supervise that 60% of the expenses for the Convergence of all member states and 75% of the expenses for Competition and occupying the labor force take into consideration these priorities. The plafonds for the co-financing rates for each objective are as follows (3):  Convergence: between 75% and 85%;  Competition and occupation of the labor force: between 50% and 85%;  European Territorial Cooperation: between 75% and 85%;  The Cohesion Fund: 85%. The European Commission decides the annual sums allotted to each member state, according to certain criteria, among which the most important are: the eligible population, the national welfare, the regional welfare and the unemployment rate. At a national level, each country establishes how these sums will be shared among regions, and according to their eligibility. In the following figure we find the allotment of funds, according to the objectives, for each Member State during 2007-2013.

Figure 3. The distribution of funds according to states and objectives Sursa: http://eufinantare.info/politica-coeziune.html

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5. STRUCTURAL AND COHESION FUNDS (STRUCTURAL INSTRUMENTS)

Structural and Cohesion Funds (FSC), or the Structural Instruments, are those modalities of financial aid through which the European Union takes action against eliminating the social and economic disparities between regions, with the aim of achieving social and economic cohesion. The latter occupy the second place as a share in the budget of the European Union, established for European politics and comprise: The European Fund for Regional Development (EFRD), The European Social Fund (ESF) and the Cohesion Fund. In reality, the European Union has the power of an internal market with 27 member states with 493 million citizens, summing up 27 regions, but not all Europeans have the same advantages and chances to succeed in socio-economic terms. The difference is rendered by the area they inhabit – if it is a prosperous or a poor region, an expansion or a declining area, an urban or rural area, at the periphery of the E.U or in one of its economic centers. There are significant disparities between the E.U. member states and its regions. The first 10, the most dynamic regions of E.U., have a Gross National Product (GNP) of over 5 times bigger than the last 10, the ones left behind in the E.U. One region out of four has a GDP/inhabitant under 75% of the 27 E.U. average. In this context, the regional development policy is one of the most important and complex of the European Union, a status derived from the fact that, through his objective of reducing the existing social and economic disparities between the various regions of Europe, operates on significant domains for development. The European Fund of Regional Development (EFRD) supports financially the durable economic development at local and regional level and the diversification of economic structures in various fields as:  Technological research and development, innovation and entrepreneurship;  The development of electronic communication infrastructure;  The environment, including investments linked to the supplying of water and the management of waste, treatment of residual water, the quality of air, problems regarding draught and pollution;  The prevention of natural and technological risks;  Tourist activities;  Investment in culture, including the protection, the promotion and the preserving of cultural legacy.  Transportation investments;  Energy investments;  Investments in education, including vocational training;  Investments in the social and health care infrastructure; FERD has its focus on two objectives:  The promotion of development and of structural adjusting of regions with difficulties (as a rule, those which have the GDP/inhabitant inferior to the level of 75% of the community average).  The favoring of the economic and social conversion of the areas with structural difficulties. They comprise areas which find themselves in economic and social change phases in the industrial and services sectors, the declining rural areas, urban areas facing difficulties and the areas dependent on fishing which find themselves in a crisis situation. The main objective of the European Fund of Regional Development is to consolidate the economic and social cohesion in the European Union by diminishing regional imbalances. EFRD can intervene in three new objectives of regional policy:  convergence;  regional competition and employment;  European territorial cooperation.

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The European Social Fund (ESF) contributes to the enhancement of the adaptability of employment and of enterprises, the growth of the access on the labor market, the prevention of unemployment, the prolongation of active life and the increase in the degree of participation of women and immigrants on the labor market, supporting social inclusion of disadvantaged persons and the fight against discrimination. ESF supports the convergence objective, as well as that of regional competition and employment. ESF supports the actions of the states in the following fields (4):  The adaptation of workers and enterprises, life long educational systems, the developing and dissemination of certain innovative manners of organizing labor;  Improving the access to obtaining a working place for those interested in doing do, of inactive persons, of women and immigrants;  Social integration of disadvantaged persons and the fighting against all forms of discrimination on the labor market;  The consolidation of human capital by applying certain reforms of the educational system and by the networking activities of the educational institutions. The Cohesion Fund finances projects from the field of environment protection and cross European transportation networks, durable development as well as improving the management of air and road traffic, the modernization of urban transportation, the development and modernization of international transportation. The Cohesion Fund is destined for the Member States which have a gross national product (GNP) per inhabitant of less than 90% of the community average, with the scope of reducing differences between levels of economic and social development, as well as for stabilization of economies, measures under the Convergence objective. For the period 2007-2013, this fund has as destination, the following countries: Bulgaria, Cyprus, Estonia, Greece, Latvia, Lithuania, Malta, Poland, Portugal, the Czech Republic, Romania, Slovakia, Slovenia and Hungary. Also, Spain is eligible, but only on transitory basis, its GNP/inhabitant being inferior to the average of the European Union with 15 member states. Complementary to the actions supported with Structural Funds, there are European funds complementary to Structural and Cohesion Funds which support investments in the field of rural and fishing development:  The Agricultural European Fund for Rural Development (AEFRD), which finances investments for the increase of competition in agriculture and forestry, the protection of the environment, the improvement of life and the diversification of economic activities in the rural areas;  The European Fund for Fishing (EFF), which supports durable development of the fishing sector and of costal areas, where this sector predominates. The Structural Instruments of the European Union help stimulate the economic growth of the member states and lead to the reduction of disparities between regions. Yet, they do not function on their own; the insurance of a contribution on behalf of the involved member states is needed (mainly from public resources, but also private contributions, the latter being encouraged in most of the cases). The majority of the regional expenses, supported through the three Structural Funds, are destined to regions with a GDP of under 75% of the Union’s average and their aim is to improve their infrastructures and the development of the economic and human potential. These have as target 17 of the 27 member states of the E.U. On the other hand, all 27 countries are eligible for financing for the support of innovation and research, durable development and job training in the regions left behind. A small part of this budget is meant for cross-border inter-regional cooperation projects. It is desired that regional policy promote economic growth and job creation through (5):

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

The increase of attractiveness of countries for investments; by improving accessibility, by supplying quality services and maintaining the environment potential;  The encouragement of innovation, of the entrepreneurial spirit and of the economy based on knowledge, by developing information and communication technologies;  The creation of better jobs by attracting a larger number of people in different fields, the improvement of workers’ adaptability and the increase of investment in the human capital. Structural Funds and the rules for their usage are decided by the European Council and by the European Parliament on the basis of a proposition from the European Commission. Each member state prepares a National Strategic Frame of Reference in accordance with the Strategic Norms. This document which will be given to the Commission for evaluation defines the chosen strategy by the respective state and proposes a list of operational programs which it desires to implement. The Commission will validate parts of the document, as well as several operational programs (OP). The countries and regions under the incidence of the convergence objective are forced to allocate 60% of expenses for priorities which come from the E.U. strategy for development and work places (the Lisbon Strategy). For the countries and regions under the competition and employment objective, the percentage is of 75%. During 2007-2013, approximately 450 OP will be accepted by the European Commission. Once the OP are approved, the Member States and their regions have the responsibility of implementing the programs, by selecting, monitoring and evaluating the projects. It is here that the management authorities from each country intervene. The Commission engages in the expenses, and will pay only the eligible ones, by monitoring each OP. 6. CONCLUSIONS As the years pass by, the regional development policy has gained great importance in the E.U. Along with the diminishing of existent regional unbalances and the revitalization of underprivileged areas, it is also taken into account the gaining of a competitive capacity by the regions. This growing importance is also reflected by the growth of the quantum for the afferent expenses, during 2007-2013, this having a share of over a third of the U.E. budget. The main objectives of the Structural Funds are: the convergence objective having a considerable share regarding the financial allotment. The criteria for eligibility are very strict, and on their basis funds are allocated. The member states have the role of creating Operational Programs for accessing the funds and implementing them once these have been approved by the European Commission, and simultaneously insuring the necessary co-financing. The lessening of major differences regarding the development of the different E.U. regions, insured by the implementation of these policies, represents the key to a harmonious and durable development of the E.U. ENDNOTES: (1) Elisabeta R. Roşca (coord.) – Dezvoltarea regională în contextul integrării în Uniunea Europeană, Editura Economică, Bucureşti, 2006, p.326. (2) http://ec.europa.eu/regional_policy/policy/fonds/index_en.htm (3) http://ec.europa.eu/regional_policy/policy/manage/index_en.htm (4) http://ec.europa.eu/regional_policy/funds/fse/index_ro.htm (5) http://europa.eu/pol/reg/index_en.htm

BIBLIOGRAPHY: 1. Antonescu, Daniela – Dezvoltarea regională în România – concept, mecanisme, instituţii, Editura Oscar Print, Bucureşti, 2003 107

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2. Constantin, D.L. (coord.) – Probleme actuale ale dezvoltării regionale în România, Lucrările Primului Simpozion Naţional al Asociaţiei Române de Ştiinţe Regionale, 2526 aprilie 2001, Bucureşti, Editura Oscar Print, Bucureşti, 2002 3. Pârlog, Cornelia, Constantin, D.L. (coord.) - Dezvoltare regională şi integrare europeană, Lucrările celui de-al Doilea Simpozion Naţional al Asociaţiei Române de Ştiinţe Regionale, 4-5 aprilie 2002, Bucureşti, Editura Oscar Print, Bucureşti, 2003 4. Roşca, Elisabeta R. (coord.), Dezvoltarea regională în contextul integrării în Uniunea Europeană, Coordonator Editura Economică, Bucureşti, 2006 5. Ştefan, Maria-Cristina – Dezvoltare regională şi locală, Editura Economică, Bucureşti, 2008 6. http://anaf.mfinante.ro/wps/PA_1_1_15H/static/amcsc/fond_structural/fonduri_structura le/prezentare/Ce_sunt_Instr_Structurale.htm 7. www.ec.europa.eu/eurostat 8. http://europa.eu/pol/reg/index_en.htm 9. http://ec.europa.eu/regional_policy 10. http://eufinantare.info/politica-coeziune.html 11. www.fonduri-structurale.ro

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ASPECTS CONCERNING ECONOMIC AND FINANCIAL PERFORMANCES OF SUBSIDIARIES OF TRANSNATIONAL COMPANIES ACTIVE IN ROMANIA Lecturer PhD. Daniela PÎRVU Adjunct Professor PhD. Logica BĂNICĂ Assistant PhD. Candidate Alina HAGIU University of Piteşti, Romania [email protected], [email protected], [email protected] Abstract: In the contemporary period, more than ever, foreign investors seek to maximize the efficiency of their activities. In the race for the foreign direct investment attraction , Romania has many advantages that have propelled it on top in 2004-2008. Analysis of economic and financial performances of subsidiaries of transnational companies active in Romania, considered as representative for their fields of activity, allowed us to formulate judgments about the prospects of investment in the Romanian economy produced by firms with trans-borders business. Keywords: performance, transnational companies, reasons, prospects JEL Classification: F 23

INTRODUCTION The globalization process of recent years has been expressed in the growth of many types of international transactions, but especially in the expansion of the activity of multinational firms. Transnational companies have established subsidiaries to perform activities ranging from research and development to after-sales service, and including production of parts and components, assembly and whole sale and retail distribution. Some firms procure parts from subsidiaries in many countries and assemble them in a single location. Others concentrate production of parts in one place and assemble final products in several places located close to their customers. Still others erect an integrated plant in a low-wage country and use it to serve consumers around the globe. The motives for foreign direct investment (FDI) are similarly diverse, but the potential for factor-cost savings and for the realization of economies of scale seem to be among the primary inducements (Grossman and other, 2003). Foreign direct investment is generally attracted by several factors such as: market size and its potential development, factor costs, especially labor cost, but also human capital (education and skills), trade openness, infrastructure reform, price liberalization, fiscal policy, institutional development, technological absorption capacity etc. The importance of one or other factor changes in time. For instance, during the first years of transition in the Central and Eastern Europe countries, political stability and macroeconomic stabilization, including institutional development, were premises of interest for foreign investors. Along with the progress in political and economic transformations, and especially with the progress in fulfilling the criteria of adhesion to the EU, the comparative advantages of investing in these countries low labor cost but educated labor force relative high growth rate and growing market potential have become the most important determinant factors that directed the FDI flows towards this area. Re-locations were registered quite frequently, especially in the production field of intensive goods. It is worth mentioning that certain advantages are temporary in character (labor cost, resource availability), and may diminish in time (Masso and other, 2007) . The transnational corporation is – in this era of globalization – absolutely the free markets’ superior agent. Economically, corporate giants capitalize the resources of many developing countries. In brief, transnational corporations into emerging markets generally have a number of important effects on market host countries (Godlberg, 2004). These effects include:  Improved allocative efficiency. This can occur when foreign investors enter into industries with high entry barriers and then reduce local monopolistic distortions. The presence of foreign producers may also induce higher technical efficiency: the increased 109

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competitive pressure or some demonstration effect may spur local firms to more efficient use of existing resources.  Higher rates of technology transfer and diffusion. While there is evidence of technological improvements from FDI, and a presumption that FDI will consequently stimulate economic growth, the strength of these effects is disputed.  Higher number of jobs. This effect is caused mainly by FDI type ”greenfield”. Considering the many benefits generated by transnational companies locating in an economy is very important the attraction of FDI in all fields. In recent years, Romania has managed to attract a significant volume of FDI but which were located mainly in certain areas. Economic and financial performances analysis of subsidiaries of transnational companies active in Romania can be particularly useful in the prediction of future locations (in the Romanian economy) of FDI. This analysis was made on the base of the information available at the National Trade Register Office for a total of 122 non-financial representative companies (listed in the appendix), during the 20042008. To obtain the necessarily processed information we designed an information system in the Microsoft Access environment (Barbu and Bănică, 2008), flexible and easy to use, thanks to a friendly graphical interface. REASONS TO INVEST IN ROMANIA In racing other countries in the region for attracting higher inflows of FDI, Romania enjoys certain competitive advantages that encourage foreign investors to consider developing their business here. When considering Romania as a possible location for developing their businesses, foreign investors take a close look to the advantages provided by our country (Romanian Agency for Foreign Investment):  Market and Location Advantage: (1) one of the largest markets in Central and Eastern Europe (ranking 7th, with over 21 million inhabitants); (2) European Union unique market gateway (access to approximately 500 million consumers); (3) situated at the turning point between EU, the Balkans and Commonwealth of Independent States, Romania is crossed by three important pan-European transportation corridors: corridor no. IV linking Western and Eastern Europe, corridor no. IX connecting Northern and Southern Europe and no. VII – Danube River, facilitating inland water transportation, at the same time connecting the Romanian Port of Constanta (the biggest Port to the Black Sea) to Northern Europe, through the Rhine.  Resource Advantage: (1) highly skilled labor force at competitive prices (solid knowledge in foreign languages, technology, IT, engineering, etc); (2) rich natural resources, including surface and underground waters, fertile agricultural land, oil and gas; (3) high potential for tourism.  Political Advantage: (1) stability factor in the Area - NATO membership; (2) stability Guarantee in South Eastern Europe; (3) European Union membership.  Economical Advantage: (1) sustainable economic growth (before the current economic crisis); (2) decreasing inflation; (3) friendly fiscal policy (16% flat tax).  Social Advantage: (1) agreement between Government and major unions; (2) no major union movements.  Legislative Advantage: similar legal provisions as in European Union.  Other Advantages: (1) continuously improving infrastructure (commitment to improve the highway infrastructure to European Union standards); (2) well-developed networks of mobile telecommunications in GSM systems; (3) highly developed industrial infrastructure, including oil and petrochemicals; (4) presence of branch offices and representatives of various well-known international banks; (4) extensive maritime and river navigation facilities.

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According to a study accomplished during the 2000-2005 on a group of 250 subsidiaries of transnational companies active in Romania, the main factors that have supported their location in our country were: (1) the advantages of market; (2) low cost and quality of labor force work (Bîrsan and Buiga, 2008). We can infer that the foreign investment in Romania have been attracted in areas of economic activity that requires the use of skilled labor (eg manufacturing) or offering a high potential demand (wholesale and retail trade, financial and banking sector, post and telecommunications). Beginning with its strategic location and natural resources, continuing with its European membership and international relations network, together with undeniable economic and social advantages, Romania represents the very hot-spot for FDI in the region. The value of FDI attracted by Romania increased significantly during the 2003-2008, as shown in the Table. 1. Table no. 1 Foreign direct investments attracted by Romania during 2003-2008 Euro Million Year FDI value

2003 1946

2004 2005 2006 2007 5183 5213 9059 7250 Source: National Bank of Romania, Balance of Payments

2008 9084

In the countries of the South-East Europe (Romania, Turkey, Bulgaria, Greece, Croatia, Serbia, Bosnia and Herzegovina and Cyprus), Romania is strongly positioned in perceptions and real investment, being on the first position in a top made of the Ernst & Young Organization in 2008. According to this study, foreign investors who chose Romania for localization their assets took into account the cost of labor (this factor has accounted for 26%), potential to increase of the productivity (this factor has a weighting of 25 %), labor quality (this factor had a share of 19%). The situation of FDI value in 2008, in a regional context (Poland, Romania, Czech Republic, Bulgaria, Hungary, Slovakia and Slovenia) show that Romania was the second favorite destination for foreign investors, being ahead only by Poland (National Agency for Foreign Investment, 2008). ECONOMIC AND FINANCIAL PERFORMANCES OF SUBSIDIARIES OF TRANSNATIONAL COMPANIES ACTIVE IN ROMANIA By economic activity, the bulk of FDI went to manufacturing (32.9% of total), out of which the largest recipients were: metallurgy (7.5%), food, beverages and tobacco (5.2%), oil processing, chemicals, rubber and plastic products (4.4%), transport means (3.6%) and cement, glassware, ceramics (3.5%). Other activities that have attracted significant foreign direct investment are financial intermediation and insurance, which include banking and insurance and account for 23.3% of total FDI stock, wholesale and retail trade (14%), construction and real estate (7.8%) and telecommunications (6.5%). The information presented above are valid for 31 December 2007 and were taken from documents of the National Bank of Romania and the National Institute of Statistics. Economic and financial performances of subsidiaries of transnational companies active in Romania were analyzed using the following indicators: the total number of employees, the average level of turnover, the average level of rates of return, the average level of net profit share in total expenditure. Analysis of the total number employed indicator allows us to find that subsidiaries of transnational companies active in manufacturing have the highest number of employed workers, followed by those working in mining and wholesale and retail trade. In 2008 was recorded the highest number of employees (over 200,000 employees), in the wholesale and retail being observed a significant increase compared with previous years (figure 1).

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Figure no. 1. The evolution of total number of employees Analysis of the average level of turnover recorded by the subsidiaries of transnational companies active in Romania between 2004-2008 show a significant development of economic activity in the field of wholesale and retail trade. In 2008, the companies operating in the field of wholesale and retail trade registered an average turnover of more than 4 times higher than in 2004. An upward trend of the turnover can be observed in all areas of economic activity, but at a slower rate compared to that achieved in the field of wholesale and retail trade (figure 2).

Figure no. 2. The average level of turnover 112

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In terms of the rates of return recorded by the subsidiaries of transnational companies active in Romania in 2008, the field of post and telecommunications ranks first, followed by the mining and the manufacturing. The evolution of the average profitability rate registered by the subsidiaries of transnational companies active in Romania between 2004-2008 is oscillating in the most areas of economic activity; it could see a significant decline in 2008, particularly in the field of manufacturing and mining (figure 3).

Figure no. 3. The average level of rates of return The share of net profit in the total expenditure recorded by the subsidiaries of transnational companies active in Romania shows that companies operating in the field of post and telecommunications get the highest financial performances. The evolution of the average net profit share in the total expenditure is situated on a downward slope since 2008, the most affected area by the economic crisis (whose effects were felt in our country since 2008) is the manufacturing (figure 4).

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Figure no. 4. The average level of net profit share in total expenditure CONCLUSIONS The 122 subsidiaries of transnational corporations with activities in Romania (representative in terms of their importance) provides jobs only for about 7% of persons employed in the private sector. During 2004-2008, the post and telecommunications were the most profitable area for transnational corporations that have located in our country, while the amount of FDI attracted in this area is relatively low compared with other industries. The current economic crisis was the least felt, in terms of net profit share in total spending, by subsidiaries of transnational companies operating in wholesale. During the period analyzed, foreign investors were involved in a small extend in the construction and real estate in Romania, even though he recorded a special interest from the Romanian investors and provides a high level of net profit in total spending. The stabilization of the housing market and the termination of the speculative actions are trends that we can provide for the next period and which will attract, perhaps, more foreign investment in this field. In the wholesale and retail trade, the rate of return is low, despite the high turnover that record companies working in this field. This is an indication on the degree of saturation of the market and lead us to believe that, in the next period, direct foreign investment in wholesale and retail trade will be lower. Considering the changes in FDI inflows in Romania and in Central and Eastern Europe area, we consider that, after the economic crisis, Romania will continue receiving significantly increased flows of foreign direct investment. Considering the economic and financial performances analysis of subsidiaries of transnational corporations with activities in Romania, we think that foreign investors will be interested in the services sector recorded the highest rate of return and for which the Romanian economy has the availability of skilled labor and cheaper compared with other EU countries.

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REFERENCES 1. Barbu, Gh. and Bănică, L. (2008) Information Systems by examples, University of Pitesti Publisher, pp. 138-147 2. Bîrsan, Maria and Buiga Anuț a (2008) 'FDI in Romania: evolution and main types of large firms in the manufacturing sector', OECD Global Forum on International Investment OECD Investment Division. 3. Grossman, Gene, Helpman, Elhanan and Szeidl, Adam (2003) 'Optimal Integration Strategies for the Multinational Firm', Harvard Institute of Economic Research, Discussion Paper no. 2024. 4. Linda Goldberg (2004) 'Financial FDI and Host Countries: New and Old Lessons', National Bureau of Economic Research, Working Papers no. 10441. 5. Masso, Jaan, Varblane, Urmas and Vahter, Priit (2007) 'The Impact of Outward FDI on Home-Country Employment in a Low-Cost Transition Economy', William Davidson Institute, Working Papers Series wp873. 6. Ernst&Young (2008) SEE Attractiveness Survey – South East Europe: An Emergent FDI Destination in Europe. 7. National Bank of Romania (2009) Balance of Payments. 8. Romanian Agency for Foreign Investment (2008) Progress Report. APPENDIX Table no. 2 The list of non-financial companies upon which was created database ABB S.R.L. ALCATEL - LUCENT ROMANIA S.R.L. ALCOA FUJIKURA S.R.L. ALRO S.A. AMERICAN EUROPEAN MARKETING & ENTERPRISES S.A. ARCELORMITTAL GALATI S.A. ARTHUR D. LITTLE ROMANIA S.R.L. ASKOLL ROMANIA S.R.L. ASTRAZENECA PHARMA S.R.L. ATLAS TELECOM NETWORK ROMANIA S.R.L. AUTO CHASSIS INTERNATIONAL ROMANIA S.R.L. BARLINEK ROMANIA S.A. BASF CONSTRUCTION CHEMICALS ROMANIA S.R.L. BAYER PHARM S.R.L. BHP SRL BMW VERTRIEBS GMBH SALZBURG SUCURSALA BUCURESTI BRICOSTORE ROMANIA S.A. BRITISH AMERICAN TOBACCO (ROMANIA) TRADING S.R.L. CARPATCEMENT HOLDING S.A. CARREFOUR ROMANIA S.A. CB RICHARD ELLIS EURISKO S.R.L. CHEVRON LUBRICANTS ROMANIA S.R.L. CITY DEVELOPMENTS S.R.L. COCA-COLA HBC ROMANIA S.R.L.

JOHNSON CONTROLS ROMANIA S.R.L. KAUFLAND ROMANIA SOCIETATE COMANDITA LAFARGE CIMENT (ROMANIA) S.A. LEAR CORPORATION ROMANIA S.R.L. LEONI WIRING SYSTEMS RO S.R.L.

IN

LG ELECTRONICS ROMANIA S.R.L. LISA DRAXLMAIER AUTOPART ROMANIA S.R.L. LOGWIN ROAD + RAIL ROMANIA S.R.L. LOUIS VUITTON ROMANIA S.R.L. LUKOIL ROMANIA S.R.L. MASTERPLAST ROMANIA S.R.L. MECHEL TARGOVISTE S.A. MERCEDES-BENZ ROMANIA S.R.L. MICHELIN ROMANIA S.A. MOL ROMANIA PETROLEUM PRODUCTS S.R.L. MOTOROLA ROMANIA S.R.L. NESTLE ROMANIA S.R.L. NEWS OUTDOOR ROMANIA S.R.L. NOKIA ROMANIA S.R.L. NORTEL NETWORKS ROMANIA S.R.L. OMV ROMANIA MINERALOEL S.R.L. ORANGE ROMANIA S.A PARMALAT ROMANIA S.A. PETROM S.A.

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COLLIERS INTERNATIONAL S.R.L. COSMOTE ROMANIAN MOBILE TELECOMMUNICATIONS S.A. DAEWOO-MANGALIA HEAVY INDUSTRIES S.A. DANONE - PRODUCTIE SI DISTRIBUTIE DE PRODUSE ALIMENTARE SRL DACIA AUTOMOBILE SA. DELTA ELECTRONICS S.R.L. DHL INTERNATIONAL ROMANIA S.R.L. DIAGEO BALKANS LIMITED LONDRA SUCURSALA GHERMANESTI S.R.L. DOW CHEMICAL ROMANIA S.R.L. DR. OETKER RO S.R.L. DUVENBECK LOGISTIK S.R.L. E.ON GAZ ROMANIA S.A. EKR-ELEKTROKONTAKT ROMANIA S.R.L. ENEL ENERGIE S.A. ERICSSON TELECOMMUNICATIONS ROMANIA S.R.L. ERNST & YOUNG S.R.L. EURO AUTO PLASTIC SYSTEMS S.R.L. EUROPEAN DRINKS S.A. EUROPEAN FOOD S.A. FORD ROMANIA S.A. FUCHS CONDIMENTE RO S.R.L. GALASSINI ROMANIA S.R.L. GDF SUEZ ENERGY ROMANIA S.A. GENERAL ELECTRIC INTERNATIONAL S.R.L. GLAXOSMITHKLINE (GSK) S.R.L. GOLDMAN SACHS INVESTMENT S.R.L. HEINEKEN ROMANIA S.A. HENNLICH S.R.L. HERMES PHARMA S.R.L. HEWLETT - PACKARD (ROMANIA) S.R.L. HITACHI POWER TOOLS ROMANIA S.R.L. HOLCIM (ROMANIA) S.A. HOLZINDUSTRIE SCHWEIGHOFER S.R.L. HUTCHINSON S.R.L. KAUFLAND ROMANIA SRL FLEXTRONICS ROMANIA S.R.L. INDAGRARA PRODCOM S.A. ABB S.R.L. ALCATEL - LUCENT ROMANIA S.R.L. ALCOA FUJIKURA S.R.L. ALRO S.A. AMERICAN EUROPEAN MARKETING & ENTERPRISES S.A. ARCELORMITTAL GALATI S.A. ARTHUR D. LITTLE ROMANIA S.R.L. ASKOLL ROMANIA S.R.L. ASTRAZENECA PHARMA S.R.L. ATLAS TELECOM NETWORK ROMANIA S.R.L. AUTO CHASSIS INTERNATIONAL ROMANIA S.R.L. BARLINEK ROMANIA S.A. BASF CONSTRUCTION CHEMICALS ROMANIA

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S.R.L. BAYER PHARM S.R.L. BHP SRL BMW VERTRIEBS GMBH SALZBURG SUCURSALA BUCURESTI BRICOSTORE ROMANIA S.A. BRITISH AMERICAN TOBACCO (ROMANIA) TRADING S.R.L. CARPATCEMENT HOLDING S.A. CARREFOUR ROMANIA S.A. CB RICHARD ELLIS EURISKO S.R.L. CHEVRON LUBRICANTS ROMANIA S.R.L. CITY DEVELOPMENTS S.R.L. COCA-COLA HBC ROMANIA S.R.L. COLLIERS INTERNATIONAL S.R.L. COSMOTE ROMANIAN MOBILE TELECOMMUNICATIONS S.A. DAEWOO-MANGALIA HEAVY INDUSTRIES S.A. DANONE - PRODUCTIE SI DISTRIBUTIE DE PRODUSE ALIMENTARE SRL DELTA ELECTRONICS S.R.L. DHL INTERNATIONAL ROMANIA S.R.L. DIAGEO BALKANS LIMITED LONDRA SUCURSALA GHERMANESTI S.R.L. DOW CHEMICAL ROMANIA S.R.L. DR. OETKER RO S.R.L. DUVENBECK LOGISTIK S.R.L. E.ON GAZ ROMANIA S.A. EKR-ELEKTROKONTAKT ROMANIA S.R.L. ENEL ENERGIE S.A. ERICSSON TELECOMMUNICATIONS ROMANIA S.R.L. ERNST & YOUNG S.R.L. EURO AUTO PLASTIC SYSTEMS S.R.L. EUROPEAN DRINKS S.A. EUROPEAN FOOD S.A. EXXONMOBIL EXPLORATION AND PRODUCTION RO LIMITED NASSAU S.A. FORD ROMANIA S.A. FUCHS CONDIMENTE RO S.R.L. GALASSINI ROMANIA S.R.L. GDF SUEZ ENERGY ROMANIA S.A. GENERAL ELECTRIC INTERNATIONAL S.R.L. GLAXOSMITHKLINE (GSK) S.R.L. GOLDMAN SACHS INVESTMENT S.R.L. HEINEKEN ROMANIA S.A. HENNLICH S.R.L. HERMES PHARMA S.R.L. HEWLETT - PACKARD (ROMANIA) S.R.L. HITACHI POWER TOOLS ROMANIA S.R.L. HOLCIM (ROMANIA) S.A. HOLZINDUSTRIE SCHWEIGHOFER S.R.L. HUTCHINSON S.R.L. KAUFLAND ROMANIA SRL FLEXTRONICS ROMANIA S.R.L. INDAGRARA PRODCOM S.A.

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MICHELIN ROMANIA S.A. MOL ROMANIA PETROLEUM PRODUCTS S.R.L. MOTOROLA ROMANIA S.R.L. NESTLE ROMANIA S.R.L. NEWS OUTDOOR ROMANIA S.R.L. NOKIA ROMANIA S.R.L. NORTEL NETWORKS ROMANIA S.R.L. OMV ROMANIA MINERALOEL S.R.L. ORANGE ROMANIA S.A PARMALAT ROMANIA S.A. PETROM S.A. PFIZER ROMANIA S.R.L. PORSCHE ROMANIA S.R.L. PORTA KMI ROMANIA S.R.L. PREMIUM LUBRICANTS ROMANIA S.R.L. PROCTER & GAMBLE MARKETING ROMANIA S.R.L. REAL HYPERMARKET ROMANIA S.R.L. RENAULT INDUSTRIE ROUMANIE S.R.L. REWE (ROMANIA) S.R.L. ROCHE ROMANIA S.R.L. ROMANIA HYPERMARCHE S.A. ROMTELECOM S.A SAMSUNG ELECTRONICS ROMANIA S.R.L. SANDOZ S.R.L. SANOFI-AVENTIS ROMANIA S.R.L. SCHAEFFLER ROMANIA S.R.L. SCHIEDEL -SISTEME DE COSURI S.R.L. SELGROS CASH & CARRY S.R.L. SEWS ROMANIA S.R.L. SIEMENS AKTIENGESELLSCHAFT S.A. SONY ERICSSON MOBILE COMMUNICATIONS INTERNATIONAL AB LUND S.A. TAKATA-PETRI ROMANIA S.R.L. TEBA IASI INDUSTRY S.A. TELECOM ITALIA SPARKLE EST S.R.L. THYSSENKRUPP ELEVATOR S.R.L. TIMKEN ROMANIA S.A. TOTAL LUBRICANTS ROMANIA S.A. TOYOTA ROMANIA S.R.L. UNILEVER SOUTH CENTRAL EUROPE S.R.L. URSUS BREWERIES S.A. VAN OORD OFFSHORE B.V. SUCURSALA NAVODARI VERIZON ROMANIA S.R.L. VIVENDI GAMES EUROPE S.A. VODAFONE ROMANIA S.A. VOLVO ROMANIA S.R.L. VWS ADISS S.A. WIEE ROMANIA S.R.L. YAZAKI ROMANIA S.R.L.

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THE CRISIS INFLUENCE ON THE UNEMPLOYMENT EVOLUTION Assistant PhD. Student Gabriela-Liliana CIOBAN “Ştefan cel Mare” University of Suceava, Romania Faculty of Economics and Public Administration [email protected] PhD. Student Costel-Ioan CIOBAN Archdiocese of Suceava and Rădăuţi, Suceava, Romania “Alexandru Ioan Cuza” University of Iaşi, Romania Doctoral School of Economics [email protected] Abstract: This paper aims to highlight the important role it has in the economic state of a country and thus, its contribution to maintaining low rates of unemployment in the labor market even in crisis. Since the negative effect of economic crisis or recession on the labor market is reflected in the fact that some employees left without work and result in national unemployment rate increase because of higher number of registered unemployed. Increasing the number of unemployed is explained on redundancies made by both private sector and in the state most affected areas as textile industries, chemical, mechanical and furniture. SNI results obtained using a different calculation methodology of the international show increased values overall unemployment rate and the number of unemployed since the end of 2008 as a result of the economic crisis affecting our country. Therefore, it appears that the crisis of low employment rate is the most important long-term problem of our economy. Romania should aim for 2020 to bring to fiscal work between one and two million people. Therefore, Romania needs policies that address improving incentives to increase the supply of jobs for some special categories: young, elderly and women and for achieving these objectives is necessary to implement retraining programs and increasing qualifications of older workers and the unemployed. Following increasing employment is the only sustainable solution to increase revenue (and not raising taxes) and to limit the need for internal and external loans. I believe that the Romanian economy should keep pace with changes at European and global economy through increased competitiveness, innovation and time workforce is highly qualified. Keywords: unemployment, social protection, labour market, unemployment rate, economic crisis, fiscal policy JEL Classification: J69

INTRODUCTION The current crisis of the world economy is passing through reveals common causes, traditional economic of the financial crisis phenomena in general, with other non-traditional specific. For Romania the economic crisis is not only temporary, it is one started in financing the current account deficit. It is more than that, a crisis of the structure, of vision and above all it is one of ownership of reforms, a leadership crisis. Romania faces a crisis of overconsumption. In detail, there are several causes of economic crisis in Romania, namely:  opening the capital account too quickly;  the strong desire of consumption, based on short-term external financing;  pro-cyclical fiscal and budget policy based on flat and very strong growth of employees' wages, while the economy is expanding;  postponement of structural reforms;  reduced absorption of structural funds;  -unsustainable growth based on internal and external economic and financial imbalances - non-synchronization between real and nominal economy (mismatch between profit, interest and growth);  -labor market distortions: brain drain, shortage of construction workforce; - expansion of housing sector;

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 -denying the crisis before the elections of November 2008, this led to the postponement of implementation of the preventive measures and increasing imbalances, including the last hundred meters. There were also cases of cyclical crisis - perhaps a higher degree of absorption of structural funds should be provided some protection to winning companies or the government must now reduce its level of expenditure. Perhaps an earlier acceptance of the crisis would have warned the last increase of salaries and pensions at the second half of 2008. DEVELOPMENTS OF THE UNEMPLOYMENT As a result of the economic instability, the implementation of restructuring programs of the national economy, some as inconsistent as priority directions of action, predominantly passive nature (until the late 90's) social protection policies for the unemployed, often inadequate for the needs of the real economy, pressure on the supply of labor performed by persons born in the late 60s and early 70s, there was an upward trend in unemployment in our country. I believe that the phenomenon of unemployment, having its premises in the socialist economies failures, particularly in employment, was a permanent period of transition to market economy, because then it is chronic and is show growth in recent economic periods. With the first regulatory litigation, namely Law no. 1 / 1991 on social protection of unemployed persons and their reintegration training, the unemployment began to be shown on entry to unemployment offices, because, since 1994, it was assessed by the household survey, unemployment in meaning criteria reflecting International Labour Office. This unemployment picture, on years is as follows: Table no. 1. The unemployment evolution during 1991-2010

The rate of the unemployment (total) %

Year

Annual media

Unemployment totally number

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

1,8 5,4 9,2 11,0 10,0 7,8 7,5 9,3 11,4 11,2 9,0 10,2 7,6 6,8 5,8 5,4 4,3 4,0 6,3 7,91

201.875 605.350 1.047.260 1.229.748 1.111.327 814.292 748.982 917.069 1.118.877 1.067.206 866.498 954.546 689.531 607.192 513.721 484.698 386.667 362.429 572.974 724.137

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Unemployment rates are calculated by the Statistics National Institute

Figure no. 1. Monthly evolution of the general rate of unemployment and unemployed people Source: www.anofm Thus, in 1991, the average unemployment rate was 1.8% and the number of unemployed by 201,875 and in 2002 had increased to 10.2% variables, respectively 954 546 unemployed. For the next period, the trend unemployment has been decreasing (in 2003, the average unemployment rate was 7.6% and in 2008 fell to 4 variables,%), considered by experts in economics as too rapid to be sustained investment, creating jobs. As a result, the low level of unemployment is explained mostly by growth, but in the case of Romania, is explained by the obvious action of several factors: labor gone abroad (1.5 - 2 million people) while the majority are people who, if he had remained in the country were unemployed, the population employed in subsistence farming that had no job and a steady income and was in a precarious socio-economic position; employment unit engaged in economic losses that would become unemployed if the subsidies will be stopped, early retirement decreased pressure on the labor market but led to increasing economic dependence. [1] SNI results obtained using a different calculation methodology of the international show increased values overall unemployment rate and the number of unemployed by 2003. Since that year, Romania seems to have won the fight with unemployment, even in periods of strong restructuring. So today marks the end of the middle decade of generally positive trend in unemployment and the beginning of the fall, until the onset of economic and financial crisis in Romania. It appears that the crisis in low employment rate is the most important economic issue of our time. As a result, more than four in ten Romanian active not is working, at least not in the formal fiscal economy. The employment rate is lower for some disadvantaged groups such as women, older persons (55-65 years) and youth (up to 24 years). Romania should aim for 2020 to bring to fiscal labor between one and two million people (which would mean another one or two out of ten active Romanian). I believe that Romania needs policies that address improving incentives to increase the supply of jobs for some special categories: young, elderly and women. Such measures include more flexible working conditions, such as part-time contracts and temporary, increased assistance for job identification and guidance, and dedicated programs, including subsidizing jobs where necessary.

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In the same tine should be removed the imbalance between the number of contributors and beneficiaries, to increase revenues to the pension fund, financial incentives to encourage workers to remain employed longer or to return to the labor market. To achieve these goals are implemented retraining programs and increasing skills of older workers and the unemployed. Rising employment is the only sustainable solution to increase revenue (and not raising taxes) and to limit the need for internal and external loans. Public policy efforts should be geared towards increasing employment rate (and not, as happens now, to ease personnel) solution that reduces both the macroeconomic vulnerability and social inequality (by default, reduce the need social welfare spending). Analysis throughout the entire period in the labor market in Romania was characterized by large regional disparities, with increases the unemployment in some counties. Therefore, this unemployment development is manifested differently at regional level - there are differences between east and west of the country. Table no. 2. Total number of registered unemployed and unemployment rate by country and by counties

County

Total no of unemploy -ment

Unemploy -ment rate

Total no of unemploy -ment

Unemploy -ment rate

Total no of unemploy -ment

Unemploy -ment rate

ctr. 0

1

Ș omeri 31.05.2010 2

(%) 31.05.2010 7,0

31.12.2009 2

(%) 31.12.2009 7

31.12.2008 2

(%) 31.12.2008 7

1

ALBA

20553

11,33

22767

12,6

12827

7,0

2

ARAD

13426

6,25

14591

6,8

6549

3,0

3

ARGES

23517

8,74

25229

9,4

13131

4,8

4

BACAU

19600

8,30

21094

8,9

12411

5,3

5

BIHOR

17072

6,01

16679

5,9

8596

3,0

6

BISTRITA

10806

8,20

11124

8,4

3614

2,8

7

BOTOSANI

10726

6,93

11231

7,3

5519

3,5

8

BRASOV

20802

8,31

21825

8,7

10655

4,3

9

BRAILA

11349

8,21

11101

8,0

6026

4,4

10

BUCURESTI

28553

2,50

26156

2,3

18274

1,7

11

18607

9,82

17920

9,5

10854

5,6

12

BUZAU CARAS SEVERIN

12694

9,86

13326

10,4

7698

5,8

13

No

CALARASI

9435

8,83

9861

9,2

5463

5,1

14

CLUJ

21366

6,20

21725

6,3

9998

2,9

15

CONSTANTA

19518

6,13

20198

6,3

9612

3,1

16

COVASNA

10425

11,11

10408

11,1

6786

7,2

17

DAMBOVITA

18362

8,74

17979

8,6

11715

5,5

18

DOLJ

35111

11,67

33643

11,2

24310

8,4

19

GALATI

23993

10,87

24555

11,1

14538

6,6

20

GIURGIU

7525

8,16

6681

7,2

4181

4,6

21

GORJ

16857

11,21

16464

10,9

10994

7,4

22

HARGHITA

13883

9,69

15125

10,6

9280

6,6

23

HUNEDOARA

21598

10,45

21819

10,6

13826

6,6

24

IALOMITA

11956

11,35

12256

11,6

5204

4,8

25

IASI

24298

7,77

22898

7,3

16905

5,4

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26

ILFOV

4548

2,81

3899

2,4

2098

1,4

27

MARAMURES

12796

6,22

13282

6,5

7577

3,7

28

MEHEDINTI

16002

12,99

17363

14,1

11429

9,3

29

MURES

19798

7,97

19999

8,1

11607

4,7

30

NEAMT

19052

9,43

16140

8,0

8223

4,0

31

OLT

15405

8,62

15694

8,8

9463

5,2

32

PRAHOVA

28997

9,22

28321

9,0

12122

3,8

33

SATU-MARE

9423

6,06

10135

6,5

4600

3,0

34

SALAJ

9783

9,19

11164

10,5

5845

5,5

35

SIBIU

12964

6,96

15315

8,2

5794

3,1

36

SUCEAVA

19669

7,79

20101

8,0

10963

4,3

37

TELEORMAN

20843

12,37

19976

11,9

13702

8,0

38

TIMIS

14888

4,38

15114

4,4

5568

1,6

39

TULCEA

7003

7,71

8024

8,8

4005

4,4

40

VASLUI

22747

14,10

22622

14,0

16458

10,2

41

VALCEA

13871

7,78

14359

8,1

8344

4,7

42

VRANCEA

12033

7,95

11220

7,4

6677

4,4

TOTAL

701.854

7,67

709.383

7,8

403.441

4,4

Source: http://www.anofm.ro/1764_numarul-total-de-someri-inregistrati-si-rata-somajului-pe-tara-si-pe-judete-la-datade-31-12-2008,2009,2010

According to data from the National Agency for Employment, the number of registered unemployed at the end of May 2010 was 701,854 thousand. Compared with December of 2009, the number of unemployed registered at employment agencies was lower with 7.529 million people. At the territorial level, the number of unemployed rose in 15 counties and in Bucharest. These increases were registered in the counties of Neamt, Iasi, Dolj, Ilfov, Vrancea, Buzau, Bihar, Vaslui, Teleorman, Prahova, Gorj, Giurgiu, Dambovita, Covasna, Braila. The number of unemployed fell more than half the counties. Therefore, demographic and occupational management in our country should take into account firstly, indestructible unit of labor market mechanisms and responsible involvement of public power, the rule of law. So the gap between demand and oversupply of labor has decreased slightly, due to a relative increase in employment opportunities during March to May 2010 and cooling trends of increasing unemployment. However, the absorption of labor force remained significantly lower than pre-crisis period. Because of this It must be taken the decision to avoid the tendencies of non-financial firms to reduce (or optimize) variable costs, especially wage costs such as internal and external result of reduced domestic production through fewer employees. CONCLUSIONS Throughout the economy, unemployment is an important consequence of lost production. This effect is manifested more pronounced in periods of recession. Thus reduced production, lower income businesses, and state tax revenues decline and as the population is affected again by reducing government transfers. It can therefore be considered a series of solutions that could lead to the recovery of the country's economic situation. Mainly government’s fiscal policy must change course. It can not increase budget revenues by increasing taxes but by stimulating consumption and helping small

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businesses. So, by reducing taxation. Failure on these proposals especially for crisis led to business suspension or dissolution of a large number of SME’s in the past year. In parallel with the reduction of taxation, Romania needs a stable domestic macroeconomic environment based on low inflation and bank interest. Also required is a solution for creating an institutional and administrative transparency with opacity and reduced bureaucracy. I believe that unemployment is a 'bad' office just as production is "better" social. The result of both models applied, and the Anglo-Saxon (based on laissez-faire and market dominance), and Europe (the welfare state, the welfare state) have proved not only limits but also dangers, namely the potential to generate crisis and the ideal would be a third way, a market economy, but governments provide necessary public services and where there is a supervisory "healthy" economy and financial system. As a result, economic efficiency required by emphasizing the three relationships: between the process of economic growth, productivity, labor demand and the specific duration of working hours, between labor supply and demand, between wages and inflation rate through the purchasing power index. 1

Irena Mocanu (2009), Unemployment in Romania. Regional disparities, Romanian Statistical Review, no. 4 National Institute of Statistics, Bucharest

REFERENCES 1. Dobrescu M. Emilian(coordonator), Cartea crizelor, o privire optimistă, Editura Walters Kluwer, 2010 2. Fota Dionysius, Băcescu Marius, Criza economică din România anului 2009, Editura Universitară, Bucureș ti, 2009 3. Keynes John Maynard, Teoria generală a ocupării forț ei de muncă, a dobânzii ș i a banilor, Editura Publica, Bucureș ti, 2009 4. Marga Andrei, Criza ș i după criză, Editura Eikon, Cluj-Napoca, 2009 5. Roubini Nouriel, Mihm Stephen, Economia Crizelor, Curs fulger despre viitorul finan Editura Publica, 2010 6. Voinea Liviu, Sfârș itul economiei iluziei. Criză ș i anticriză. O abordare heterodoxă. Editura Publica, Bucureș ti, 2009 7. *** Evoluţia politicilor europene în domeniul ocupării forţei de muncă, Ministerul Muncii, 8. Familiei şi Egalităţii de Şanse, Direcţia de Programe şi Strategii Forţă de muncă, „Observatorul 9. naţional al Ocupării şi Formării Profesionale a Forţei de Muncă”, august, 2007. 10. http://epp.eurostat.ec.europa.eu. 11. *** Anuarul Statistic al României 1990–2009, disponibil online la www.insse.ro. 12. *** ONU Indicators of Sustainable Development: Guidelines and Methodologies, 2008, 13. disponibil online la http://www.un.org/esa/sustdev/natlinfo/indicators/guidelines.pdf. 14. www.bnr.ro 15. www.mfinante.ro 16. http://www.anofm.ro/evolutia-ratei-somajului-in-perioada-1991-2010 17. http://www.anofm.ro/numarul-total-de-someri-inregistrati-si-rata-somajului-pe-tara-si-pejudete-la-data-de-30-06-2010 18. http://picasaweb.google.com/cristianorgonas/KhrisRo#slideshow/5400607331184848418 19. www.mediafax.ro 20. www.insse.ro 21. www.scribd.com 22. http://www.wall-street.ro/criza-economica

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EXCEEDING THE RESTRICTION IN AGRICULTURE, ECONOMICAL SPEAKING, AFTER ADHERING TO THE EUROPEN UNION Professor PhD. Dorina ARDELEAN University Vasile Goldiş, Arad, Romania [email protected] Lecturer PhD. Marius BOIŢĂ University Vasile Goldiş Arad, Romania [email protected] Abstract: If we take in consideration the profound structural discrepancies from the Romanian agriculture and rural environment, of the extended state of severe poorness from the rural areas, as well as the budgetary restrictions, which appear to main on the medium term, it is showed the importance of a pragmatic agricultural policy. In the present conditions, in the process of carrying out of this unitary system of objectives- derived from the fundamental strategic objective which aims at a significant growth of the Romanian agricultural products and producers completion- are two major objective restrictions: the success of the Romanian agriculture within the European Union structures and the relative limited possibilities of financial sustainment through the public resources of the governmental action from the agricultural sector. Keywords: agriculture, resources, capital, market, agricultural products JEL Classification: Q 18

INTRODUCTION In the 2007-2009 period, the Romanian agriculture benefits from a substantial financial support from the PAC founds, namely 4,037 milliards of euro. A significant part of this founds, 60%, is meant for the rural development. The purpose of this development is the improvement of the Romanian peasant wellbeing, which almost doesn’t exist in the Romanian village. It is given a great attention to this policy, because our current capacity to absorb the communitarian founds is still low. Also, there are foresee founds for the market measurements (18%) and for direct payments (22%). Integration in the common agricultural policy assumes the reduction of the variance of the agricultural products prices with at least 10%. The growth of the investments in the agricultural sectors is one of the min advantages of the adhesion. The existence of the cheep manpower and the current underdevelopment of the agroalimentary industries will attract important investments. In the last years, E.U has attracted approximately 50% from the total worldwide volume of investments, while U.S.A. has attracted only 25%, volume in which China isn’t included, its position being unknown. Another positive effect of the adhesion is the growth of the products specific to our country, interesting for a European market of 450 million consumers (such as honey, nuts, forest fruits, etc). Through the support programs for products are introduced the quality norms of the European Union, superior to Romanian one’s.

CONTENT The financial support given through the common agricultural policy and the productivity growth expected as a result of the investments will have as an effect the growth of the agricultures incomes.

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Through the measurements of anticipated retirement, the complementary measurements to fluidity the landed market and the measurements of rural development it is desired that in the next 20 years the quota of population from agriculture to drop to 10%. On the plan of the governmental action, of the agricultural policies, the competitively deficit of the Romanian producers has been deeply as a result of a complex of circumstances and causes, of which we consider significant the following:  The lack of an accepted pragmatic strategy of development of the Romanian agriculture on the medium and long term (at least in what it concerns the general coordinates) of the whole spectrum of political force from the country. The non existence of this consens generated a state of confusion with inevitable consequences upon the process of consolidation of the agricultural sector.  Forming and promoting of the agricultural policy based upon punctual and situational broaches/solutions in the detriment of a systemic vision which would assure the taking into consideration of the medium and long term perspective;  Insufficient attention given (or, if in certain periods has existed in a pragmatic plan, it was shadowed by hesitations, inconsequence, half measurement, etc) to the process of structural adjusting of the agricultural sector, in it essential two components: - Enterprise reform; - Forming and developing competitive markets. If we take in consideration the profound structural discrepancies from the Romanian agriculture and rural environment, of the extended state of severe poorness from the rural areas, as well as the budgetary restrictions, which appear to main on the medium term, it is showed the importance of a pragmatic agricultural policy. Exceeding the present state imposes- in our opinion- situated in the central of the agricultural policy- as a fundamental strategic objective- the real and profound reorganization of the agro-alimentary sector seen as an ensemble of interdependent economic-social processes, which must firstly aim at: consolidating the private propriety, enthroning of the propriety sense and of responsibility in given and administrating the resources, facilitating the concentration of the landed and of exploitation capital in viable agricultural exploitation/enterprises (in the conditions of an economy objectively more opened) simultaneously with the forming and development of alternative incomes sources in the rural areas, as an essential premise to overcome the barriers from the way to get out of the present surplus of work resources; creating a favorable economic environment for the efficient development, on competitive grounds, of the agricultural activities, inclusively through forming effective stimulants and conditions for savings in the rural households and the realization of private capital disposal came from outside or from inside the agricultural sector, developing partnerships in protection and conserving the natural environment from the rural space. Accomplishing this fundamental strategic objective- which finality is represented by a systemic and structural adjusting of the agro-alimentary sector, an adjusting able to fully valorizing the agro-productive potential given by the natural resources, and on the other side, to create or to consolidate the competitive advantages of the Romanian agriculture- it will have to be subordinated to a coherent system of partial/derived objectives, from which we mention:  Forming a competitive agricultural structure, constituted from a preponderantly mass of viable exploitation/enterprises supported by an adequate infrastructure and by a functional system of specific services;  Creating the indispensable condition for equitable, stimulating remuneration of the capital geared in the agro-alimentary sector- preponderant development of agriculture based on the own resources and of the private capital attracted from within the country and from abroad;  Stabilizing and growing the agro-alimentary production in concordance with the agroproductive potential and the competitive advantages of Romania: co-interesting the agricultural producers in obtaining, permanently, of a significant surplus of agro-alimentary products valuable in the conditions of efficiency on the internal market and international markets;  Limitation and diminishing gradually the rural environment poorness; growing the 125

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agricultural incomes, developing and diversification of economic activities that generate alternative incomes in the rural space; complex, integral development of the rural communication;  Consolidating the capacity of support- conservation and regeneration of the rural environment. In the present conditions, in the process of carrying out of this unitary system of objectivesderived from the fundamental strategic objective which aims at a significant growth of the Romanian agricultural products and producers completion- are two major objective restrictions: the success of the Romanian agriculture within the European Union structures and the relative limited possibilities of financial sustainment through the public resources of the governmental action from the agricultural sector. On this general fund, a major problem is represented by the alternatives of preponderantly allotted of limited budgetary resources: for the current needs of production or for the creation and consolidation of the premises for a competitive agricultural growth (forming and developing the fundamental determinants of dynamic competitive). It cannot be left aside neither the fact that the orientation to a priority given to the current needs or to solving the fundamental problems of dynamic competitive it determines the base orientation of the governmental action in what it concerns the legislate and institutional frame. The orientation to the current needs of the agricultural production may contribute to a fast re-launch of the agricultural production. In the conditions of the existence of some functional markets, this growth would have as a result of the increase of financial resources of agricultural producers and of the state budget. Unfortunately, currently this kind of markets is missing. The spore of production risks to not finding development in satisfactory conditions for the agricultural producers, to not generate real stimulants for re-starting the economic activity, and in its absence to appear new demands for budgetary resources. Obtained in the conditions of the current agricultural structure- characterized by profound structural discrepancies and a low efficiency of allotting/utilization of resource- the mentioned growth is more and harder to sustain. As time goes by, of the progressive opening of the Romanian economy it is needed a bigger volume of budgetary resources given as a form of production, stocking, commercialization (on the internal market and the external ones) subventions of agricultural products. In the moment, in which, this budgetary resources, more important, couldn’t be assured anymore the consequence would be diminishing or, in extreme conditions, crashing of the agricultural growth. The treaties from within the OMC already bring to date this moment. We are highlighting that the preference given to the present in the detriment of the future risks to miss the Romanian agriculture of the essential premises of a durable agricultural growth in an economy more objectively opened. The priority given to forming the bases for dynamic competitive, without a doubt can’t be accompanied on a short term by spectaculars results of the agricultural product growth, as well as of the structural adjusting of the sector. Talking about this last aspect, it would be naïve to think that the inertial forces that persist (already for too long), in the process of structural adjustment of the Romanian agriculture (restriction and blocks in forming and developing the competitive markets, the deformed structure of agricultural exploitation, behavioral deficiencies, blocks at leaving the agricultural activities and not least, the modest resources that can be allotted on non inflationist bases for sustaining the structural adjustment process) may be “annihilated”/exceeded on a short term. The experience of the worldwide agriculture - especially of the old countries of the European Union- convincingly attested. But, even in this conditions, every realized step in a systemic vision (long term oriented) would bring a lasting contribution to edifying the bases for a real agricultural growth (competitive and durable), that can sustain the process of development of the branch in a more opened economy. In our opinion, it is worth the effort and it must be made today, when the restrictions that are a result of the obligations assumed at international level leave enough space to promote objectives/actions of structural adjustment specific to the present stage of development of Romanian agriculture through budgetary sustainability. In this context the natural question that we pose is: what should be done? 126

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As a first general answer, the basic coordinates of political agricultural and rural development principles that we suggest are:  Moving the accent from the interventionist policies of direct stimulation of the offer (subventions for revival of the annual production cycles, regulating the markets through financial sustainment policies of the stabilization policies of it, export subventions, etc.) to the structural ones, namely sustaining the forming and functioning at efficiency parameters of some agricultural exploitation of medium dimensions through the market mechanism, the development of the institutional frame and of the necessary infrastructure for the rural market functioning and the urgent finalization of the privatization of the economic unities from the rural environment to which the state is of a majority.  Moving the accent from the exclusive agricultural policy to a real rural development policy, with the purpose to facility the occupying of the non agricultural sector from the rural environment, parallel with reducing the occupying in agriculture. At the present moment, in the agricultural sector, the competitive environment is under develop and strongly damaged in the behalf of the agricultural producers. For a wide range of agroalimentary products the markets continue to be segmented (the offer is mostly designed to local markets) and without having a proper connection with the international markets. The” pale” signs that the current markets emit don’t offer the indispensable mark for the orientation of the production structure to the real present and future demand. This situation exercise o strong unfavorable flow upon the agricultural production: there are missing the agricultural producers of necessary stimulants/resources for the enlargement or intensification of the economic activity, on one side through the lack of existence of functional channels of knowledge of demand and of production development- especially in the case of pulverize most peasant households- and on the other side, through the buyers “saying”, as a result of the mostly territorial presence of some monopole position of the local wholesale dealer. In the lack of offer organization, the peasant households don’t have the necessary straight to oppose the power of the wholesale dealer As a result, in the case of a normal croft, frequently, the products are undervalued at the farms gate and in numerous situations it don’t finds the development in the right time of the croft, moment in which the agricultural producers feel acute the lack of financial resources to pay the debts (towards the commercial banks, suppliers, etc.) and restarting the production cycle. In the lack of adequate storing spaces or of the financial means to necessary to “rent” it, important stocks of products go into an inevitable process of deterioration. Aren’t exceptions the situations in which a part of the agricultural products are defalcated from their normal usage to other usages (such as the weed for bread to animals food). All of it reduces the interest and the available resources for the production from the agricultural sector. CONCLUSIONS In the case of the inputs necessary for production, the biggest difficulties are generated by agricultural producers of low development of the services market specific (namely the mechanic works) and of the financial markets, of the rural loans (retail banking services). For other categories of input (such as fit-sanitarian products) the cost with obviously implication upon the process of agricultural growth- are strongly greave by the blowing out of the demand (it attracts, inevitably higher costs of transaction) and of the high level of the commercial adding. This lest one is partially explained, through of protection that the dealers are obligated to assume in front of the risk of not paying or time or even in the impossibility to recuperate the value of the products given ob credit (a practice wide used frequently as a result of the de-capitalization of the agricultural producers) with payment at crafting. In the lack of functional channels of development of products, in frequent cases, the agricultural producers can’t honor their contractual obligation towards suppliers and commercial banks. A favorable contribution to the forming and developing of competitive markets may bring:  Organizing the offer through developing the rural cooperation in the supplying, 127

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processing and development domain of agricultural products. The appearance and developing of modern rural cooperation in our country, in accordance with the functioning principles and the organization modalities practices in the West-European countries is conditioned by both assuming the Law of rural cooperation (the Law of agricultural cooperatives) and as well of the given of the public power of financial support in the initial stage of creating the cooperatives for creating the infrastructure of production and commercialization;  Forming and consolidating the markets at term (forward) and of the stoke markets of contracts at term and of other credit titles;  Facilitating the consolidation process of some reprehensive professional and functional association of the agricultural producers;  Promoting an ensemble of actions/measurements of de-monopolization of demand through forming a “critical ” of true wholesale dealers reducing the barriers of entering of the new private operators on the market; fluidity of the cereals markets transactions and implicit of the monetary fluxes from the agricultural producers to silos and finally, dealers and the merchandise stoke exchange trough creating the necessary conditions to implemented the system of warehouse certificates; developing the commercialization infrastructure, actions to promote the Romanian products on international markets, consolidating and developing the merchandise stoke exchange, etc.  Actions which purpose are to enhance the markets transparency, first through forming an informational system regarding the specific markets, dates that would be put at the agricultural producers disposition, systematically and operative through the National Agency of Agricultural Consultancy;  Creating a control system of the markets under the quality standards and the control of products origin. We also have to mention, even tangential, the problematic of forming and developing the financial markets in the rural environment/with impact in the rural environment, currently a major restriction in the process of agricultural growth (in the conditions of the high degree of decapitalization of the agricultural producers and of the restoring possibilities to form the capital). In order to clearing this market it would be wanted to:  Facilitating the extension process of the coverage area of commercial banks in the rural environment through: financing studies / projects concerning opportunities/restrictions and the projection of the of the financial situation of the points of business which would be carried out by a private bank in the rural environment; elaborating the appropriate technology of offering financial services to the agricultural producers, to small and very small companies from the rural environment; financial support (direct/indirect), in order to start a pilot filial/point of business in the rural areas;  Regulating the conditions that would make possible the creation of some small private commercial banks with local coverage;  Sustaining the forming and developing process of the mutual agricultural credit;  Supporting the improving process of the offer and of the quality of the assurance services (of the crop and/or of the producers incomes ), inclusive the forming and developing of the mutual assurance system;  Developing the leasing market for the capital goods;  Facilitating the enhancement process of the capital fluxes in the rural environment trough creating the regulating frame which offers the possibility to imply financial non-banking intermediaries in the assurance of the necessary resources for the agricultural producers;  Facilitating the process of realization of a functional system of agricultural culture based upon on term contracts (forward) and of the financial instruments market.

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REFERENCES: 1. Fruja Ioan, 1993 – Structuri agrare mondiale, Ed. Universitatea Tibiscus, Timişoara 2. Fruja I., Milin A.,2007 – Agricultura Regiunii de Vest – Realizări şi perspective, Ed. Agroprint, Timişoara; 3. Gavrilescu D., Daniela Giurca (coordonatori), 2000-Economie agroalimentară, Editura Expert, Bucureşti; 4. Lasok, D, şi Kpe Lasok, 1994- Law and Institutions of the European Union. London: Butterworths.

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COMPARATIVE ECONOMETRIC ANALYSIS ON THE EVOLUTION OF TOURISM TRAFFIC IN PRAHOVA AND BRASOV COUNTIES Professor, PhD. Marian ZAHARIA Petroleum-Gas University, Ploiesti, Romania [email protected] Associate Prof. PhD. Rodica Manuela GOGONEA Academy of Economic Studies, Bucharest, Romania [email protected] Abstract: The paper analyzes the comparative development of tourist traffic in the counties of Prahova and Brasov, the main indicators for assessing values, numbers of tourist arrivals and overnights number, being studied as econometric time series. The economic crisis triggered worldwide began before 2009 also in travel industry, has important effects at national level in Romania territorial. Studied in this context is the tendency of tourist movement in Prahova and Brasov counties, and recording developments oscillatory growing up in 2008 and a significant decrease in the year 2009. Conclusions of the analyzed phenomena show that the results are the effects of the emergence of financial bottlenecks that led to a significant drop in income population and therefore in important reduction of the tourist arrivals and of the overnight stays in these counties. However, it is expected a revival of tourist traffic in Prahova and Brasov counties, after economic recovery of Romania. Key Words: regression, polynomial function, overnight stays, tourist arrivals. JEL Classification: C10, L83

1. INTRODUCTION Romania's economic growth in the last 10 years has led to significant positive developments in tourism. Thus, in this decade, tourist movement had significant developments at national, regional and county. A particular impact in the tourist traffic and tourism activity is presented to counties Prahova and Brasov, which allow a comparison of this view. The two counties are the main tourist destinations for the habitants of the capital city where pollution and stress are highest. These two counties there are at a relatively small distance from Bucharest and offer a range of ways to spend the weekend. This context determines the inhabitants to escape out often from this city, weekend tourism being one of the forms of tourism, with significant impact on tourist traffic down in the two counties. The main indicators characterizing the touristic flows are represented by the number of tourist arrivals and the number of overnight stays in establishments of tourist reception in the counties that are under examination. The econometric approach of time series is formed from the empirical data provided by local departments of statistics from Prahova and Brasov, and it is based on an essential feature of the target in the analysis. This feature requires the explicit identification of the order of occurrence of all observations. Meanwhile, application of econometric methods have envisage the determination of the trends of the phenomena analyzed by applying of mathematical functions which better reflect the trend of each indicator that characterize the tourist flows in the two counties. Analytical methods for analyzing the evolution of economic phenomena and processes are based on chronogram of empirical dates series that allows choosing the best estimate of mathematical function of overall trend of tourist flows.

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2. A COMPARATIVE ECONOMETRIC ANALYSIS OF THE EVOLUTION OF TOURIST ARRIVALS IN ESTABLISHMENTS OF TOURISTIC RECEPTION IN PRAHOVA AND BRASOV COUNTIES Number of tourist arrivals in tourist reception is the main indicator for measuring the tourist traffic, outlining its evolution and to some extent impact of tourism on economic growth at regional or national. Evolution of the number of arrivals in Prahova County during 2000-2009 period, presents an oscillatory trend with successive increases and decreases (Table 1). Table no. 1:Tourist arrivals in establishments of touristic reception in Prahova county (Thousand persons) 2000 2001 2002 2003 2004 2005 2006 2007 2008 327 315 306 320 329 347 371 416 417 Source: Tourism Prahova, 1998-2008 Statistical Compendium, 2009 edition, pag.4

The overall trend is reflected as an increase in tourist arrivals tn Prahova entire period of analysis. On average this increase is set at just 33,000 visitors annually, ie an average increase of 101.02% with an average rate of 1.02%.

500 417 400 300

416 327

315

306

320 329

347

371 330

200 100

y = -0,3367x4 + 6,0572x3 - 32,286x2 + 58,153x + 291,58 R2 = 0,9564

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 thou arrivals Prahova Poly. (thou arrivals Prahova) Figure no. 1. Evolution of tourist arrivals in Prahova County, in the period 2000-2009 A clearer picture of the evolution of the number of tourists arrivals in establishments of tourist reception is also presented in Prahova chronogram (Chart 1). Insignificant average increase is due to last set of values recorded in the year 2009 as a result of the economic crisis started in 2008. Graph tourist arrivals in Prahova County, in the period 2000-2009 suggests Econometric development trend set by adjusting the numbers of arrivals of tourists arriving using the fourth degree polynomial, whose relationship is determined as: y  0,3367x 4  6,0572x 3  32,286x 2  58,153x  291,58

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(1)

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Value determined coefficient ( R 2  0,9564 ) indicates that the adjustment on the fourth degree polynomial better reflect the evolution of tourist arrivals in establishments of tourist reception of Prahova county. Evolution of the number of arrivals in Braşov County during 2000-2009 periods is presented in table 2. Table no. 2. Tourist arrivals in establishments of touristic reception in Brasov County (Thousand persons) 2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

326

328

290

325

422

448

484

557

582

426

Source: Statistical Yearbooks Brasov

From Table 2 is apparent that the evolution of the number of arrivals during the period 2000-2009, shows a similar trend to that recorded in Prahova County. Minimum value of 290 000 was registered in 2002, the maximum being recorded in the late period, 557,000 in 2007 and 582,000 in 2008. In 2009 was recorded a decline compared to 2008 the number of tourist arrivals in Brasov County with about 156,000. The same trend is also reflected by corelograma of tourist arrivals in establishment of tourist reception of Braşov County (Figure 2). Compared to average growth set at the county Prahova, Brasov County register an average increase of 36,250 tourists, with 3250 visitors annually more than in Prahova County.

700 582

600 500 448

400 300 200 100 0

484

557 426

422 326

328 290 325 y = -0,4073x4 + 6,2533x3 - 22,495x2 + 18,087x + 325,67 R2 = 0,9506

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 thou arrivals Braşov Poly. (thou arrivals Braşov) Figure no. 2. Evolution of tourist arrivals in Brasov County, in the period 2000-2009 From graphic analysis of tourist arrivals in Brasov county, in the period 2000-2009 (Figure 2) we conclude that, also for this county the evolution adjusted based on the fourth degree polynomial equation, reflects very well the tourist arrivals in tourist reception of Braşov County ( R 2  0,9506 ). y  0,4073 x 4  6,2533 x 3  22,495 x 2  18,087 x  325,67

(2)

Studying the graphs we conclude that the trend of development is similar, a fact confirmed by adjusting polynomial functions whose coefficients have values very close. 132

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As I said, the beginning of economic crisis has significant implications in Romania, fact reflected by the low number of tourist arrivals in 2009 establishments of tourist receptions of the two counties analyzed. 3. COMPARATIVE ECONOMETRIC ANALYSIS OF TOURIST OVERNIGHTS IN ESTABLISHMENTS OF TOURIST RECEPTION FROM COUNTIES PRAHOVA AND BRASOV Number of tourist overnight stays in establishments of tourist reception is the second significant indicator for evaluation of tourist traffic and reflection of the impact of tourism on economic growth at regional or national. For both counties, Prahova and Brasov, can be noted an evolution trend of overnight stays in a somewhat similar to the tourist arrivals. Although still an oscillatory trend with successive increases and decreases is also registered for the number of overnights in Prahova County, however, the 1.017 million overnights in 2009 versus 1019 in 2000 rise to an average decrease of 0.02% annually. Evolution of overnight stays recorded for this county is more clearly reflected by cronograma (Figure 3). In the period 2000-2003 was recorded a reduction in number of overnights, the minimum value of 803,000 nights spent being registered in 2003. Between 2004-2008 the demand is reviving, with the largest increase in 2007-2008 with 97,000 by innoptatari. But in 2009 starts to feel economic crisis, overlapped with the political crisis in Romania. 1200

1017

1000

1019 800

911

857

803

831

894

929

966

1063

600 400 200

y = -0 ,2 2 2 2 x 4 + 2 ,8 1 1 5 x 3 + 6 ,9 9 3 4 x 2 - 1 4 1 ,4 8 x + 1 1 5 0 ,3 R 2 = 0 ,9 6 2

0 2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

th o u s ta y in g s o v e r n ig h t Pr a h o v a Po ly . ( th o u s ta y in g s o v e r n ig h t Pr a h o v a )

Figure no. 3. Evolution of the overnight stays in Prahova County, in the period 2000-2009 The evolution of this indicator for Brasov county has a slightly different look with a trend reflected by corelograma of overnight stays in establishments of tourist reception of Braşov County (Figure 4). Braşov, compared with an average decrease of overnight stays in the Prahova county, is facing, the entire period of analysis, with a process of annual average increase of 0.52%, representing an average increase of 4 780 overnights per year.

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1400

1228

1200 1000 800

891

600 400

961 885

779

1000

1055 1191 934

831

y = - 0,8989x 4 + 14,953x 3 - 66,266x 2 + 74,519x + 870,83 R 2 = 0,9257

200 0 2000

2001

2002 2003 2004 2005 2006 thou s tay ings ov er night Br aş ov

2007

2008

2009

Poly . ( thou s tay ings ov er night Br aş ov )

Figure no. 4. Evolution of the overnight stays in Brasov County, in the period 20002009 As tourist arrivals in the establishments of tourist reception presented in the previous subsection, for determine the trend of overnight stays we can used the method of adjusting with a polynomial function by four degree. Thus, for the number of overnight stays in Prahova County, in the period 2000-2009, the econometric trend is set by adjusting by the following function: y  0,2222 x 4  2,8115 x 3  6,9934 x 2  141,48 x  1150,3

(3)

The adjustment based on this polynomial function, confirmed by the coefficient ( R  0,9257 ) outlines very good the trend of overnight stays in the establishments of tourist reception of Prahova county. Also, the graph of overnight stays in Brasov county, in the period 2000-2009 (Figure 4) is described by a fourth degree polynomial function, like: 2

y  0,4073 x 4  6,2533 x 3  22,495 x 2  18,087 x  325,67

(4)

In this case the value determined coefficient ( R 2  0,9506 ) is even better. Careful analysis of evolving graphs lead us to conclude that the number of overnight stays for Prahova decreased compared to 2000 compared with that established for Brasov, which is explained either by the poor quality of services, either through reduced budget and limited who tourists had which prefer the Prahova destination resorts. One or more of them have led to reduce the period of stay in tourist establishments in Prahova versus Brasov. But, from 2009 the situation is reversed. CONCLUSIONS Outstanding tourism potential of the two counties and their advantage of location relatively near the Romanian capital, Bucharest, in which focuses the most of the national workforce with the highest financial potential, are two traits which enabled them to be compared in terms of tourist interest.

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If arrivals and overnight stays by 2008 depended largely on the quality of service, once with the outbreak of the crisis, financial problems left their imprint not only on the establishment of holiday destination as well as the weekend party. In this context it is notable decreases recorded in 2009 handed over in 2008 for both tourists arrivals and for their overnight stays in both counties that have undergone analysis and comparison. Econometric methods of adjusting and setting the trend of evolution by polynomials of degree four concluded that both the tourist arrivals and the overnight stays show their oscillatory increases till 2008 and a significant decrease since 2009. Due to this decrease, overall, given only first and last years values were established in average increases or decreases with lower values, which would lead us to say that our attempts and efforts to align with European standards will be hampered by the economic crisis started in 2008. Only Romania's exit from the crisis can offer us the perspective of tourism traffic and of the tourism as a whole. REFERENCES 1. Gogonea R.M, Zaharia M. – Econometrie cu aplicaţii în comerţ-turism-servicii, Editura Universitară, Bucharest, 2008 2. Gogonea Rodica-Manuela, Zaharia Marian, Dumitru Nicoleta-Rossela Statistic and econometric analysis of the motivationl factors on turistc behavour, Analele Universităţii din Oradea”, seria Ştiinţe Economice, Tom XVIII 2009 - Volumul II, pag. 654-658.. 3. Oprea Cristina, Zaharia Marian, Rodica-Manuela Gogonea – Analysis of the accommodation capacity of Romania în the period 1990-2007, Journal of tourism, Special Number/2009, Editura Universităţii Suceava, pg. 12-17. 4. Zaharia M, Gogonea R.M, – Econometrie. Elemente fundamentale, Editura Universitara, Bucharest, 2009 5. Marian Zaharia, Rodica-Manuela Gogonea, Cristina Oprea, „Developments and Characteristics of Net Using Of the Accommodation Capacity from the Establishments of Tourist Reception in Romania”, Knowledge, in “Business Transformation through Innovation and Knowledge Management: an Academic Perspective”- The 14-th IBIMA Conference, June 23 - 24, 2010 Istanbul, Turkey,p.1827-1833. 6. Marian Zaharia, Rodica-Manuela Gogonea, Carmen Nastase The tourism’s measurement in the view of lasting development, Articol indexat în 2009 în BDI EconPaper,http://econpapers.repec.org/article/raujournl/v_3a2_3ay_3a2007_3ai_3a3_3ap_3 a48-59.htm 7. Marian Zaharia, Cristian Valentin Hapenciuc and Rodica-Manuela Gogonea, Analysis of the correlation between the existing accommodation capacity and the number of tourists arrived in Suceava county structures of touristic reception Articol indexat în 2009 în BDI EconPaper, http://econpapers.repec.org/article/scmrdtusv/v_3a5_3ay_3a2008_3ai_3a5_3ap_3a4348.htm 8. Zaharia Marian, Oprea Cristina, Rodica-Manuela Gogonea – Econometric analysis on the evolution of the demand and offer of accommodation in camps for children under and of school age, Journal of tourism nr.7/2009, Editura Universităţii Suceava, pg. 35-40. 9. Zaharia, Marian, Hapenciuc Cristian Valentin, Gogonea Rodica Manuela, Analysis of the correlation between the Existing accommodation capacity and the Number of Tourists Arrived in Suceava Country Structures of Tourist Reception in Journal of tourism - studies and research in tourism, No.5/2008, P.43-48. 10. Zaharia Marian, Gogonea Rodica, - Tourism implication in Economic Growth. A Cybernetic Approach”, International Journal of Computer, Communications & Control, Year 2006, vol. 1, Supplementary Issue p. 492-496.

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IPSAS AGRICULTURE – PROBLEMS OF A START Lecturer Cristina Silvia NISTOR Babes Bolyai University, Faculty of Economics and Business Administration, Cluj Napoca, Romania [email protected] Assistant Andreea CIRSTEA Babes Bolyai University, Faculty of Economics and Business Administration, Cluj Napoca, Romania [email protected] Diana COZMA IGHIAN North University, Baia Mare, Romania Abstract: The Agriculture theme raises a lot of problems fom the point of view of its reflection in the public sector accounting. In this context, at international level, there was need for a separate international regulation on this topic. According to IAS 41 Agriculture, a project has been subject to public debate – Exposure Draft (ED) 36 Agriculture, by whose modeling based on subscribed observations and proposals, to be able to build an international standardfor public sector on the topic of agriculture. Through a positivist research, based on the combination between quantitative and qualitative research, we analyze the impact of this proposed standard on the respondents, tracking and quantifying the degree to which it meets the needs of specialists from different countries. The study is very topical, considering that in the current period, at IPSASB level (International Public Sector Accounting Standards Board) there is the process of final elaboration of the standard, taking into account the particulars brought to ED. The study is of great importance for both the theoreticians from accounting field, who can make an image on the research trends in this field, and the practicians who can get the answer to some problems of agriculture, whose solution will be achieved by international standard approval. Keywords: IPSAS, agriculture, comments, terms, debate JEL Classification: M 40, M 41

INTRODUCTION At international level, half of the world’s population works in agriculture. There are great differences between the role played by agriculture in different parts of the world. In developing countries, such as Nepal, almost 90% of the population work the land. In contrast, in industrialized countries, like Great Britain and United States of America only about 2% of active population are working in agriculture. The lack of normalisation, the diversity of activities and the economic importance of the agricultural activity contributes for the increase of existing pressures in endowing the users with the financial information of the sector with relevant and reliable data, allowing them to know the real financial position and evaluate the performance of the organizations (Azevedo, Graça Maria do Carmo, 2007). This raises the need for regulation of agriculture in public sector accounting. IPSASB recognizes the lack of such a standard and proposes for debate the ED-ul 36 Agriculture, in March 2009 with subscribtion term for the responses, June 2009. The current period marks the progress of the construction process of the referential, in its final form. (IFAC, 2010). In this context, this study aims to identify the degree of acceptance of ED 36 in its current form, identifying the themes and subjects that encourage most discussions and observations. Starting from an overview of agriculture in the sphere of accounting regulations characteristic to public sector, we further detail the content of the possible standard created on this topic. Through an empirical research of the answers given by the IFAC member countries that participated to the process of the debate of the subject, we can appreciate how the final shape of referential will require extensive restructuring of content and form. Next, we try to interpret the position of some countries and how they support or not this extensive process. The topic presents a real interest, also for Romania, whose agriculture sector is in a slow process of development. EU membership, requires continuous updating of regulations, in order to 136

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achieve accounting harmonization and convergencewith international regulations. Thus, after including the referential of agriculture in IPSAS (International Public Sector Accounting Standards), also the Romanian accounting public sector should attend to its regulations. REVIEW OF EVOLUTION AND CONTENT OF ED 36 AGRICULTURE The historical evolution of the creation of the international standard IPSAS on the topic of agriculture can be synthesized as follows:  Octomber 2008 – The IPSASB members raises the issue of accounting treatment and presentation of information related to agricultural activity, a topic that is not covered in other standards. The first debates about the elimination of possible duplication of content between IPSAS appear, meaning that some specialists consider that defining the term “government subsidies” and presentation of the requests and recommendations regarding the booking of government subsidies in the context of agricultural activity, should not be included in this standard. This is because IPSAS 23 “Non-exchange transactions incomes” presents requirements and guidance regarding the booking of incomes from governmental subsidies.  February 2009 – A lot of issues related to definition and range of application of agricultural products appear. IPSASB agreed that the definition should include agricultural products subject to sale. The range of application section will include a paragraph stating that the biological assets for service delivery are outside the range of application of the proposed IPSAS. The IPSASB members voted in favour of issuing the ED with 17 to 0.  March 2009 – IPSASB issues ED 36 Agriculture. The comments on the text content are expected to IFAC's address until June 30, 2009.  September 2009 - IPSASB analyses the answers of representatives of professional bodies from different countries for ED 36 Agriculture. IPSASB agreed to clarify the principles of measurement for non-exchange transactions, and the conditions for exclusion from the range of application of IPSAS for biological assets used in providing services. They also agreed that transitional arrangements for accounting systems that adopt for the first time the accrual accounting should be developed. By considering the content of ED 36 Agriculture, IPSASB wants to find answers from expert bodies from different member countries of IFAC, with reference to the following subjects: 1. The definition of agricultural activity. The agricultural activity is managed by an entity that deals with biological transformation of living animals or plants for sale, including conversion to agricultural products, to additional biological goods or their preservation. 2. The biological treatment for goods during growth, degeneration, production, procreation and for measuring initial agricultural production, at harvest. It requires measurement at fair value minus costs of sales from initial recognition of biological assets to the point of harvest. However, IPSAS XX (ED 36) does not deal with processing of agricultural products after harvest, for example, processing grapes into wine or processing of wool into yarn. 3. There is a presumption that fair value can be measured reliably for a biological asset. However, this presumption may be refused, only on initial recognition of a biological asset for which market prices or established values are not available and for which the alternative estimations of fair value are determined to be clearly viable. In such cases, IPSAS XX (ED 36) requires an entity to measure biological assets at their cost less accumulated depreciation and accumulated impairment losses. Once the fair value of such biological good becomes reliably measured, an entity measures the fair value minus cost of sales. In all cases, an entity must evaluate the agricultural assets to the point of harvest, at its fair value less costs of sales. 4. IPSAS XX (ED 36) requires a change in fair value less costs of sales of a biological asset be included in the surplus or deficit of the period in which it appears. In agricultural activity, a 137

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change in physical attributes of a live animal or plants directly enhances or diminishes the economic benefits. Under a transaction based on historical cost model, an entity that owns forest plantations would not present any income until the first harvest and sale, perhaps 30 years after planting. Furthermore, an accounting model that recognizes and measures biological growth using current fair value reported to changes in the fair value over the period between planting and harvesting, is better supported by specific of agricultural activities. 5. IPSAS XX (ED 36) does not establish new principles for land related to agricultural activity. Instead, an entity follows IPSAS 16 "Investment Property" or IPSAS 17, "Tangible assets", which is more adequate to the situation. IPSAS 16 requires that the land, subject of investments must be evaluated at its fair value or at cost minus loss of accumulated depreciation. Biological assets, which are physically attached to the land (eg trees in a plantation forest) are evaluated at fair value without the cost of sales, separate of land. IPSAS 17 requires the valuation of land to be at cost less any accumulated impairment losses or at a revalued value. 6. IPSAS XX (ED 36) does not deal with accounting of revenue related to biological assets and agricultural products from non-exchange transactions or related government subsidies. IPSAS 23 "Incomes from Non-Exchange Transactions (Taxes and Transfers)" provides requirements and guidelines for accounting for government subsidies related to agricultural activity. IPSAS XX (ED 36) deals with the evaluation of biological assets acquired in nonexchange transactions, both initial and subsequent recognition. RESEARCH DESIGN The main objective of the study is the possibility of increasing the portfolio assessment of IPSAS by creating a new one, on agriculture. So, we formulate the following hypotheses: H1. To create an IPSAS Agriculture is considered useful by most professional bodies of respondent countries, members of IFAC. H2. Defining specific notions of agriculture (eg biological assets, agricultural activities) is clear and concise. H3. Standard issuance will be done in the shortest time. To validate or invalidate the formulated hypotheses, we will analyze and interpret the answers given by respondents with reference to the six topics of discussion raised by the IPSASB on the final form of IPSAS XX Agriculture (ED 36). In this approach we started from a theoretical approach of the problem of the public accounting regulations with focus on agriculture. Subsequently, through an empirical research we will determine the degree of acceptance of the standard on three levels: on each topic questioned, on each respondent country, and as whole. By quantifying 1 (YES) or 0 (NO) we will appreciate the acceptance or refusal of each point (N = 6) under discussion. Subsequently, we will motivate positive or negative responses depending on specific public accounting system of responding countries. The scientific research contributes to the efforts to deepen the knowledge required by retrospective nature imposed by the realized normative research, and by the prospective nature, given by the realized empirical research. Among the human socio science methods used in this approach, we can specify: analysis of documents, comparative method and observation method. RESULTS After analysing the comments sent to IFAC by the specialized bodies of the nine respondent countries, the following situation results (table no. 1): 138

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Table no. 1. Estimation of answers 1

2

3

4

5

6

DEGREE OF ACCEPTANCE/ COUNTRY

0 0 1 0 1 0 0 0 0

1 1 1 0 1 1 1 0 1

1 1 1 0 1 1 1 0 0

1 1 1 0 1 1 1 0 0

1 1 1 1 1 0 1 1 1

0 0 1 1 1 0 1 1 0

66.7% 66.7% 100% 33.3% 100% 50% 83.3% 33.3% 33.3%

22.22%

66.66%

66.66%

66.66%

88.88%

55.55%

SUBJECTS COUNTRIES Sounth Africa England Australia Canada Switzerland France Japan New Zeeland U.S.A. DEGREE ACCEPTANCE/ SUBJECT

OF

Considering the degree of interest shown by respondent countries for the topic of booking the specic elements of agricultural domain in the public sector, we can say that the hypothesis “To create an IPSAS Agriculture is considered useful by most professional bodies of respondent countries, members of IFAC” is true. If we calculate an average of acceptance / total standard, it is above 50%, which reinforces the conclusion that the need for a referential is also evident. But there are some problems regarding the delimitation of the scope of the referential. The main discussions occur about IPSAS 17 "Tangible assets", IPSAS 23 "Incomes from Non-Exchange Transactions (Taxes and Transfers)”, IPSAS 12 “Inventories”. If we want correctly positioning all the aspects, it will be neccesary the restructuring of these IPSAS, which will affect the deadline for the new standard. But in December 2009, because of the importance of agriculture in the public sector, a standard was issued, IPSAS 27 “Agriculture”. It is not considered the fnal form but it is a step for issuing the final stndard. In other words, the hypothesis “Standard issuance will be done in the shortest time” proves to be true. In detail, the degree of acceptance of the six subjects under discussion by IPSASB is as follows (figure no. 1): Degree of acceptance/subject 100 80 60 40 20 0 SUBJECT 1

subject 2

SUBJECT 3

subject 4

SUBJECT 5

subject 6

Figure no. 1. Degree of acceptance/subject As you can see, the theme with the lowest degree of acceptance is subject 1. The vast majority of countries deemed to be insisted on clarifying specific terms of the agricultural sector for being an uniformity in understanding and applicability in good conditions of their content. Japan considers that this standard does not include the important biological assets that are used to provide services, including plants and trees used for environmental protection. USA believes that there is a clear breakdown of agricultural products. 139

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Therefore we can say that the hypothesis “Defining specific notions of agriculture (eg biological assets, agricultural activities) is clear and concise” proves to be true. Also, subject 6 has a weight of acceptance at limit, the motivation can be given by France that suggests the confusion between accounting of biological assets acquired from non-exchange transactions or government subsidies and the incomes related to biological assets and agricultural products realized from nonexchange transactions or from government subsidies. Subjects 2, 3, 4 and 5 are accepted, outlining the idea according to which the fair value occupies a fundamental place in the evaluation of agricultural assets, their particularities imposing this thing. Barlev and Haddad (2003) argued that fair value accounting has the capacity to enhance the stewardship function by providing relevant information to stakeholders, thus alleviating social conflict. The latter occurs when the discrepancies that exist between agriculture widely practiced and that performed at a small level (like farmers), cause discontent in terms of efficiency, quality, exploiting the possibilities of agricultural products. The fair value sustains the interests of both parties, in realizing a correct evaluation of agricultural assets (Elad C., 2009). After the degree of acceptance by respondent countries to all six issues, the situation is as follows (figure no. 2): Degree of acceptance / Country 100 80 60 40 20 0 USA

and Zeel New

n Japa

ce Fran

nd zerla Swit

da Cana

ralia Aust

and Engl

rica h Af Sout

Figure no. 2. Degree of acceptance / Country According to the formulated motivations, three categories of countries can be remarked:  those that are fully supporting the current form of referential IPSAS XX - Australia and Switzerland  those that are supporting the current form of referential IPSAS XX, but with minor adjustments - South Africa, England, France. The comments of these countries specifically refers to the redefinition of terms, to provide clearer evidence of the range of application of the standard Comentariile acestor tari se refera in mod special la redefiniri a unor termeni de specialitate, la o evidentiere mai clara a domeniului de aplicare al standardului (eg. South Africa sustains that IPSAS should be amended to refer constantly to the sale and transfer at all) or to a repositioning of assessment methods of agricultural assets (France sustains the cost of production)  those that are refusing the current content of the standard, suggesting that it should not be taken up untill there will be a review of costs, benefits and a clear relevance of it. (New Zeeland, USA, Canada). CONCLUSIONS The agricultural sector issue proves to be extremely exciting. Public accounting tries to align to existing international standards for economic entities, but the own peculiarities make the process very difficult. Through this study we captured some aspects of development and acceptance of the 140

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new IPSAS XX Agriculture. The study has theoretical foundations and relevant practices, because there are analysed the opinions of some accountants from countries whose accounting systems are defining for anglo-saxon model (eg. England, Australia) and continental one (eg. France), namely their foundation is based entirely on international standards (eg England), or specific national rules (eg. France). The subject is not closed, because there are a lot of unclarified aspects, whose evolution is a future research subject. Also, it will be interesting to research the opinion of theoreticians and practitioners, namely of the specialized body CECCAR, regarding the vision of Romanian accounting system on the provisions of ED 36. These topics will be developed in future researches. REFERENCES 1. Azevedo, Graça Maria do Carmo (2007), The Impact of International Accounting Stan1rd 41 'Agriculture' in the Wine Industry, available at SSRN: http://ssrn.com/abstract=975508. 2. Barlev, B. and Haddad, J.R. (2003) ‘Fair value accounting and the management of the firm’, Critical Perspectives on Accounting, 14: 383-415. 3. Elad, Charles (2007), ‘Fair Value Accounting and Fair Trade: An Analysis of the Role of International Accounting Standard No. 41 in Social Conflict’, Socio-Economic Review, Vol. 5 (4):755-777, available at SSRN: http://ssrn.com/abstract=1157711 or doi:mwm013. 4. Nistor, C.S. (2009), Trecut, prezent si perspective in contabilitatea publica romaneasca, Casa Cartii de Stiinta, Cluj Napoca. 5. www.ifac.org 6. www.ipsas.com

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INFLUENCE OF BRAND NAME ON CONSUMER DECISION MAKING PROCESS- AN EMPIRICAL STUDY ON CAR BUYERS. Assistant Professor Mohammed ALAMGIR University of Chittagong, Bangladesh, Bangladesh Lecturer Tasnuba NASIR University of Science and Technology Chittagong (USTC) University of Chittagong, Bangladesh [email protected] Associate Professor Mohammad SHAMSUDDOHA University of Chittagong, Bangladesh E-mail: [email protected] Associate Professor Ph.D. Alexandru NEDELEA Stefan cel Mare University of Suceava, Romania [email protected] Abstract: In the modern society brands not only represent the product or company but also have a strong association with perceived quality, consumers’ life style, social class, taste etc. The purpose of this paper is to create a deeper consideration of what influence a brand name can have, when people go for purchasing, choose the products between different brands, especially private vehicle like car. Moreover, this paper also tries to explore the relation between brands and the consumer decision making process. This study has been conducted through literature study as well as questionnaire administered survey. Simple random sampling procedure has been used to determine sampling frame and size and a convenience sample of hundred respondents of different age groups, income and occupation have been considered for the survey. The collected data were analyzed to comply with the objectives and also to draw conclusions. From the study it is revealed that when consumer purchases a car, brand names do influence his/her choice. The study also reveals that branded cars have a great place in consumer mind, when customers go for purchasing a car, they prefer to purchase a well known branded car. Customers do not want to try new or unknown branded cars because they have not much information about the lesser known brand. Key Words: Brand, Brand name, consumer behavior, purchase decision, level of involvement JEL Classification: M 30

INTRODUCTION “A product is something that is made in a factory, a brand is something that is bought by a customer. A product can be copied by a competitor, a brand is unique. A product can be quickly outdated, a successful brand is timeless” (Quiston, 2004, p 345). This statement induces researchers to determine the impact of brand, especially brand name on purchase decision. The brand history tells us how the people have used the brand as a mark of identification. In the earlier times the brand mark was used to differentiate the goods of one producer to others. Nowa days brand is not only used for differentiation but also used to justify the purchase decision. In this paper researchers tried to identify the influence of brand name on purchase decision. Brand is a combination of name, symbol and design. Brands represent the customer’s perceptions and opinion about performance of the product. The powerful brand is which resides in the mind of the consumer. Brands differ in the amount of power and worth they have in the market place. Some brands are usually unknown to the customers in the marketplace while on the other hand some brands show very high degree of awareness. The brands with high awareness have a high level of acceptability and customers do not refuse to buy such brands as they enjoy the brand performance. Some brands commend high level of brand loyalty. Brands also have a symbolic value which helps the people to choose the best product according to their need and satisfaction. Usually people do not buy certain brands just for design and requirement, but also in an attempt to enhance their self esteem in the society (Leslie and Malcolm, 1992). Brand names present many things about a product and give number of information about it to the customers and also tell the customer or potential buyer what the product means to 142

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them. Further more it represents the customers’ convenient summary like their feelings, knowledge and experiences with the brand. More over customer do not spend much time to do find out about the product. When customer considers about the purchase they evaluate the product immediately by reconstructed product from memory and cued by the brand name (Hansen and Christensen, 2003). A brand has a value; this depends on the quality of its products in the market and the satisfaction or content of the customer in its products and services. This provides the trust of the customers in the brand. If customers trust a brand quality it makes a positive connection to the brand and customers will have a reason to become a loyal to the brand. Loyalty and trust of the customers is very important for a company because it reduces the chance of attack from competitors (Aaker, 1996). Brands play a very important role in the consumer decision making processes. It is really important for companies to find out customer’s decision making process and identify the conditions, which customers apply while making decision (Cravens and piercy, 2003). Marketers are highly concerned to know how brand names influence the customer purchase decision. Why customers purchase a particular brand also implies how customers decide what to buy. Customers follow the sequence of steps in decision process to purchase a specific product. They start realizing a requirement of product, get information, identify & evaluate alternative products and finally decide to purchase a product from a specific brand. When customers purchase particular brand frequently, he or she uses his or her past experience about that brand product regarding performance, quality and aesthetic appeal (Keller,2008). OBJECTIVES OF THE STUDY Now a days customers have a good knowledge about the brand products, they trust the well known brand name because branded products are offering them good quality what they expect from the brands. Most of the customers are loyal with some specific brands. Customers have high awareness about the known brands as compared to an unknown brand. The primary objective of this research is to determine the influence of brand name on car purchase decision. To comply with the primary objectives the following supportive objectives also considered. 1. To gain knowledge about consumer decision making process, especially with high involvement products, and 2. To know about different issues related to brand and brand selection process. 3. To identify the impact of brand name on purchase decision. LITERATURE REVIEW This paper basically focuses on brand and the link between brand and consumer preferences. The following flow chart shows how this paper divided and explained theories on branding and consumer behavior. Brand Equity Brand Loyalty Name Awareness Perceived quality

Emotional branding Brand Name Logos & Symbol

Consumer Behavior Complex Buying Behavior Dissonance reducing buying behavior

Consumer Decision Making Decision Rules Social Class Conspicuous consumption Purchase Intention

“Brand equity is a set of brand assets and liabilities linked to a brand, its name and symbol that add to or subtract from the value provided by a product or service to a firm and/or to that firm’s customers” (Cravens, 2003) 143

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It can also be defined and explained in the following way--

“Brand equity is a set of brand assets and liabilities linked to a brand, its name and symbol that add to or subtract from the value provided by a product or service to a firm and / or to that firm’s customers. For assets or liabilities to underlie brand equity they must be linked to the name and / or symbol of the brand. If the brands name or symbol should change, some or all of the assets or liabilities could be affected and even lost, although some might be shifted to a new name and symbol. The assets and liabilities on which brand equity is based will differ from context to context. However, they can be usefully grouped into five categories” (Aaker, 1991, p 15). 1. 2. 3. 4. 5.

Brand Loyalty Name awareness Perceived quality Brand association Propriety brand assets

Brand equity is a valuable asset for a company, which they want to, put in their brands. A power full brand enjoys a high level of customer brand awareness and loyalty. Company can have a competitive advantage through high brand equity. Brand equity also involves the value added of product through customer relations and perceptions for the specific brand name.39 Brand equity assets can be described as a way of adding or subtracting value for customers. Brand Loyalty Brand loyalty shows customer preferences to purchase a particular brand; customers believe that the brand offers the enjoyable features, images, or standard of quality at the right price. This belief and faith of the customer becomes a base for new buying habits. Initially customers will purchase a brand for trial, after being satisfied, customers will keep on buying the product from the certain brand. Brand loyalty represents an encouraging approach towards a brand resulting in regular purchase of the brand over time. “The brand loyalty of the customer base is often the core of brand equity. If customers are indifferent to the brand and, in fact buy with respect to features, price and convince with little concern to the brand name there is likely little equity. If on the other hand, they continue to purchase the brand even in the face of competitors with superior features, price, and convenience, substantial value exists in the brand and perhaps in its symbol and slogan.” (Aaker, 1991, p 39). There are many attributes in the car which helps them creating loyal customer base and even can influence the customers group in such a way that they are using the same brand for generations. Name awareness This is the second category of the brand equity. Brand name awareness plays vital role in consumer decision making process; if customer had already heard the brand name, the customer would feel more comfortable at the time of making decision. Customers normally do not prefer to buy an unknown brand, especially if it an expensive product like motor car, TV, refrigerator, apartment etc. Therefore companies’ strong brand name is a wining track as customers choose their brand over unknown brand. Perceived Quality It is an essential characteristic for every brand; perceived quality defines a customer’s perception and the product’s quality or superiority. The perceived quality provides fundamental reason to purchase. It also influences brand integration and exclusion to consideration set before final selection. A perceived quality provides greater beneficial opportunity of charging a premium price. The premium raises profit and gives a resource to reinvest in the brand. Perceived quality will enable a strong brand to extend further and will get a greater success possibility than a weak brand. 144

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Perceived quality has a greater influence in a customer’s purchasing process and in brand loyalty. This influence is very important when customers are in a condition, which makes them unable to make an analysis of the quality. Perceived quality can be used as a helping tool when company intends to utilize a pricing strategy with premium price and further extend a brand in several markets (Aaker, 1991). Emotional Branding Usually branding starts when company designs a product with great feature and capabilities better than what their competitors are offering. The company then has a “position” in a product distinct category against competitors. The problem increases when neither of the groups has made efforts to create emotional bond between the customers and the company and its product. Emotional branding is the fine approach that clarifies the values of the company to the customers (Marken, 2003). When companies want to know what consumer feels about them, they have to build a personal communication with the customers. This is the good way in a company can consider itself because customer perception is very important for companies. However a company can learn a lot by listing to its customer views. It is essential for companies to correspond by their product by relating to their customers emotionally; otherwise product can be a product and become a brand image in the customer’s minds. Emotional Branding also consider brand name which influence consumers decision making process. Brand Name The brand name is very significant choice because some time it captures the central theme or key association of a product in a very condensed and reasonable fashion. Brand names can be extremely successful means of communication. Some companies assign their product with a brand name that in reality has nothing to do with the emotional experience but is catchy and a name that people can easily memorize. The core base of naming a brand is that it should be unique, can be easily discriminated from other names, easy to remember and are attractive to customers (Keller, 2008). In our opinion people have strong connection to brands and brands name. Brand name influences the customer decision in car choice. When people intend to purchase a car, they have many brand names to choose from, but usually people purchase a car with preference to brand name and company reputation in market because of trust and pervious experience. Logos and symbols Logos and symbols have a long history which shows brand identification of the company. There are different types of logos, which are unique from corporate names or trademarks. Logos and symbol are easy way to recognize a product. It is a greater success if symbol and logos became a linked in memory to corresponding brand name and product to increase brand recall. Customers may perhaps identify definite symbols but be unable to link them any particular brand or product (Keller). Logos helps companies to develop the brand equity through raised brand identification and brand loyalty. Logos are very important assets, companies spend enormous time and money to promote brand logos and symbols. Logos and symbol are successful way to get a better place in customer mind. If customers find something that is easily identifiable preferably in a positive way, customers feel more comfortable with them. If there is not much difference among brands, then logos and symbols can be a very effective way of differentiating the brands from each other. Consumer Behavior Consumer behavior mainly sheds light on how consumers decides to spend their various resources like time, money etc. on various products so as to meet their needs and requirement. Consumer behavior encompasses study of what, when, why and where the consumers will buy their 145

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products. It also focuses on how often the consumers use the products. Furthermore, it also sheds light on how the consumers evaluate the products after the purchase and the effect of evaluations on their future purchases (Schiffman, 2005). To give an example of how consumer behavior evolves while buying a car, he will start with recognizing his or her need for a car. Then come the information collecting and processing stage. After making up his mind to buy one specific brand, for instance Skoda, the consumer makes the purchase. In the post-purchase stage, the consumer evaluates the performance of the car against the expectations he or she had before buying the car. In this stage, the consumer is either satisfied or dissatisfied. So, it is evident from the last example that study of consumer behavior involves lot of things. Complex Buying Behavior Complex behavior can be defined when consumers are highly involved for making a purchase decision. Complex buying behavior calls for high level of involvement on the part of the consumer. In case of high involvement, consumers distinguish salient differences among the competing brands. Consumers’ are highly involved in case of expensive and highly self expressive products. The consumer engages in extensive information to search and to learn about product category so as to be able a good purchase decision. For example, when a consumer decides to buy a car, he seeks information about the available brands and compares his collected information about each brand and finally makes up his mind (Kotler, 2007). Dissonance reducing buying behavior In case of dissonance reducing buying behavior the level of consumer involvement is also high. Consumers typically undergo dissonance reducing buying behavior in case of costly and infrequent purchase. In this type of consumer behavior the consumers find it difficult to differentiate among the brands. For example, consumer buying carpet may come across of dissonance reducing buying behavior, as carpets are usually expensive and self-expressive. In case of carpets, consumers may deem most of the available carpet brands in the market within a certain price range to be of the same quality. Consumers may respond primarily to a relatively better price. After the purchase consumer might experience post purchase dissonance (after sales discomfort) (Kotler, 2007). Consumer Decision making

The consumer decision making process defines different steps when a consumer goes through to purchase a product. If customer wants to make a purchase he or she takes a sequence of steps in order to do complete this purchase. Problem recognition includes when consumer feel a significant difference between the current state and ideal so consumer thinks there is some problem to be solved. The problem may be small or big. In the second step, the consumer seeks information about the product. The extent of information search relies on the level of consumer involvement. In case of expensive products, the level of involvement is high. Conversely, in case of relatively cheap products the level of involvement is usually low. In the third step, the consumer evaluates the different attributes of the brands. Consumer may consider the product attributes and compare brand products. In the final step consumer makes his choice about a product. It’s true that a consumer may not necessarily go through all the decision making steps for every purchase he or she makes. At times, consumer makes his or her decision automatically and the decision may be based on heuristics or mental shortcuts. Other times, in case of high involvement products consumer may take a long time before reaching a final purchase decision. It depends on consumers’ importance of the products like purchase of a car or home. More over consumers try to make an estimated brand universe on the basis of available information about the brands, and to make an estimated the utility function on the basis of past consumption experience (Solomon, 2006). 146

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Social Class Social class is an invisible stratification of the inhabitants of the society into different groups based on some traits of the people. Inhabitants in a society can be divided into different social classes according to their income level, occupation, education and so forth. Social class of a person is determined by a wide variety of set of variables including income, family background and occupation (Solomon, 2006). A person’s social class can be defined by what he or she does with money. The consumption choice of a person also determines the person’s position in society. Every social class varies from each other because of having its own traits that set it apart from other class. Social classes vary in costumes, language patterns and many other activities and preferences. This class of consumer will possibly never buy a product on an experimental basis. Social class is very important source to know which social class person belong. Mostly people have different preference and choices from others (Stephens and Townsend, 2007). Conspicuous Consumption Conspicuous Consumption can be defined as the way of consumption by the people who have the financial ability to afford expensive brands not only just to consume the products but also to show off with the view to inspire envy among others. People of higher class usually go for a wide array of status symbols for consuming conspicuously. Conspicuous consumption is related to the person’s social class, generally the upper class consumer would purchase and display exclusive items to show-off their wealth and power. They purchase expensive branded products like cars, latest electronics even if it is not necessary for them to purchase (Solomon, 2007). Purchase Intention The purchase intention shows customers preference to purchase the product, whose image is very close to customer. Moreover customers are well aware of certain brand name through advertising, from their past experience or information form their friends and relatives (Teng, 2008).The intention of a consumer to purchase a particular brand can be defined as his willingness to buy that brand. After being exposed to a TV commercial, a consumer might be interested about the product but being just interested in a product does not mean that the consumer has the intention to buy the product METHODOLOGY OF THE STUDY The Survey Method has been chosen to carry out the research. The researchers divided the whole work mainly into two parts- secondary research and primary research. In the secondary research the researcher has made use of the available literature and other relevant publications to find out the theoretical framework and also to know what early research mentioned regarding selected topic. For primary research survey method has been considered. To carry on the survey a questionnaire administered personal-contact approach has been used. The questionnaire was pre-tested on a small sample of 5 respondents and based on this minor changes were made to improve the clarity of the questionnaire. The sampling procedure used for the study was simple random sampling. A convenience sample of 100 customers of Chittagong, Bangladesh had been chosen for the research. No restrictions were made on the age, background, sex or location. In order to analyse the data descriptive statistics were employed. The frequency distribution had been used as a descriptive statistical tool.

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LIMITATIONS OF THE STUDY 1. Only one city (Chittagong) of the country had been considered. Findings might vary according to the location, income level, standard of living etc. and all of those factors had not been considered separately. 2. Only the descriptive statistics had been used to analyse the data, no steps had been taken to use inferential statistics. There might be some sorts of variance in the overall result if it is tested by inferential statistical techniques.

Findings of the study (i) Demographic Information of the respondents The following table (table nr.1) represents the demographic information of the respondents. The first table provides the gender information which shows that 90% of the respondents were male and 10% respondents were female. The survey shows majority of the respondents were male and the main reason for this is because more men drive a car than female in Bangladesh, especially in Chittagong. Sample has been selected randomly without any bias and all the respondents are basically car owners. Furthermore the table provides the respondents age-group information. The first age group (25 to 35 years) accounted for 32% and next 36 to 45-years-age-group accounted for 26%, the 46 to 55-years-age-group were 24% and the 56 to 65 years-age-group were 14% and above 65 years age group respondents were 4%. The table also explains the respondents’ income. Data shows that 19% respondents’ annual income are 75,000 and 26% respondents annual income is between 76,000 to 1,25,000 and 22% respondents earn annually between 1,26,000 to 1,75,000 and 20% respondents’ annual income is between 1,76,000 to 2,25,000 and 13% respondents’ earning annually more than 2,26,000. All respondents have a different brand car, matching their individual income level. From the table (table nr. 1) it is also clear that 35% respondents are in private service and 40% respondents run their own business and 10% respondents are doctors and 10% respondents are lawyers and 5% respondents are belong to other occupation. Table no. 1. Demographic information of the respondents Variables Gender Car ownership

Age Group

Income

Occupation

Measuring Group Frequency Male 95 Female 05 Yes 100 No 0 25 to 35 32 36 to 45 36 46 to 55 24 56 to 65 14 75,000 19 76,000- 125,000 26 126,000- 175,000 22 176,000-225,000 20 More than 226,000 13 Private Service 35 Own business 40 Doctor 10 Lawyer 10 Others 5 Source: Field Survey

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Percentage (%) 95 5 100 0 32 36 24 14 19 26 22 20 13 35 40 10 10 5

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(ii) Ownership of specific car brand O w

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Figure no. 1. Ownership of car Brand (Source: Field survey) After having asked the respondents which brand car they own, five different brand car names were given which include nearly all the available brands in Bangladesh market. 76% cases replied to have Toyota brand car and 5% respondents are running Mitsubishi brand car and 3% respondents owned Nissan brand car. 4% respondents replied to have Honda brand car and 6 % respondents owned Suzuki brand can and 6% owned other companies branded cars. The majority of respondents which is 76% answered to have own Toyota brand cars. This is the highest percent of brand car user in survey. (iii) Extent of information search: Table no. 2. Extent of information search before buying Frequency Extensive information search 52 Compared only few brands 33 Limited information search 12 No information search 3 Total Source: Field survey

Percent 52 33 12 3

The above table (table nr.2) shows the extent of the information search before buying a car. 52% respondents go for extensive information search where as 33% compared only few brands before finally making their purchase decision. The survey also reveals that 12% respondents were engaged in limited information search before making their final choice, especially those who are changing their old models. However, 3% respondents did not search any information before buying a car. According to the result of the survey, it can be inferred that most potential buyers usually engage in extensive information search. (iv) Deciding role in purchase decision

p e rc e n t

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fa m ily d e c is io n

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Figure no. 2. Role in purchase decision (Source: Field survey) This section tried to explore whether the purchase decision was the respondents own individual decision or a collective decision. As we can see in the above bar diagram that the majority of the respondents replied that when they purchased a car that was their own decision and also a good number of respondents answered that the purchase decision was their joint family 149

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decision and the lowest number of respondents replied to have consulted with their friends before buying, this is followed by the “others” which points out that the respondents sought others namely co-workers etc. suggestions in a very occasions before making buying decision. (v) Most important attribute considered before buying Table no. 3. Most important attribute for considering buying Frequency Price of the product 28 Both price and quality 17 The brand name of the product 39 Design of the product 12 Other attributes 04 (Source: Field survey)

Percent 28 17 39 12 04

Regarding which most important aspect the respondents considered when he or she made a purchase decision., the information depicts that the purchase decision of a potential buyer is influenced by a number of factors namely past experience, brand, quality and price. The majority of the respondents (39%) answered when they purchased a car they considered the well known brand name followed by 28% respondents who considered the car price. However, 17% said they considered both quality and price. Moreover, 7% respondents considered the car design while 4% considered the other attributes. (vi) Number of car brands considered N u m b e r o f c a r b r a n d s c o n si d e r e d

p e rc e n t

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Figure no. 3. Number of car brands considered before buying The respondents were asked how many brands they normally consider before taking final buying decision. The above chart shows that 46% respondents consider only one brand when they take buying decision where as 26% respondent replied that they considered two different brands and 17% respondents considered three brands. Only 11% respondent compared four different brands while taking their decision to buy a car. (vii) Consideration for lesser known brand Table no. 4. Consideration for lesser known brand Yes, I did No, I did not Yes, I did but not much

Frequency 19 65 16 (Source: Field survey)

Percent 19 65 16

This is very interesting question to know about respondents’ viewpoint regarding lesser known brand. The respondents have been asked whether they considered the lesser known brand cars alongside well known brand car. It is found that more than 65% respondent answered “No, I did not” which means the respondents mainly considered only the brands that were in their evoked 150

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set. 19% respondents replied “Yes, I did” and 16% respondents answered “Yes, I did but not much”. (viii) Quality perception of the customers between well known brand and lesser known brand— Branded products have better quality Table no. 5. Branded products have better quality Frequency Yes, I agree 69 No, I don’t agree 11 I agree, but it’s not always true 20 (Source: Field survey)

Percent 69 11 20

When it comes to the question regarding a branded product quality it is more interesting that they have very strong association. The majority 69% answered “Yes, I agree” and 11% respondents replied “No, I don’t agree” and 20% respondents views “I agree, but it’s not always true”. (ix) Well known brand as status symbol Table no. 6. Brands signify the status Yes, I agree No, I don’t agree Not necessarily I agree, but it’s not always true (Source: Field survey)

Frequency 43 16 21 20

Percent 43 16 21 20

The basic intention of this option was to find out whether a well known brand car is a status of symbol. The majority, 43% of respondents answered “Yes, I agree” and 16% respondents replied “No, I don’t agree” and 21% respondents views that “Not necessarily” and 20% respondents “I agree, but it’s not always true”. From the table it is clear that respondents consider brand as status symbol. (x) Brand and social class Table no.7. Brands define social class Frequency Yes, I agree 41 No, I don’t agree 14 Not necessarily 19 I agree, but it’s not always true 26 Source: Field survey

Percent 41 14 19 26

Information revealed that respondents considered the branded products signify their social class. As many as 41% respondents’ noted that “Yes, I agree” and 26% respondents replied that “Yes, I agree but it is not always true” and 19% answered “Not necessary” and 14% respondents “No, I don’t agree”. (xi) Importance of brand name on product attributes

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11%

19% 46%

24%

ve ry im p o rt a n t

im p o rt a n t

t o s o m e e x t e n t im p o rt a n t

n o t a t a ll

Figure no. 4. Importance of brand name to desired attributes (Source: Field survey)

The above diagram shows that 46% respondents considered that brand name relative to desired attribute is “Very important” and 24% respondents “Important” 19% respondent answered “to some extent important” and 11% respondents answered “Not at all important”. (Xii) Preferences of branded products:

Table no. 8. Preferences of branded products Always Frequently Sometimes Never

Frequency 56 17 19 08 (Source: Field survey)

Percent 56 17 19 08

To find out whether people always go for branded products, respondents are being asked about their perception towards branded products. The majority (56%) respondents replied that they always prefer branded products. On the other hand, 19% respondents answered they go “some times” and 17% expressed that they go “Frequently” and 8% answered “Never” go. The above result indicates that majority consumers prefer to buy branded products as it is the symbol of quality, status and reliability. CONCLUSION The purpose of this paper was to create a deeper consideration about the influence of brand name on purchase especially car purchase. In order to comply with this a questionnaire administered survey has been conducted among 100 respondents and data revealed that brand name has strong influence on purchase decision. From the study it is clear that well known branded cars are very famous among the people because consumers trust the brand name. This also indicates that people often purchase well known brand cars since they are aware of the brand performance or perhaps they have a good past experience about the brands car. This makes customer’s become loyal with the specific brand. Brand offers superior quality of the service up to the customer’s expectation and satisfaction. Further more, people are much attached to the branded products, as majority of the people purchase the branded products with the belief that brands show their status and life style in the society. The study shows that how automobile brands companies become successful by getting close to the customers and designing their cars according to the customers needs. FUTURE RESEARCH SCOPE

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This study was limited to one industry, automobile, and one city Chittagong. This theme can be extended to other industry like consumer durables and other cities of the country. Further research can also be conducted on a large scale with large sample size considering some more variables relevant to the topic. This paper only considers descriptive statistical tools whereas inferential tools cal also be applied in the further research to validate and prove the assumption. REFERENCES 1. Aaker, D. A. (1996). Building strong brands, New York Free Press. 2. Aaker, D. A. (1991). Managing Brand Equity, Capitalizing on the value of a brand name. New York Free Press. 3. Cravens, D. W., & Nigel F. P. (2003). Strategic Marketing, Prentice Hall of India, New Delhi 4. Hansen, F & Christensen, L.B., (2003). Branding and Advertising, Copenhagen Business School Press. 5. Keller, K. L., (2008) Strategic Brand Management, Second Edition, Prentice Hall of India, New Delhi. 6. Kotler, P., Armstrong, S., ((2007) Principles of Marketing, Prentice Hall of India, New Delhi 7. Leslie, D. C., Malcom, M., (1992). Creating powerful Brands- The strategic root to success in consumer, industrial and service markets, Oxford, Butterworth Heinemann, p 140-160 8. Leif E. Hem && Nina M. I., (2004), How to Develop a Destination Brand Logo: A Qualitative and Quantitative Approach, Scandinavian Journal of Hospitality and Tourism, Vol. 4, No. 2, pp.86-99 9. Lefa T., (2008), A Comparison of Two Types of Price Discounts in Shifting Consumers Attitudes and Purchase Intentions, Journal of Business Research, p.02-19 10. Marken G.A, (2003). Emotional Branding, How Successful Brands the Irrational Edge, Public Relations Quarterly, Vol. 48, Issue2, p.12-25 11. Quiston, D. H. Mc (2004). Successful branding of a Commodity Product: The Case of RAEX LASER Steel, Industrial Marketing Management Vol 33, p.345-357 12. Schiffman K. (2005), Consumer Behaviour, Eight Edition Prentice Hall of India, New Delhi. 13. Solomon M. R., (2006) Consumer Behaviour, Seventh Edition, Prentice Hall of India, New Delhi 14. Stephens, S. & Townsend, (2007), Choice as an Act of Meaning: The Case of Social Class, Journal of Personality and Social Psychology, Vol 93, Issue 5, , p.814-823.

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IMPLICATIONS OF THE EURO ADOPTION IN THE EU COUNTRIES. CASE STUDY: SLOVAKIA vs SLOVENIA Assistant PhD. Student Anamaria HLACIUC ”Stefan cel Mare” University of Suceava, Romania Abstract: The European integration process continues to amaze both its supporters and critics, this recording a too fast rhythm for some states and too slow for others. This process of integration becomes very important for the 500 million people directly involved but also because Europe accounts for a quarter of the world economy, half of world trade and one third of global capital markets, the European integration influencing life of most of the non-Europeans. The purpose of this paper is to provide an accessible presentation of the events afferent to this process to better understand the reasons that led to the introduction of the euro, the existing theories and controversies, my approach being based on economic principles, since the process started with the economic integration even since 1948, when the European Organization for Economic Cooperation was established. But the economy does not mean everything, so I will analyze also political, cultural and historical factors. Keywords: Euro, EU countries, Slovakia, Slovenia. JEL Classification: E00

INTRODUCTION In June 1988, the European Council confirmed the objective of progressive realization of Economic and Monetary Union (EMU). It also assigned to a committee chaired by Jacques Delors, the then President of the European Commission, a mandate to study and make proposals on concrete steps to achieve this union. From this committee were part national central bank governors of the European Community, as Alexandre Lamfalussy, general manager at the time of the Bank for International Settlements (BIS), Niels Thygesen, professor of economics in Denmark and Miguel Boyer, the then President of Banco Exterior de España. The European integration process continues to amaze both its supporters and critics, this recording a rhythm too fast for some states and too slow for others. This process of integration becomes very important for the 500 million people directly involved but also because Europe accounts for a quarter of the world economy, a half of world trade and one third of global capital markets, and how European integration influences life of most of the non-Europeans. The purpose of this paper is to provide an accessible events for this process to better understand the reasons that led to the introduction of the euro, the existing theories and controversies, my approach being based on economic principles since the process started with the economic integration even since 1948, when the European Organization for Economic Cooperation was established. But the economy does not mean everything, so I will analyze also political, cultural and historical factors. Why is it important to have a single currency? The answer to this question will be given throughout the paper, along with arguments, reasons, advantages and disadvantages of placing this currency in the old and new member states. HISTORY OF THE EMU To analyze the developments before and after the single currency, there should be taken into account the dynamics of various forms of national regulation and supervision of financial activities, the new challenges caused by the introduction of the euro, hoping to finally manage to meet another question that determined me to analyze and investigate this issue and that is: will the Euro be able to become a currency used in all the world like the U.S. dollar? Why is it so important and what has happened so far? 154

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The signing of the European Constitutional Treaty by the 25 heads of state on October 29, 2004 in Rome caused to the public a new interest and enthusiasm for the creation of communities, despite the criticism and problems encountered during the preparation of the 2003 Convention activity. The positive outcome of the Spanish referendum in February 2005, the same correction to the Treaty and successive approvals by Spain, Greece, Hungary, Italy, Lithuania, Slovenia, Austria, Slovakia and Germany in the spring predicted extension of the integration process. At the end of May 2005, the victory of the “not” from the French referendum, followed by the refusal of the Dutch seem to have caused an irreversible process of integration crisis, the crisis confirmed by the Heads of States and Governments of the EU on 17 June in Brussels. During the summit there was actually made a decision for a period of reflection which relates the process of correcting the European Constitutional Treaty on the conclusions reached in 2007, while at the same time, state leaders failed to reach agreement on the “Financial Perspectives 2007-2013. " Paradoxically, precisely ‘the crisis of Europe’ "brings to light (if needed), the timeliness and importance of my topic. The treatment of this argument is actually characterized by a European perspective, but each country's characteristics and problems arise from the complex game that explains the process of integration. The thorough study of the history, instruments and problems encountered so far in this process, allows the assertion that the European crisis of 2005 is not ‘a political tsunami’, but rather offers suggestions for lucidly managing and overcoming it. Existing literature on the early history of European integration shows that the existence of a pause does not mean the end of the integration process. In this paper, “L'economia del'Union Europea”, Baldwin and Wiyplos demonstrate in the historical and institutional part the wrong (most times) way in which this process’s objectives have been pursued,the authors focusing on clarifying the constant reference schemes considered to be the most appropriate, to assess and choose different alternatives, that states and citizens must confront each day in an evolving process of integration, that is not and should not be closed. To understand, explain and analyze the phenomena that took place and almost characterized the history of the EU is very important to study the reference phases of the integration process, namely: - the first period incurred during 1945-1959 when the EU is born, in order to end the more frequent and bloody wars of neighboring countries. In the '50s the European Coal and Steel Community begins to unite European countries economically and politically, to ensure a lasting peace. The six founding members were represented by: Belgium, France, Germany, Italy, Luxembourg and the Nordic countries. But the '50s were characterized by war between Western and Eastern Europe. Protests in Hungary against the Communist regime were resumed by the Soviet army in 1956. The following year (1957) the Soviet Union becomes a leader in the conquest of space, launching the first artificial satellite (Sputnik 1). Also in 1957, the Treaty of Rome established the European Economic Community (EEC) and the Common Market. A comprehensive description and a thorough analysis of this and of other steps will be undertaken during the preparation of research paper: - the 1960-1970 period represents a decade of economic growth. In the '60s we assist at the birth of a genuine own “youthful culture” by musical groups such as the Beatles, which draws out the teens on all lovers of music, helping to fuel a cultural revolution that will later lead the new generation . During this period the economy recorded significant growth, because EU countries do not apply customs duties in mutual trade. May 1968 is known for the world student movements in Paris, for the many changes occurring in social and the behavior of “the '68 generation”. - the 1970-1980 period - a growing community - the first enlargement. With the endorsement of Denmark, Ireland and Great Britain on January 1st, 1973, the number of EU Member States increased to nine. The short but very bloody Israeli conflict of October 1973 triggered many problems in Europe. The fall of the Salazar regime in Portugal in 1974 and the death of General Franco in Spain in 1975, signaled the end of the last right-wing dictatorships in power in Europe. The regional community policy begins to allocate significant sums to fund new jobs and 155

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construction or improvement of infrastructure in poorer areas. The influence of the European Parliament on EU activities increases and in 1979 for the first time the universal suffrage was elected.” - the period 1980-1989 - Europe changes its appearance (Fall of the Berlin Wall). Following the strikes on the Danzica naval yards in the summer of 1980 the Polish Solidarity union leader Lech Waleso become known in Europe and worldwide. In 1981 Greece became the 10th EU member state, with Portugal and Spain joining in 1986. Also in 1986 the Single European Act was signed, which set up a comprehensive program for six years, set in order to solve the problems that still stood in the way of smooth trade between EU Member States, thus creating the Single Market. A great political upheaval occurs on 9 November 1989 when the Berlin Wall is knocked down, after 28 years opening up the borders between East Germany and West Germany. - from 1990 to1999 - a Europe without borders. The fall of communism in Central and Eastern Europe led to a rapprochement of European citizens. In 1993, the Single Market is filled with those, “four freedoms”: free movement of goods, services, labor and capital. The '90s are characterized by the signing of two important treaties, namely: the EU's Maastricht Treaty (1993) and the Treaty of Amsterdam (1999). Europeans are concerned about how it will protect the environment, and European countries will be able to cooperate on defense and security. In 1995, 3new countries join the EU: Austria, Finland and Sweden. A small village in Luxembourg gives its name to the agreement, Schengen “which allows citizens to travel freely between countries without a passport”. Millions of young people begin to study abroad with financial support from the EU. The communication process is simplified, as more people begin to use the Internet and mobile phone. - From 2000-present - a decade of expansion. The Euro becomes the new currency for many Europeans. September 11, 2001 is synonymous with the war against terrorism following the attacks suffered by Americans on the twin towers in New York and EU countries’ undertaking of closer cooperation to combat crime. By the other 10 countries’ joining the EU in 2004, the political boundary between Western and Eastern Europe is finally lifted, more and more citizens feel that it is time to give Europe a new constitution. However it is not easy to find a common agreement on the type of constitution, debates continue about the future of Europe today. On 1 January 2007 two other Eastern European countries, Romania and Bulgaria join the EU, bringing the number of Member States currently at 27. Remaining candidate countries are Croatia, Yugoslavia and Turkey. THE OPTIMUM CURRENCY AREA The theory of optimum currency areas wishes to identify more precisely the relationship between benefits and costs and right time to enter in a monetary union. The pioneer of this theory is Robert Mundell (1961): "The Theory of Optimum Currency Areas." What seemed a utopia in 1961 became reality in 1999. "European countries could agree on a simple act [...] could establish a monetary authority or central bank. This is a possible solution, and perhaps is even the ideal solution. But politically it is very difficult, almost utopian.” R. Mundell (1973). The optimality of currency areas is defined in terms of certain properties (criteria), including economic integration of member countries, mobility of production factors, and similarity of production structure. According to another definition, it is optimal for a country to adopt the monetary union if the benefits outweigh the costs associated with this decision. There is a very extensive literature on the optimum currency areas, but all articles and books in the field focus on how a country can ensure stability in domestic policies that have remained available after the loss of monetary autonomy and exchange rate policy. This literature relates to how to ensure macroeconomic balance (internal and external balance) after an asymmetric shock, i.e. a shock affecting one country but not others. Internal balance refers to bringing in the natural rate of unemployment and economic growth. External balance refers to balance of payments insurance. 156

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THE ECONOMIC EFFECTS OF INTRODUCING THE EURO IN SLOVENIA vs SLOVAKIA Since the case study of my work will focus on introducing the euro in Slovenia and Slovakia I believe that I needed to focus on these two countries. Slovenia, one of the oldest republics that formerly constituted Yugoslavia, regained independence in 1991 following the dissolution of the Yugoslav state. Slovenia joined the EU in 2004, was organized politically in the form of a republic. The main data characterizing this state are: it has an area of 20,273 km3, a population of two million inhabitants, the reference currency is the euro, and its capital is Ljubljana. 2500 2004

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Figure no. 1. GDP/person share reported in Slovenia for the year of joining the euro in 2007 Slovenia's transition to the EU: In the last months of 2002 and negotiations and final preparations were carried out for the expansion, at least at the institutional level, of the EU to accept a further 10 countries including Slovenia. According to the “Profers Report 2002” of the European Committee, Slovenia has fulfilled all the conditions known as the Copenhagen Criteria for EU membership (political criteria, guaranteeing democracy, law and human rights, economic criteria of the functioning market economy to be able to influence the laws of the market). Among the candidate countries in 2004, Slovenia is ranked 2 in terms of prosperity. In 2001 GDP per capita in terms of purchasing power reached 69% of EU average, which put Slovenia on the same level with Greece and over Portugal. The unemployment rate in Slovenia was one of the lowest (5.7% in 2001) and the budget deficit almost insignificant. Agriculture accounted for 4% of GDP, which could be compared with other European countries. Most critical problems that characterized Europe at that time were focused on relatively high inflation and low labor market flexibility. On the other hand, Slovenia has made significant progress on harmonization and improvement of EU law, especially on the administrative capacity. From an economic perspective, in 2001 Slovenia's exports increased from 6.6 billion euros, while imports from EU countries to 8.6 billion euros.

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Figure no. 2. GDP/person share reported in Slovakia for the year of joining the euro in 2009 In the same year the EU recorded 62% of the Slovenian exports and 68% of total imports also from Slovenia. The euro is introduced in Slovenia in 2007, replacing the old national currency, Slovenian Taller (ST), the exchange being 1 euro = 239.640 ST. Slovenia became the 13th EU Member State adopting the single currency and was the first to join the Economic and Monetary Union in Europe. Following the adoption of euro by Slovenia, the Bank of Slovenia becomes a full member of the euro-system with the same rights and obligations as the 12 national central banks of EU Member States that have adopted the euro.

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Figure no. 3. Reporting degree of poverty reduction during the years 2005-2008 in Slovenia Slovakia joins the EU along with Slovenia on 11 January 2004. Constituted as a republic, it is situated in Central Europe, its capital is Bratislava. Republic of Slovenia and the Czech Republic came into being on 1 January 1993 by the division of Czechoslovakia, which since 1993 had assumed the name Czech and Slovak Federal Republic. After joining the EU in 2004, Slovakia adopted the euro on January 1, 2009. 2500 2005

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Figure no. 4. Reporting degree of poverty reduction during the years 2005-2008 in Slovakia 158

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CONCLUSIONS The European integration process continues to amaze both its supporters and critics, this recording a too fast rhythm for some states and too slow for others. This process of integration becomes very important for the 500 million people directly involved but also because Europe accounts for a quarter of the world economy, half of world trade and one third of global capital markets, the European integration influencing life of most of the nonEuropeans. The purpose of this paper was to provide an accessible presentation of the events afferent to this process to better understand the reasons that led to the introduction of the euro, the existing theories and controversies, my approach being based on economic principles, since the process started with the economic integration even since 1948, when the European Organization for Economic Cooperation was established. But the economy does not mean everything, so I will analyze also political, cultural and historical factors. REFERENCES 1. Attkinson A. , (1999) ,” The Economic Consequences on rolling Back the Welfore State”, MIT Press, Cambridge MA. 2. Bean C., Bentolilo S., G. Bertole, Dolado J. (1998) - ” Social Europe: one for all?” , Monitoring European Integration 8, Centre for Economic Policy Research London 3. Bertola G., Jimeno J.F., Marimon R., Pissarides C. (2001), ”Welfore systems and labour markets in Europe : what convergence before and after EMU?” in G. Bertolo, T.Boeri, G. Nicoletti, „Welfore and Employment in a United Europe, MIT Press, Cambridge MA. 4. Blanchard O.J. , Wolferes J.(2000), „ The role of shocks and institutions in the rise of european unemployment: the uggreagate evidence” , „Economic Journal” pg. 110 5. Burda M., Wyplosz C. (2001), „Macroeconomics” , Oxford University Press, Oxford. 6. Calmfors L. (2001) , Wages and wage-bargaining institution in the EMU- A survey of the issue, Eempirica Journal, pg. 28 7. Checci D. , Lucifore C. (2002), „Unions and Labour market Institutions in Europe” , Economic Policy, No 35 , pg.361-408. 8. Delado J., Felgueroso F., Jimeno-Serrano J.F., (2000) „Trends and Driving factors in Income Distribution and Poverty in the OECD Area”, Labour Market And Social Policy”, Ocasional paperss No 42, OECD, Paris 9. Doveri F., Tabellini G.(2000) „Unemployment, growth and taxation in industrial countries”, Economic Policy, Nr. 30, pg. 47-104. 10. Nickell S., (2002) „ Unemployement in Europe : Reasons And Remedies ”, www.cesifo.dc 11. Pissarades C.(1998) ,”The impact of employment tax cuts on unemployment and wages; role of unemployment benefits and tax structure” , European Economic Reveiew, Nr.42 (1), pg. 83-115 12. www.ue.en.int/Newsroom/LoadDoc.asp?BID=76EtDID=43659& from=&LANG=1 13. www.ue.en.int./emu/en /index.htm 14. www.euorpa.eu.int./growthandjobs/ 15. www.frdb.org

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SECTION 2 MANAGEMENT AND BUSINESS ADMINISTRATION

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GLOBAL CRISIS AND MICROCYCLICITY Professor PhD. Aurel BURCIU “Ştefan cel Mare” University of Suceava, Romania Faculty of Economics and Public Administration Abstract: The present paperwork presents a novel perspective of a fundamental concept like business cyclicity. Throughout the argued aspects we try to emphasize the unitary aspect of microcyclicity in business both at a micro and macro level. On the background of global crisis, the authors discuss about a “chaotic” type of business environment, characterized by a permanent turbulence which needs a totally different style of management; within a „turbulent economy” the manager needs intuition and various strategies in order to survive as Kotler and Caslione say. The discussion develops step by step on several plans and grants the perspectives of several scientists as Samuelson, Kondratieff or Drucker. The bottom line is to present and describe the variations of cyclicity itself. Keywords: business cyclicity, strategic management, business cycles, microeconomics, macroeconomics. JEL Classification: D01, D04, M21, C23.

1. ABOUT GLOBAL CRISIS The present global crisis has surprised analysts and theoreticians, mainly by magnitude and intensity; however, its development was in a great part predictable since the period of Big Depression in 1929-1933. In the invoked manner, Paul Krugman has an explicit statement, but also other economists like Roberts Lucas, Joseph Stiglitz, Nouriel Roubini etc. (1) When the lessons offered by history are ignored by political managers exits the risk that million of people to pay a significant social price; the development of the actual global crisis entirely reflects the previously invoked idea. In fact, beginning with the middle of 2008 and until now we can discuss about a series of errors in the macroeconomic decisions of the principal developed countries, beginning with USA and till the level of UE member states. Obviously the wrong decisions made on macroeconomic level have reflected and immediately reflect upon the business life of organizations, which means thousands of bankruptcy, dismissal, unemployment, etc. On the background of global crisis, the authors discuss about a “chaotic” type of business environment, characterized by a permanent turbulence which needs a totally different style of management; within a „turbulent economy” the manager needs intuition and various strategies in order to survive as Kotler and Caslione say. Preceded by a breakdown of stock market speculations in the summer of 2000, the real estate crisis, from 2008 in USA has generated a “shock wave” on the whole American economy; this wave has spread subsequently spread extremely fast, distributing the effects we now know about, around all occidental countries; bank bankruptcy that followed in USA, starting with the big banks (Lehman Brothers, Fannie Mae and Freddie Mac, Goldman Sachs, Morgan Stanley) continuing with other hundreds of financial institutions of smaller size, all needed the directly/indirectly support of the American state, has led to social panic within almost all world countries. “Crisis Economics” (2) has already become a distinct subject to study within the academic environment, and theoreticians suggest the ways throughout which the cyclicity phenomenon could be managed/controlled in the future; we comprehend (understand without saying) that it refers to macroeconomic cyclicity, respectively what we call business cyclicity at macroeconomic level (CAM). Actually, the present crises may be considered, as we shall further argue, only a variant of K4 type cycle within the wave N. Kondratieff had previewed (we may talk only about a slight asymmetry of 5-8 years of this wave minimum). (3) The signal launched by Kondratieff in the ’30 had a major impact to the economic theory and management but its reflection into the macroeconomic decisions was, at the most, accidental starting in the ’40 until present. However, we believe the phenomenon of cyclicity remains present the way it was developed by Kondratieff (with 161

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respect to the explicit macroeconomic perspective); further, it has a immediate correspondence also from microeconomic perspective, meaning the management applied during n years within the business organizations. 2. HISTORY AND ACTUALITY ABOUT CYCLICITY The evolution in time of economic activity for a period of n years, even if it doesn’t generate wealth/accumulation and growth, it is not linearly ascendant. On this aspect the opinions of great economists exclusively converge. (Marx, Marshall, Schumpeter, Keneys, Samuelson, etc.) The observation that businesses evaluate cyclically, they fluctuate cyclically, evolving successively through different phases which may have similarities, may be retrospectively reached back in the XIX century. (Marx, Marshall, etc.) Though, the first analyses exclusively dedicated to the subject belong to Van Gelderen and Wesley Mitchell. In 1927, Mitchell formulates a definition of cyclicity in business, respectively he talks about a type of fluctuations that are dealt with within the overall/aggregate economic activities of a nation; a cycle – he says – consists of the expansion that takes place simultaneously in most of the economic fields, followed by periods of recession, contractions and refreshing which precede the next cycle’s expansion (4). The duration of a cycle – considers Mitchell – outruns a year and reaches 10 to 12 years (5). Afterwards, in 1946, Arthur Burns brings some minor additions to the mentioned definition; generally, it is even nowadays for the practice of some research institutes (6). Once it has been unanimously defined the phenomenon of cyclicity in business, we may raise the question: to which extent is it possible to dominate, to control and predict it? However, there would be necessary to surpass the Great Depression of 19291933 in order for economists to focus their attention upon cyclicity of economic life. The thorough study of business cycles, as well as the first fundamental attempts to predict the phenomenon, will remain linked to the great economist N.D. Kondratieff (7). The thoroughgoing study of this phenomenon may be extended mainly at macroeconomic level, because on this perspective researchers have sufficient statistical data which are comparable for a period of n years. Starting with the ‘40 - ’50 and until present, the number of papers on business cycles, as a distinct subject, has increased (8). But, inclusively in Marx writings and even before, we find analysis on this topic of Ricardo, Malthus or Say. For example, even if Marx regards the economic crisis as contradictions of fundamental capitalism, still he sketches out a suggestive/eloquent fresco of the cyclic process in economy. “The theory of business cycles elaborated by Marx coexisted with the analysis of general accumulation of capital” – says Mark Blaug (9). Without the intention of an exhaustive analysis of the issue, we are obliged to emphasize the role that Joseph Schumpeter and his fundamental works play with regard to the theme, respectively: Theorie der Wirtschaftlichen Entwicklung – The theory of economics’ dynamics – 1931; Business Cycles –1939 (10). Still Schumpeter was the one that popularized within the Occidental European countries the main works of N.D. Kondratieff (by publishing in German/English and using as basic reference the work Business Cycles). Maybe without the help of Schumpeter, the works of Kondratieff would have remained anonymous. And of “Kondratieff disciples” – as Drucker names them – Jay W. Forrester was especially remarked (11). 3. SAMUELSON’S CYCLICITY Among many other economists, including P.A. Samuelson in the Economics (1995) edition analyzes distinctively this issue. “A business cycle – says Samuelson – is an oscillation of total national/domestic production, income and use (work force), usually lasting between 2 and 10 years, marked by a big expansion or contraction within the most sectors of the economy”(s.n.) (12). According to Samuelson a complete cycle includes two main phases (13): -recession or decreasing phase; -expansion or increasing phase. 162

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At national level, the recession period is usually considered to be a period within which the real Gross Domestic Product decreases along two consecutive semesters; meanwhile the expansion period may develop differently regarding the duration in time. Any of the two phases manifests itself with different intensity from one cycle to another, “the cycles model being irregular” therefore, both as duration and intensity (14). Due to the irregular model, Samuelson compares the business cycles with weather fluctuations (15). Though, there are a series of similarities among the two or more cycles within the same class/category. In the case of short cycles analyzed by Samuelson, the graphic representation is showed in figure no.1 and suggests that economic activity has a fragmentary and sinuous evolution.

Top (apogee) 

Top (apogee)  Top(apogee) 

CONTRACTION

Base (depression)

EXPANSION

Base (depression)

EXPANSSION RECESS Figure no. 1. Successive phases of MBC, according to Samuelson Source: Adaptation after: P. Samuelson, W. Nordhans – Economics, 15th Edition, McGraw-Hill, Inc., New York, 1995, pg. 553. Copyright © All rights reserved.

Within the previous figure, the business cycle represented by us is from macroeconomic perspective, respectively what we call MBC –macroeconomic business cyclicity; this differentiation is necessary because our analysis shall further regard especially the company business cyclicity (CBC). There are many writings on business cyclicity; one example is the recent paper of William Houston, entitled Riding the Business Cycle, issued in 1995. This paper, - even if, remains under debate with respect to the causes proposed by the author to be generating the cyclic evolution – is extremely interesting regarding the description of the six identified categories of cycles. Among various classifications of the phenomenon of cyclicity in economics (from macroeconomic perspective), we remind the six category classification, throughout a clearly division that allows a precise delimitation of the six different types of cycles, respectively (16): C 1. Very long cycles of 500 years, identified by Raymond Wheeler; C 2. Long cycles of 180 years; C 3. Secular cycles of 100 years; C 4. Cycles of 50 years, Kondratieff type; C 5. Decennial cycles of 10-20 years, Juglar type; C 6. Short cycles of 1-10 years.

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From our perspective we appreciate that the major role is played by Kondratieff cycles (reasoning for which we approach them thoroughly as a distinct subject), and following the other five types of cycles will only be mentioned; all these six categories of economic cycles are included within the MBC category of this paper. 4. KONDRATIEFF CYCLES The 50 years cycles, Kondratieff type, are the most hotly disputed and raise may questions among economics researchers. Was Kondratieff right or not? The great majority of those who approached this issue incline to formulate an affirmative answer, even if as Peter Drucker, they discuss some manifestations/happenings within the economy that contradict the “Kondratieff wave” or, in other words, are atypical manifestations. In fact, this kind of cycle has a 45-60 years evolution in time and was firstly studied by Van Gelderen, who in 1913 identified a long wave of 50-60 years, thus: -production, prices and economic activity on the whole had a substantial increase within 1850-1873; -after 1873, the economy registers a decline and reaches the lowest level in 1890, in the main activity sectors. We don’t know if Nicolai Kondratieff knew or not Van Gelderen papers (17). In the ’20, N.D. Kondratieff starts to work with the Agriculture Academy and the Institute for Economic Research from the URSS. He was assigned to study and demonstrate the decline of capitalist economies – according to the communist perspective at the moment. The result of Kondratieff researches was published for the first time outside URSS in German (Die langen der Wellen des Konjunktur, 1926), then in English The Long Waves in Economic Life, 1935) (18). The three cycles of Kondratieff may be extrapolated/extended until nowadays, and the resulting correspondence between the real events that already took place in the world economy and the idealistic version of Kondratieff’s waves becomes confusing/disturbing and shows the extraordinary visionary capacity of the Russian researcher. It is true that at the moment, in the world economy – and we speak about the countries with the most developed economies – a series of economic sectors or new industries have individualized and avoid the framing of Kondratieff. In the first place we think about the information revolution described by Toffler and/or the entrepreneurial economy of Drucker, within which the new sectors and industries based on high level technologies have overlapped Kondratieff’s predictions on the simple reason they couldn’t be previewed/anticipated. As resulting from the Houston’s paper Riding the Business Cycle, in their ideal version the Kondratieff cycles would be represented as follows: * K1 =growth starts in 1789, the top is reached in 1814, afterwards the recess period reaches the lowest level in 1849; * K2 =growth starts in 1849, reaches the apogee in 1873, following is the decline until 1896; * K3 =the cycle starts in 1896, reaches the top in 1920, and the recess phase continues until 1939; * K4 =the growth starts in 1939 and continues until 1971 when it reaches the top, afterwards follows the recess phase from 1971 and until approximately 1997; We have dwelled on the Kondratieff cycles because, if the prediction of the phenomenon is possible mainly with a reasonable accuracy – and the example given by Kondratieff is the most eloquent- then the study of business cyclicity offers extraordinary perspectives not only on macroeconomic level but also on company/enterprise level. This is valid for any type of cycle, even if essentially the manager of a company would be preoccupied about the short cycles, the decennial cycles and the Kondratieff cycles. 164

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5. OTHER TYPE OF BUSINESS CYCLES Shortly, we shall further review the other five categories of cycles previously mentioned (MBC type), but we shall respect the numeric order from C1 to C6 (because the Kondratieff cycle was largely presented and obviously there are connections/correlations related to the duration of the various cycle types): C.1. Very long cycles of 500 years were studied for the first time by Professor Raymond Wheeler, starting in 1934, during many years and with the support from many sources (19). R. Wheeler considers that, basing on correct/careful interpretation of data offered by history, archeology, geology etc., starting with 500 BC and until nowadays we can identify economic cycles of approximately 500 years. According to Wheeler this type of cycle is generated by an alternation of humid/dry periods with others hot/cold within regions of the globe. C.2. In 1975, two authors namely Iben Browning and Robert Harrington publish an article in the review Nature throughout which they describe the new long cycle in economy, identified as lasting 179 years. According the two authors, the main cause of this cycle would be the conjunction between Sun-Earth-Moon and the planets Jupiter and Saturn (20). C.3. Secular cycles of 100 years were identified by the same Professor Wheeler, but also by another researcher, respectively George Modeski; the latter offered a complete description of this kind of cycle (21). According the two authors, the manifestation of these cycles in economy and society would be the effect of climatic influence upon the people behavior. But, if we accept as real the manifestation of the three types of long cycles in the economyrespectively C1, C2, C3 –then it is compulsory to remark that a certain correlation between them it is necessary. Due to the fact that an approximately calculation shows that: 1 C1  3 C2  5 C3. With other words, there are joint points of the C1 minimum and C2 or C3 minimums; the statement is valid also for the points of maximum or the tops manifested within the three types of cycles. Simplified we may represent the previous equation as follows: C1 C2 C3

C2 C3

C2

C3

C3

C3

C.4. Kondratieff cycles have been largely discussed above, that is why we won’t refer again to this issue. C.5. Decennial cycles of 10-20 years have been debated especially by the French economist Clement Juglar, reason for which they are also called the Juglar type cycles. Clement Juglar was preoccupied mainly by the fluctuation of prices and of interest rate in France and England; he will identify a model that registers these fluctuations according to a relatively regulate rhythm framed between 9-11 years (22). C.6. Short cycles of 1-10 years, we have already analyzed them when we discussed the appreciations made by Samuelson with reference to the cyclic evolution of businesses. Many authors were interested in studying this type of Cycle (Martin Kokus, Chandler Wobble, Van Duijn etc.), identifying a series of significant features of the economic activity, features that have their 165

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own rhythm of evolution on the short run (23). Among these important features, the most known is the Kitchin cycle called also Inventory Cycle, that evolves during 3 to 5 years and is generated by the tendency of storage – un-storage goods, by manufacturers and merchants (24). Consequence of the previous Kondratieff cycles, decennial cycles and short cycles – through analogies with C1, C2, and C3 -and the correlation made by Wheeler -– is necessary to emphasize certain approximately correlations. Thus, even if the manifestation of short cycles is not rigorously framed in time by analysts, though we may consider: 3 sau 4 C6  1C5 5 sau 6 C5  1C4 or as a general rule basing upon the correlation analysis between the Kondratieff cycles, the decennial and schort cycles: 1C4  5/6 C5  15/20 C6 In consequence, we get to the conclusion that there are joint/crossing points between the minimum of a C4 cycle and the minimums associated to C5 or C6, this statement is obviously valid for the point of maximum or the evolution tops of the three types of cycles. The general rule presented above may be illustrated in the following graphic: C4 (Kondratieff) 5/6 C5

15/20 C6

In consequence we easily deduce that the most unfavorable period that a national economic system may cross –or, respectively, global economy- is the period when the minimum point of Kondratieff cycle is overlapping the minimum point of one of the decennial or short cycles. For example, The Big Depression in ’29-’33, as well as the actual global crisis started in 2008, may be explained on this kind of overlapping between the points of minimum specific to the phenomenon of cyclicity in the economic life. We may formulate, so, a general rule or a principle that should be the base of macroeconomic policies: The fundamental objective of the manager at the macroeconomic level must be the unsynchronization of the minimum point of Kondratieff cycle with respect to the minimum points of the other decennial and/or short cycles. 6. A PERSPECTIVE OF NATIONAL ECONOMY Simplifying the economic reality, throughout a series of theoretic models, might entail some risks of non-pertinence/rejection; though, there are many situations when researchers don’t have at their disposal the intermediary solutions. As it is well known, any national economic system functions and develops as a unitary whole (25). The description of this kind of system’s functionality (meaning the national economy) could be described on the bases of a logic function of this type: E = f(N, s, , r) where: E – national economy; 166

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N – economic agents that form the national economy; s – relationships among companies (within each economic sector; among economic sectors; within local/regional markets; within financial circuits in the economy etc.)  – the synergy factor that is being exploited by the system while its functioning (the system assembly represents more than the sum of the components) r – the residual factor includes all elements un-hold by the previous three factors. The analysis of the national economy basing on a logic function of this type offers the advantage of a complete description. Though, within this sort of analysis, especially for the individual analysts, occur major obstacles related to the operation and processing of data that characterize the factors s,  and r. Consequently, we are constrained to proceed for a simplified approach of the national economic system. Thus, we consider the national economy to be formed of Ni economic agents, meaning the firms and we exclude the other elements (the industrial factor, the legislative factor, the relationships between firms, the synergy factor, intern consumption etc.). If we note the national economy with E, than we have: n

E   Ni

(5.1.)

i 1

But if we note with  E the manifested tendency of national economy throughout a certain period (its cyclic evolution) then this will appear as a resultant of the cyclic evolution of the economic agents level Ni, respectively as a resultant induced by the manifestation of CBC. These being said, we may note: n

 E    Ni

(5.2.)

i 1

Therefore, moving from the macroeconomic perspective to the microeconomic perspective while studying the cyclicity phenomenon imposes to recur to certain simplifications of the economic reality; anyway, we deduce on a strictly logical/rational base that an eventual domination/administration of cyclicity phenomenon at the level of each economic actor would directly favor the macroeconomic cycle’s management (MBC). In the context of actual global crisis, the reference environment of firms in their daily life has become chaotic, unpredictable and much more difficult to manage then in the ’80. Theoretically, as Kotler and Caslione argue, in the context of an extremely turbulent (chaotic) business environment, managers may act uninspired to the effects induced by the global crisis; they might be tempted to recur to cutting budgets in all directions and to improvise with respect to the firm’s cash-flow; (26) the eventual macroeconomic decisions of this type will reflect extremely ugly upon the national economy (that means an amplification of the crisis that a country/region experiences). 7. DRUCKER’S VIEW ABOUT STRATEGY From our point of view, we will consider that a company’s life or business evolution runs on a fragmented model like we have shown in figure no. 2, this model being extremely difficult to uniformly characterize. Obviously, strategic thinking on a larger time horizon has a special place with respect to modeling the evolution and future of a company (27). Applying the strategic thinking in business is not automatically equivalent to a carefree future for the company, but is very likely that the total lack of management strategies equates to the lack of any future for the company. “We know two things about the future”, says Drucker: -“It may not be known” -"It will be different from what exists now and what we currently expect." (28) 167

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The implications of Drucker’s apparently simple statements emphasize the fact that the attempts of predicting the future events rarely could have success, but we have the duty to try to anticipate “future effects of events that have already occurred, irrevocably” (29). Therefore, we can accept the idea that cyclicity in the real economy is an irrevocable phenomenon emphasized by economists, a phenomenon that subsidiary stimulates the existence of a similar manifestation in the evolution of microeconomics (30). Accepting the idea that is not possible a linear growth of a company – and even less likely an exponential increase – we formulate some questions: - What should managers do to prevent and mitigate the manifestation of crises events in business running? - What is the role of the management process in the context of such an approach? - What factors generate the crises situations in the affairs of a company and to what extent can they be controlled? - What are the changes in business strategy to mitigate the crisis and to recover quickly? - What additional difficulties arise with regard to business strategy in a completely chaotic environment? - In a chaotic / turbulent environment that Kotler and Caslione discuss are there only threats or there are opportunities too? - Will there be “winners” and “losers” at the end of the actual crises (in reference to companies that manage to survive the crisis)? Growth/ expansion

t1 t0 t2 t3 t4 t5 … tn-2 tn-1 tn Time Figure no. 2. The “fragmented” evolution of a company’s business in the real economy In our opinion, the major direction in which the business organization’s managers will focus in the chaotic / turbulent environment (specific to the actual global crises) will be found in the cashflow management issue, but this component is concerned with a certain “history” of the company, namely the manner in which the cash-flow has been managed since the boom / ascendant period in the affairs of the company. Such an approach might prove to be insufficient or even wrong being necessary a vision and systemic treatment for each case in the real economy; simply put, managers shouldn’t ignore the theoretical evaluations of the environmental factors that have induced chaoticist current business environment (31): - Technological progress and informatics revolution ; - Disruptive technologies and innovations; 168

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“The rise of the rest of the world”; Extremely high competition; Sovereign investments funds; Environment; Customer ability. 8. GENERAL MODEL OF CBC

In the structure of this work we have done and maintain a clear distinction between the following phrases: - macroeconomic business cyclicity (abbreviated by the acronym MBC); - cyclicity of the business at the company level (abbreviated by the acronym CBC /). Unlike the previous model, in the figure below the firm’s business development takes a sinuous or cyclic form; in addition, we present the upwards of CBC, direction given by the average of maximum and minimum points of the cycle (LM line at an angle α). Growth/ expansion

LM line

t1

t2

t3

t4

t5

tn-2

tn-1

tn

time

Figure no. 3. General model of CBC (sinuous evolution of a company’s business in the real economy). Obviously, studying the CBC remains an issue due to be predominantly in the responsibility of management teams that lead business organizations; whereas there are millions of actors in each country, it is hard to predict that it is possible a unitary approach on the evolution and management theory of CBC (there are thousands of studies on the small business category approached as a type of economic actors, but very few theoretical studies on the history of small and medium businesses). On the other hand, we explicitly say that any thorough study of the CBC has a real chance of success at the level of medium and large companies’ category. For these organizations, such as medium and large size corporations (that exist in each country and induce a specific trend in the economy for “n” years), CEO and his team have the human and financial resources to manage as a separate objective, the issue of their own CBC study. In the context of the current global crisis, company leaders must develop different strategies and a different type of behavior to pass the crises and possibly to exploit some opportunities specific to this period; Kotler and Caslione discus a particular “chaoticist” behavior necessary to be 169

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built in all organization departments (production, sales, finance, marketing etc.) (32). Indeed, in today’s global context, defined by thousands of visible or less visible interdependence, the environment to which managers report became extremely turbulent and unstable; on the background of turbulence and chaos, the smallest error of the decision maker will amplify any negative consequences upon the organization (33). It is predictable, we believe, that a significant number of business organizations, of various sizes, will experience the consequences period for 2-4 years and will continue their own path in the business world; a question arises “what distinguishes this business organizations from those which will register bankruptcy?” (it may be assumed that the first category of firms had a more cautions behavior in their ascending phase of their own CBC, when this phase overlapped to the period of growth of MBC from the national/regional economy; in addition, it can be assumed that such firms that will survive the crisis have managed their cash-flow in the momentum phase of CBC with much greater caution and accumulated small accounting and extra-accounting “reserves”). 9. TOP MANAGEMENT “RESERVES” ACCUMULATION Theoretical speaking we can make suggestions/recommendations on what attitude should the top management adopt to dominate the business cyclicity (BC); the preventive attitude of top management for the future remains essential; however, the manager can acquire small strategic reserves since the expansion phase of their business cycle:  Financial reserves -accordingly, namely create a reserve fund that can be used only when the company is threatened with bankruptcy. Both Anglo-Saxon accounting system and the French allow the establishment of this reserve fund, among other funds. The size of this fund and it’s year to year increase – in the ascending phases of its own cycle – remain to be pursued as separate targets.  Including to the training program, gradually, all of the employees with execution attributes and all managers. Any investment in the human factor of the company for increasing skills and knowledge appears as a long term investment. On the quality of the human factor will depend the final modeling of decline –recovery phases of the firm.  Reserves relating to the improvement and modernization of the material factor used by the company (upgrading production capacity, developing new technologies, increasing the number of inventions and innovations, absolute amounts and a percentage allocated to R&D, the amount of computer technology used).  Reserves which reflect an improvement of companies’ applied management in the current administration of their affairs (improvement of management styles, delegation of the decision process, application of modern methods of motivating employees, improving applied management techniques and systems, etc.).  To support the innovation process throughout the entire expansion phase of the CBC/CAF in order to exploit the results of this process during the next phases of the cycle.  Improvement to the end of the expansion phase of the current assets/ fixed assets relation, to enter the next phase of CBC/CAF with a more favorable ratio than normal activity conditions (for example, if the normal ratio is 1/3 it will target the formation of a ratio of 2/3 towards the crisis phase).  The predominance of highly liquid assets in the structure of current assets towards the final of the same expansion phase of CBC/ CAF (bonds, bills, etc.).  Improving cash-flow since the final period of its cycle expansion (reducing lending terms, reducing stocks, discounting some trade effects, hiring some credit lines, etc.).  Any other reserves accumulation that reflects top management’s preventive attitude towards the crisis and decline periods, which would inevitably have to occur in the company’s life, after a period of business prosperity.

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10. FINAL CONCLUSIONS In consequence of the essential debated aspects of the paper, we appreciate that we can suggest the phrase of microcyclicity for the whole issue regarding the study, administration and prediction of CAF (either for each economic agent, or as a unitary theoretic perspective). By analogy with the assessments made on the possible overlap between the minimum of a Kondratieff cycle and the minimums of some decennial/short cycles, we can formulate a reference rule for microcyclicity. Thus, one can say that the critical points in the company’s evolution are the moments when the CAF minimum overlaps the minimum of one or more CAM (short cycles, Kitchin type, decennial, Juglar type and Kondratieff type). In figure no. 4 we present graphic the situation in which one or more CBC/CAF minimum overlap/synchronizes with a CAM type minimums; we note in this graphic the approximate example of the short cycle analyzed by Samuelson. It is noted from the figure that the intersection points PI2 and PI4 are the critical points in the company’s evolution during “n” years; however, results that the intersections of the two cycle categories occurs at two times rated tCAF/CAM. Strictly from a theoretic point of view, the optimum situation for the flattening of CBC/CAF and the nonsynchronization of the minimum points of CBC/CAF and a minimum point of MBC/CAM may be graphically represented as in figure no.5. As we can remark in figure no.5, the junction of the two categories of cycles is inevitable in time but it may occur through other points then the ones of minimum (we suggested PI2–PI4 points). Also, we remark the non-synchronization of the minimum points of MBC/CBC and their manifestation at two distinctive moments tCAM and respectively tCAF. Therefore results that simultaneously with the flattening of CBC, the manager may target also the achievement of a departure/space as big as possible between tCAF and tCAM. PI 5 PI1

CBC PI 3

PI4

A type of MBC aproximated according Samuelson’s short cycle

PI2

tCBC/MBC tCBC/MBC Figure no. 4. Critical points in the firm’s life

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PI5 PI1

CBC

PI3 PI4 PI2

A type of MBC aproximated according Samuelson’s short cycle

tCBC TMBC Figure no. 5. – Flattening CBC and its junction with a MBC type Follow-up to what we have shown is appropriate to formulate a last conclusion supported on the parallel analysis and the analogy made between the two phenomena of businesses’ cyclical evolution. Thus, to the extent that cyclical evolution at macroeconomic level is considered/treated as an objective economic law of economic life development, in the same way we owe to consider microcyclicity as expressing an economic objective law derivative from the first. We appreciate that the company along the way in life is the most vulnerable and exposed to bankruptcy in those minimum points of their own business cycle that intersects/overlaps/synchronizes with the minimum points of one or more macroeconomic level cycles ( from the short ones to those Kondratieff). The general rule or principle to be placed at the base of the decision-makers managerial strategy is the following: One of the strategic objectives must be de-synchronization of minimum points of their own company business cycle from the minimum points of macroeconomic cycles through attaining the objective of CBC flattening; is intended, therefore, avoiding critical points by de-synchronizing the moments in which the two cycle categories intersect/cross. Assuming the acceptance of the microcyclicity concept proposed, there can be suggested various ways of deepening/analysis for the future, particularly if we give credit to the chaotic business environment which discusses Kotler and Caslione; as far as the business environment in the next decades will remain as turbulent as the current, especially the issue of cautious management of the company’s cash-flow will have to be updated (this without excluding the other company’s departments such as research, production, sales, human resources etc). Among dozens of questions that can be formulated, we mention: - What is the historical relationship between cash-flow and CBC evolution? - What is the best cash-flow projection during the boom of the CBC?

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ENDONOTES (1) (2) (3) (4) (5) (6) (7) (8)

(9) (10) (11) (12) (13) (14) (15) (16) (17) (18) (19) (20) (21) (22) (23) (24) (25) (26) (27) (28) (29) (30)

(31) (32) (33)

Krugman, P., The Return of Depression on Economics and the Crisis of 2008, Publishing House Publica, 2009 Roubini, N., Mihmn, S., Crisis Economics: A Crash Course in the Future of Finance, Publishing House Publica, 2010 Burciu, A. MBO şi cilul afacerilor, Publishing House Economică, Bucharesti, 1999 Quote of: D. Greenwald (editor) – Enciclopedia of Economics, Second Edition, McGraw-Hill, Inc., 1994, pg. 96 and following. Idem. A. Burns – The Business Cycle in a Changing World, Columbia University Press, 1969 N.D. Kondratieff – The Long Waves in Economic Life, Review of Economics Statistics UK, 1935 To support the statement we selectively mention: J.J. Van Duijn – The Long Wave in Economic Life, Ed. George Allen & Unwion, London, 1983; L.H. Dupriez – Des mouvements économiaues généraux, IRES, Louvain, 1951; A.F. Burns – The Business Cycle in a Changing World, Columbia University Press, 1969; S. Bober – The Economics of Cycles and Growth, John Wiley & Sons, 1968; M. Feldstein (editor) – The Risk of Economic Crisis, University of Chicago Press, 1991; J. Cornwall – Economic Breakdown & Recovery, Ed. M.E. Sharpe, New York, 1994; C. Freeman (editor) – Long Waves in the World Economy, Frances Printer, London, 1984; Th. Cooley (editor) – Frontieres of Business Cycle Research, Princeton University Press, 1995; J. Estey – Business Cycles, Prentice-Hall, 1956; J. O’Connor – The Meaning of Crisis, Ed. Basil Blackwell, Oxford, 1987; R. Gordon – Business Fluctuations, Harper & Brathers, 1961 etc. Mark Blaug – Economic Theory in Retrospect, translation after the 4th Edition, Cambridge Press, 1990 On the theme of cyclicity in economics, a central role plays the work Cycles, vol. I-II, McGraw-Hill, London, 1939. J.W. Forrester – Industrial Dynamics, MIT Press, 1961; World Dynamics, MIT Press, 1969 P. A. Samuelson, W. Nordhans – Economics, Ed. McGraw-Hill, Inc., New York, 1995, pg. 551 Ibiden Ibiden Ibiden. This comparison is extremely suggestive and has profound implications; we shall encounter it with other authors also including W. Houston. William Houston – Riding the Business Cycle, Little, Brown and Company, UK, 1995 William Houston – Op. cit., pag. 152 1 N.D. Kondratieff – Die langen der Wellen des Konjunctur, Archiv für Sozialwissenschaft, LVI, 1926; The Long Waves in Economic Life, Review of Economic Statistics, UK, 1935 William Houston – Op. cit., pg. 16 Idem G. Modelski – Exploring Long Cycles, Publishing House Printer, London, 1987 William Houston – Op. cit., pg. 179 William Houston – Op. cit., pg. 185-186 J. Kitchin – Cycles and Trends in Economic Factors, Review of Economic Statistics, 1923; J.J. Duijn – The Long Wave in Economic Life, Allen, 1983 I.R. Suciu, I. Plumb – Economia ramurilor, Publishing House Select, 1996 Kotler, P., Caslione J. A., Chaotics. The Business of Managing and Marketing in the Age of turbulence translation Chaotics: management şi marketing în era turbulenţei, Publishing House Publica, 2009 H. Varian – Microeconomic Analysis, Third Edition, Norton, USA, 1992 P. Drucker – Managing for results, William Heinemann, Ltd. London, Ed. 1968, pg. 162 Idem The modern economic theory doesn’t offer almost anything coherent regarding the cyclic evolution of businesses for the firm level, but the connection we made is obvious and bases upon the interdependency relations between macro and microeconomics. Kotler, P., Caslione J. A., Chaotics. The Business of Managing and Marketing in the Age of turbulence tradnslation Chaotics: management şi marketing în era turbulenţei, Publishing House Publica, 2009, p. 37 Kotler, P., Caslione J. A., Chaotics. The Business of Managing and Marketing in the Age of turbulence translation Chaotics: management şi marketing în era turbulenţei, Publishing House Publica, 2009, p. 135 Idem, p. 94

REFERENCES 1. Arrow, K. (1963) Social Choice and Individual Values, Wiley and Sons Inc., New York. 2. Bober, S. (1968) – The Economics of Cycles and Growth, John Wiley & Sons. 173

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3. Blaug, Mark – Economic Theory in Retrospect, translation after the 4th Edition, Cambridge Press, 1990 4. Brătianu, C. (2003) Procese fundamentale de conversie a cunoştinţelor, Revista de Management şi Inginerie Economică, nr. 7. 5. Brătianu, C. (2006) Dinamica generării şi transformării cunoştinţelor, in volume I. Roşca (editor) (2006) Societatea cunoaşterii, Economică, Bucharest. 6. Buckingham, M. and Coffman, C. (1999) First Break All the Rules: What the World's Greatest Managers Do Differently, Gallup Organization. 7. Burciu, A. (coord.) (2008) Introducere în management, Economică, Bucharest. 8. Burciu, A. (1999) MBO şi cilul afacerilor, Publishing House Economică, Bucharesti. 9. Burns, A. (1969)– The Business Cycle in a Changing World, Columbia University Press, 10. Coffman, C. and Molina, G. (2002) Follow this Path, Gallup Organization, Warner Books, New York. 11. Cooley, Th. (editor) (1995)– Frontieres of Business Cycle Research, Princeton University Press. 12. Cornwall, J. (1994) – Economic Breakdown & Recovery, Ed. M.E. Sharpe, New York. 13. Dawkins, R. (1986) The Blind Watchmaker, Penguin Books Ltd, England. 14. Drucker, P. (1967) The Effective Executive, William Heinemann. 15. Drucker, P. (1993) Managing for results, HarperCollins, New York. 16. Duijn, J.J. (1983)– The Long Wave in Economic Life, Allen. 17. Estey, J. (1956) – Business Cycles, Prentice-Hall. 18. Feldstein, M. (editor) (1991)– The Risk of Economic Crisis, University of Chicago Press. 19. Forrester, J.W. (1969) – Industrial Dynamics, MIT Press, 1961; World Dynamics, MIT Press. 20. Freeman, C. (editor) – Long Waves in the World Economy, Frances Printer, London, 1984; 21. Gardner, H. (1983) Frames of Mind: The Theory of Multiple Intelligences, Basic Books, New York. 22. Gordon, R. (1961) – Business Fluctuations, Harper & Brathers, etc. 23. Houston, William (1995) – Riding the Business Cycle, Little, Brown and Company, UK. 24. Kaufmann, A. a.o. (1994) Creativitatea în managementul întreprinderilor, AIT, Laboratorie, Bucharest. 25. Kitchin, J. (1923) – Cycles and Trends in Economic Factors, Review of Economic Statistics; 26. Kondratieff, N.D. – Die langen der Wellen des Konjunctur, Archiv für Sozialwissenschaft, LVI, 1926; The Long Waves in Economic Life, Review of Economic Statistics, UK, 1935 27. Kornai, J. (1974) Anti–equilibrium, Ştiinţifică şi Enciclopedică, Bucharest. 28. Kotler, P., Caslione J. A., Chaotics. The Business of Managing and Marketing in the Age of turbulence translation Chaotics: management şi marketing în era turbulenţei, Publishing House Publica, 2009. 29. Krugman, P., (2009) The Return of Depression on Economics and the Crisis of 2008, Publishing House Publica. 30. Maynard, H.B. and Mehrtens, S. (1993) Al Patrulea Val, ANTET. 31. McHugh, P., Merli, G. and Wheeler III, W. A. (1995) Beyond Business Reengineering – Towards the Holonic Enterprise, John Wiley&Sons Ltd., UK, USA 32. McInerney, C. (2002) Knowledge Management and the Dynamic Nature of Knowledge, Journal of American Society for Information Science and Technology. 33. Mellers, B.A. and McGraw, A. P. (2001) Anticipated Emotions as Guides to Choice, American Psychological Society, vol. 10, no. 6. 34. Modelski, G. (1987)– Exploring Long Cycles, Publishing House Printer, London. 35. O’Connor, J. (1987)– The Meaning of Crisis, Ed. Basil Blackwell, Oxford. 174

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36. Pinker, S. (1997) How the mind works, Norton, New York. 37. Popper, K. (1981) Logica cercetării, Ştiinţifică, Bucureşti, 1981; translation after The Logic of Scientific Discovery, Hutchinson, London, 1975. 38. Popper, K. and Eccles, J. (1977) The Self and its Brain, Springer-Verlag, Berlin, London. 39. Roubini, N., Mihmn, S., (2010) Crisis Economics: A Crash Course in the Future of Finance, Publishing House Publica. 40. Samuelson, P. A. W. Nordhans (1995)– Economics, Ed. McGraw-Hill, Inc., New York, 41. Scott-Ladd, B. and Chan, C.C.A. (2004) Emotional intelligence and participation in decision-making: strategies for promoting organizational learning and change, Strategic Change, March-Aprilie 2004, Wiley InterScience. 42. Sevdalis, N. a.o. (2007) Trait emotional intelligence and decision-related emotions, Personality and Individual Differences 42, 1347-1358. 43. Simon, H. (1957) Models of Man, John Wiley & Sons, New York. 44. Suciu, I.R., Plumb I. (1996) – Economia ramurilor, Publishing House Select. 45. Toffler, A. (1996) Corporaţia adaptabilă, Antet, Bucharest. 46. Varian, H. (1992)– Microeconomic Analysis, Third Edition, Norton, USA. 47. Wonder, J. a.o. (1985) Whole Brain Thinking, Balantine Books, New York.

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EVALUATION OF INTER-GENERATIONAL KNOWLEDGE TRANSFER BY USING THE ANALYTIC HIERARCHY PROCESS (AHP) Professor PhD. Constantin BRĂTIANU Lecturer PhD. Adriana AGAPIE Academy of Economic Studies, Bucharest, Romania [email protected]; [email protected] Abstract: The purpose of this paper is to present some results of our research in the field of inter-generational learning dynamics and knowledge transfer, with applications in universities. This topic is important because a university is by its own nature a nested knowledge organization, due to a continuous flow of students and the bottom-up regeneration of the faculty staff. Knowledge creation and knowledge loss are intertwined processes, and both of them are strongly influenced by the age scale. A university is a multilayered knowledge organization, where the inner most layers are represented by older professors who concentrate the fundamental structures of knowledge, and the outer layers are represented by students in their different learning cycles. In this paper we are interested in assessing the choices done by the academic staff, in the context of the determinant criteria and trade-offs in inter-generational knowledge transfer. This has been done in the framework of Analytic Hierarchic Processes (AHP). We thought that this is a proper tool since it mainly belongs to the field of decision-making with the possibility to determine vectors of priorities for the individuals participating in the decisions under study. We considered three main criteria: attitude toward cooperation (C1), attitude toward competition (C2), and attitude toward innovation (C3). Also, we considered as being significant activities: working together in research grants (A1), writing papers for scientific journals (A2), and writing books (A3). These criteria and activities have been structured into a common framework. Keywords: analytic hierarchy process, knowledge transfer, learning dynamics, university JEL Classification: D83; I23; J24

1. INTRODUCTION Universities are social institutions with long life cycle. The venerable Bologna University dates from 1088, and the famous Oxford University dates from 1187. Main activities associated with those days universities were collecting knowledge, preserving it and passing it on. Creating new knowledge was not a part of university’s mission. A professor was mostly a scholar and not a researcher. Learning was a process based mostly on transferring knowledge from one generation toward the other. In 1809, Wilhelm von Humboldt established the Berlin University, based on a new paradigm. According to his vision, a university should approach knowledge scientifically. It should produce knowledge, not only to re-produce it (Harayama, 1997, p.9). Today, the research universities integrate perfectly knowledge generation with knowledge dissemination. Knowledge production and learning processes at individual and organizational levels transform the university into a knowledge intensive organization, which fits excellently with the new requirements of the knowledge society. Moreover, they may become learning organizations if double-loop learning and organizational integrators are well developed (Armstrong & Foley, 2003; Bratianu, 2007; Bratianu, 2008; Ortenblad, 2001; Stewart, 2001). Learning is a knowledge intensive process at both individual and organizational level. It is a strong nonlinear process that integrates several activities: perception, knowledge acquiring, dynamics of tacit and explicit knowledge, dynamics of cognitive and emotional knowledge, structuring and re-structuring through a continuous dynamics, knowledge storage, knowledge removal from the memory, and knowledge creation through a conscious effort (Bratianu, 2009; Bratianu & Orzea, 2009; Fauconnier & Turner, 2002; Pinker, 2007; Lakoff & Johnson, 1999; Nonaka & Takeuchi, 1995). Organizational inter-generational learning is a specific process for those organizations where individuals group themselves in age layers or strata. Universities are such organizations and inter-generational learning is a natural process. The purpose of this paper is to investigate the dynamics of inter-generational learning by using the mathematical model of the Analytic Hierarchy Process (AHP), in the Romanian university environment (Harker & Vargas, 1987; Liang et al., 2008; Saaty, 1994). This topic is important 176

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because a university is by its own nature a nested knowledge organization, due to a continuous flow of students and of the bottom-up regeneration of the faculty staff. Knowledge creation and knowledge transfer are intertwined processes, and both of them are strongly influenced by the age scale. A university is a multi-layered knowledge organization, where the inner most layers are represented by older professors who concentrate the fundamental structures of knowledge, and the outer layers are represented by students in their different learning cycles. 2. INTER-GENERATIONAL KNOWLEDGE TRANSFER The problem of inter-generational learning and transfer of knowledge is generally summed up in the framework of asymmetric information. The additions of elements from psychology into economics of information lead to the consideration of the some explicit details in this particular problem of asymmetric information. Among these, the most important seem to be the incentive salience conflict (conventionally, a conflict between the relative weight in utility attached to tempting versus no tempting goods), the temporal horizon conflict (born from the importance attached to distant events versus temporally close one) and the asymmetric information conflict (a conflict between the information available in different areas subsumed to the research region).The latest developments in neuro-economics conduced to models of brain as a hierarchical organization (Brocas & Carrilo , 2008) in which, in order to model temporal and informational conflicts an individual is split into an impulsive/myopic agent and a cognitive/forward looking principal. Yet, this dichotomy between impulsive (through temporal horizon conflict and asymmetric information conflict) and reflexive behavior (expressed through incentive salience conflict) a long term object of neuro-economics research (Thaler & Shafrin,1981; Shafrin & Thaler, 1988; Lowenstein,1996)-has been also present in the framework of organization theory as the dichotomy between relative ability and absolute ability. Effects of competition in educational institutions regarded as organizations highlighted particular adverse effects in reliance on relative abilities (also referred in this framework as relative performance) instead of absolute abilities (expressed through the measurement of performance against objective standards). Thus, it was found that (Wang & Yang, 2003) in competitive learning game, limited rewards lead to an “ability game”, therefore competition among students no longer motivates increased effort. On the other hand, there is a flow of literature devoted to behavioral analysis of the impact of ageing on decision making at the level of firms challenging mostly negative stereotypes (like seniors are less flexible and willing to change, less willing to learn but more reliable and determined than juniors, with a lower adaptability to change). These generalities were splinted into attitude concerning cooperation in teams, attitudes concerning competition and attitudes toward innovation and studied through experiments in laboratories. In this line, there are results (Hamilton et al., 2003) that show that cooperation is a learned trait and that the insight developed over a more elderly person’s lifetime may be particular useful in providing a good example for younger workers to emulate. In addressing the problem of ageing versus inter-generational learning in the framework of education institutions as organizations-like Academy of Economic Studies (ASE), Bucharest is-this paper is going to evaluate perceptions of the academic staff toward the attitudes of cooperation in teams, competition and innovation-dimensions that sum highly relevant for the success of modern organizations. Opinion about attitude of cooperation in team is supposed to offer a measure for the individual’s intangible temporal horizon conflict, opinion about attitude on competition-in a learning environment- is offering a measure on the asymmetric information conflict of the individual, since he has to be competitive and up to date in his field, while opinion on innovation is seen as an indicator of the salience conflict. The importance of each of these attitudes is going to be evaluated under particular alternatives and also weighted from the point of view of tradeoffs allowed in some situations. Priority vectors for each of these three attitudes and alternatives will be determined for every member of the academic staff who participated in this research through the completion of a certain specially designed survey. This will show how the main actors in the inter-generational transfer of knowledge see themselves or equivalent, what are their priorities in these three main 177

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attitudes. Inter-generational learning in universities is most intensive through the doctoral studies. The highest-quoted professors (obligatory PhD supervisors) are involved through doctoral school in transmitting the most important information to the students and also the state of art of conducting research. The decision of including a professor in this activity is looking at three professional criterions: grants, papers and books. In evaluating accomplishments with respect of these alternatives, some tradeoffs regarding different levels of quality are elaborated by the Romanian Ministry of Education and by the Universities’ boards over a few sets of criteria. So, on one hand, in considering the decision to choose in between different members to teach in doctoral school programs, the Board of University is looking whether some obligatory criterions are compelled. On the other hand, a particular professor,(senior lecturer, lecturer) can choose his own level of effort in fulfilling these criterions, given the previously mentioned available tradeoffs regarding different levels of quality (these will be presented in more detail in the next section).The choice a particular professor is taking- in a complex interplay of its own interior conflicts and the exterior imposed criterions-is shaping its current teaching activities and therefore future outcomes. 3. QUALITATIVE AND QUANTITATIVE CRITERIA In order to provide the reader with some background concerning the particular determinants for attitudes toward cooperation, competition and innovation in a Romanian University like ASE, in the following it will be described in short the determinants of the promotion process that is currently at place. This is strictly connected with the flow of transfer of knowledge since if one has to fulfill some criterions it is also true the backward assertion, namely that the value of a person is the sum of the fulfilled criterions. And this value is very concretely expressed through its wage-a tangible, measurable variable and also through some intangible aspects, like its determinant participation in doctoral school or supervision of Master dissertations-main channels in inter-generational learning in the considered framework. Academic staff in ASE is professionally evaluated according to its participation in scientific grants, number of scientific papers and books and manuals. For being promoted to the next level (assistant, lecturer, senior lecturer, professor, and professor-PhD adviser) the cumulated scores for the previous three alternatives need to surpass some general “cutoff values” established by the Romanian Ministry of Education and Research and each University’s board. For example, for someone to apply for a promotion from the position of a senior lecturer to the position of a professor, four main criterions are considered. The first one regards its teaching activities, relations with colleagues inside its Department, evaluations form the students and the number of manuals edited in its specialization. The second one is looking at research activities measured through the number of grants. A minimal number of two is required with the mention that the candidate had to be director in at least an international one. The third criterion is looking also at research activities measured through the number of scientific papers. Five to seven scientific articles are requires and out of these at least four have to be published in ISI quoted journals or indexed in reference international data bases. Also a minimal number of two books, published in selected publishing houses, is asked- and out of these the candidate has to be the first author for at least one of these. The last criterion looks at the so named “professional prestige” which subsumes any other activities like international recognition given by participation at professional associations, membership in editorial boards, distinctions and awards. Given the range of alternatives available for a university professor, its attitude toward competition can be ranked differently whether he chooses to apply for an international grant-with all the risks- or go for all the national competitions and don’t bother to go internationally, or whether he is deciding to put a lot of effort into submitting a paper to an international journal instead to take the easy way to publish a larger number of papers into national B+ journals. A teacher’s attitude toward innovation can be different if he chooses to spend time to develop a new theory or new empirical methods of estimations and be competitive at an international level or he decides is better from his personal point of view to add several smaller improvements in its professional career. His choices are also affecting the message transmitted mostly to its doctoral students or to the ones whose Master dissertation is supervised. After all, it 178

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matters if a professor is sending the message “you need to be the best” –and for this, take my example-or the message: ”satisfying: a pretty good heuristic” (Bendor et al., 2009). This common sense observation is supported by mathematical models of satisfying which explicitly represents agent’s aspirations and which explores both single-person and multi-player context. In this context satisfying has a signature performance profile in two contexts: it can induce optimal long-run behavior in one class of problems but not in complimentary class and it generates behavior that is sensible but not optimal. In this paper we are interested in assessing the choices done by the academic staff, in the context of the above presented range of criterions and trade-offs. This had been done in the framework of AHP. We thought that this is a proper tool since it mainly belongs to the field of decision-making with the possibility to determine vectors of priorities for the individuals participating in the decisions under study and also there is the possibility to determine individual numerical scales-since verbal interpretations can differ from one person to another (Liang et al., 2008). A second reason for this approach is that the latest developments in neuro economics proved that asymmetry of information in learning can be modeled at an individual’s scale also in terms of an hierarchic organization (Brocas & Carrilo , 2008) . 4. AHP FOR DETERMINING INDIVIDUALS VECTORS OF PRIORITIES The framework constructed for analysis includes a hierarchy with the three criterions at top: attitude toward cooperation (C1), attitude toward competition (C2) and attitude toward innovation (C3) and three specific alternatives located further down the hierarchy: grants (A1), papers (A2) and books (A3).The bottom level of this hierarchy contains possible options according to the relative importance of the factors involved in the three previous alternatives .The analytical process includes making judgments on pairs of elements throughout the hierarchy, one level at a time beginning at the top, based on the respondent’s knowledge and according to theirs perceived relative importance of the factors involved. The most heavily weighted alternative outcome in the bottom level is the most likely one. A survey designed according with these principles was electronically distributed among the academic staff in ASE. In order to understand how this was processed, a short presentation of the way in which the questions were posed in this survey and processed thereafter will follow. Numerical results and interpretations will be presented in the next section. In the following it will be presented the general form of the survey considered and one example of answer will be indicated on the right-side. In the next subsection it will be showed how the answers were processed. In the first page were asked general information about the position of the respondent in ASE: the academic status (professor-PhD supervisor, professor, senior lecturer, lecturer, assistant or PhD student), the Department and the affiliation to a certain Faculty. The second page was devoted to the determination of the priority vectors of the three chosen criterions in determining the quality of the transfer of knowledge. This was done through the formulation of questions in comparative terms, as shown below: 1. Please, indicate on a scale from 1 to 9 (1-indifferent, 9-full agreement) to what extent you agree with the next assertion: ”In the framework of inter-generational transfer of knowledge, attitude toward cooperation (C1) is more important than attitude toward competition (C2). ” 2. Please, indicate on a scale from 1 to 9 (1-indifferent, 9-full agreement) to what extent you agree with the next assertion:” In the framework of inter-generational transfer of knowledge, attitude toward competition (C2) is more important than attitude toward innovation (C3)” 3. Please, indicate on a scale from 1 to 9 (1-indifferent, 9-full agreement) to what extent you agree with the next assertion:” In the framework of inter-generational transfer of knowledge, attitude toward cooperation (C1) is more important than attitude toward innovation (C3).”

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The third page was devoted to the determination of the priority vectors of the alternatives (grants, papers, books) taking into consideration the criterions in the above level of hierarchy. Questions were formulated as follows: 4. With respect to the problem of inter-generational transfer of knowledge, from the point of view of the attitude toward cooperation please indicate, on a scale from 1 to 9 (1-indifferent, 9-full agreement) to what extent you agree with the next three assertions: 4.a. Participating in research grants (A1) is more important than writing scientific papers (A2). 4.b. Writing scientific papers (A2) is more important than writing books or manuals(A3). 4.c. Participating in research grants (A1) is more important than writing books or manuals (A3). 5. With respect to the problem of inter-generational transfer of knowledge, from the point of view of the attitude toward competition please indicate, on a scale from 1 to 9 (1-indifferent, 9-full agreement) to what extent you agree with the next three assertions: 5.a. Participating in research grants (A1) is more important than writing scientific papers (A2). 5.b. Writing scientific papers (A2) is more important than writing books or manuals(A3). 5.c. Participating in research grants (A1) is more important than writing books or manuals (A3). 6. With respect to the problem of inter-generational transfer of knowledge, from the point of view of the attitude toward innovation please indicate, on a scale from 1 to 9 (1-indifferent, 9-full agreement) to what extent you agree with the next three assertions: 6.a. Participating in research grants (A1) is more important than writing scientific papers (A2). 6.b. Writing scientific papers (A2) is more important than writing books or manuals (A3). 6.c. Participating in research grants (A1) is more important than writing books or manuals (A3). The forth and the last page was devoted to determining the priority vectors for the alternative schemes of equivalence regarding the alternatives in the above level of the hierarchy. 7. With respect to research grants, please indicate, on a scale from 1 to 9 (1-indifferent, 9-full agreement) to what extent you agree with the next assertions: 7.a. Other professional objectives are more important than participation as a director or member in CNCSIS (national) research grants. 7.b. Is more important to participate as a director or as a member on a CNCSIS (national research grant) than elaborating/or making efforts to become a member in international research grants. 7.c. Other professional objectives are more important than to participate as a director or as a member on a CNCSIS (national research grant) than elaborating/or making efforts to become a member in international research grants. 8. With respect to scientific papers, please indicate, on a scale from 1 to 9 (1-indifferent, 9-full agreement) to what extent you agree with the next assertions: 8.a It is more important to write a large number of articles publishable in national B+ journals than writing papers publishable in national ISI journals. 8.b. It is more important to write few papers publishable in national ISI journals than taking the risk of submitting a paper to an international ISI quoted journal. 8.c. It is more important to write a large number of articles publishable in national B+ journals than taking the risk of submitting a paper to an international ISI quoted journal. The last question, question 9 asked for the number of participations in national research grants, international research grants, number of papers published in national ISI journal, number of paper published in international ISI journals with an impact coefficient less than 1 and number of papers published in international ISI journals with an impact coefficient greater than 1.

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Paired comparison judgments in the AHP are applied to pairs of homogeneous elements and summarized in a matrix of judgments. Scoring is applied to rank the three alternatives in terms of each of the three criterions considered. Matrix of judgments is determined assuming values equal to one on the main diagonal and also reversibility of the preferences-so that if C1 is preferred to C2 at a corresponding absolute value of 5, the C2 will be preferred to C1 at an absolute value of 1/5, which is 0.2. The corresponding vector of priorities is calculated in an eigenvalue formulation. The solution is obtained by raising the matrix to a sufficiently large power, then summing over the rows and normalizing to obtain the priority vector. The process is stopped when the difference between components of the priority vector obtained at the k-th power and at the (k+1) power is less than some predetermined small value. The vector of priorities is the derived scale associated with the matrix of comparisons (Saaty, 1994). Finally, alternatives are scored by checking off their respective ratings under each criterion and summing these ratings for all criteria. This produces a ratio scale score for the alternative. The scores thus obtained of the alternatives can in the end be normalized by dividing each one by their sum. For the example considered in the section above, the pair wise comparison matrix is given in Table 1. Table no. 1. The pair wise comparison matrix for criteria C1, C2, and C3 Absolute judgments amongst criterions

C1

C2

C3

C1

1

5

6

C2

0.2

1

8

C3

0.16667

0.125

1

Table no. 2. Vector of priorities for the criteria pair wise comparisons Vector of priorities

C1

C2

C3

C1

0.768293

0.768293

0.768293

C2

0.134146

0.134146

0.134146

C3

0.097561

0.097561

0.097561

The interpretation is that, in the view of the particular person who answered the survey, in the prevalent attitude determining inter-generational learning and knowledge transfer is cooperation, corresponding to C1, since it has the highest value: 0.768293. Second, it comes the necessity to be competitive, corresponding to a value of 0.134146 and the last important would be to be innovative-in the sense presented in the section above, with a value of 0.097561 in the priority vector. Similarly were determined the pair wise matrices of judgments of the three alternatives (Grants-A1, Papers-A2, Books-A3) with respect to each of the previous three criterions together with the determined values for the priority vectors .In Table 3. is given the pair wise matrix of judgments of the three alternatives with respect to C1 and corresponding vector of priorities. Table no. 3. Pair wise matrix of judgments activities A1, A2, and A3 with respect to C1 Absolute judgments amongst alternatives A1, A2, A3 with respect to Criterion 1 A1

A1

A2

A3

1

4

3

A2

0.25

1

4

A3

0.3333

0.25

1

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Vector of Priorities

A1

A2

A3

A1

0.61898

0.61898

0.61898

A2

0.220113

0.220113

0.220113

0.160907

0.160907

0.160907

A3

5. NUMERICAL RESULTS AND CONCLUSIONS The survey was delivered to 4 distinct Departments of ASE and the rate of response was 30%. Out of the received answers, 17.3 % were valid answers. The priority vector of the criterions considered to influence the inter-generational learning was calculated as an average on the individual vectors of priority-presented in table 1. The weight of the Alternative 1 (Grants) from the point of view of the attitude to cooperation-Criterion 1 is calculated again as the average over the individual values in the corresponding priorities vectors, as shown in table 3. Results weighted for all the respondents are summarized in Table 4. In order to establish the composite or global priorities of the alternatives considered we lay out in a matrix the local priorities of the alternatives with respect to each criterion and multiply each column of vectors by the priority of the corresponding criterion and add across each row, which results in the composite or global priority vector of the alternatives. Corresponding results are presented in Table 5. Similarly were determined vectors of priority averaged over all the respondents for the trade-off criterions with respect of grants and papers , where 1 means-other are more important, 2-is a compromise at a national level and 3 is going international with respect to the considered alternative. The results are presented in table 6. Table no. 4. Synthesis in the Distributive Mode Distributive Mode

C1

A1 A2 A3

C2

C3

0.693693

0.183968

0.124902

0.604529

0.630678

0.638076

0.246879

0.247676

0.236087

0.155292

0.121646

0.128091

Table no. 5. Synthesis Distributive Mode A1 A2 A3

C1

C2

C3

0.414859

0.136212

0.062385

0.613972

0.169421

0.053493

0.023082

0.247196

0.106569

0.026273

0.012523

0.143

Table no. 6. Synthesis for the trade-off criterions regarding Grants-A1 and Papers-A2 Distributive Mode

A1

A2

1 0.694924

0.645866

0.175785

0.204687

0.129291

0.149447

2 3

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From the point of view of the inter-generational learning in e Academy of economic Studies from Bucharest, for the academic staff, the most important appears to be cooperation-with a weight of 0.693693, and the most preferred channel for cooperation is through national research grants. By looking at the results in table 5 we see that it also appears that option 1-doing something else but grants and papers-is most preferred. So we conclude that this also checks the fact that cooperation in the sense of something else but grants and papers are preferred channels for inter-generational learning and knowledge transfer. ACKNOWLEDGEMENT We would like to acknowledge the support received from UEFISCSU Romania through PNII research project ID_1812/2008. REFERENCES 1. Armstrong, A., Foley, P. (2003) Foundations for a learning organization: organization learning mechanisms, The Learning Organization, Vol.10, No.2, pp.74-82. 2. Bendor, J.B., Kumar,S., Siegel,D.A. (2009) Satisfying: A “Pretty Good” Hheuristic, The B.E. Journal of Theoretical Economics, Vol.9, Issue 1,art.9 3. Bratianu, C. (2007) The learning paradox and the university, Journal of Applied Quantitative Methods, Vol.2, No.4, pp.375-386. 4. Bratianu, C. (2008) A dynamic structure of the organizational intellectual capital, in: Naaranoja, M. (ed.) Knowledge management in organizations, pp.233-243. Vaasa: Vaasan Yliopisto. 5. Bratianu, C. (2009) The frontier of linearity in the intellectual capital metaphor, Electronic Journal of Knowledge Management, Vol.7, Issue 4, pp.415-424. 6. Bratianu, C., Orzea, I. (2009) Emergence of the cognitive-emotional knowledge dyad, Review of International Comparative Management, Vol.10, Issue 5, pp.893-902. 7. Brocas,I.,Carrilo,J. (2008) The Brain as a Hierarchical Organization, American Economic Review, Vol. 98, Issue 4, pp. 1312-1346. 8. Fauconnier, G., Turner, M. (2002) The way we think. Conceptual blending and the mind’s hidden complexities. New York: Basic Books. 9. Harayama, Y. (1997) The evolution of the university in Europe and in the United States. Higher Education in Europe. Vol. 22, No.1, pp. 9-19. 10. Harker, P.T., Vargas, L.G. ( 1987) The theory of ratio scale estimation: Saaty’s analytic hierarchy process, Management Science, Vol.33, No.11, pp.1383-1403. 11. Hamilton,B.H.,Jack,A. Nickerson, Owan,H.(2003) Team Incentives and Worker Heterogeneity: An Impact of Teams on productivity and Participation, Journal of Political Economy, Vol. 111, No. 3, pp. 465-497. 12. Lakoff, G., Johnson, M. (1999) Philosophy in the flesh. The embodied mind and its challenge to western thought. New York: Basic Books. 13. Liang, L., Wang, G., Hua, Z., Zhang, B. (2008) Mapping verbal responses to numerical scales in the analytic hierarchy process, Socio-Economic Planning Sciences, Vol.42, pp.46-55. 14. Nonaka, I., Takeuchi, H. (1995) The knowledge creating company. How Japanese companies create the dynamics of innovation. Oxford: Oxford University Press. 15. Ortenblad, A. (2001) On differences between organizational learning and learning organization, The Learning Organization, Vol.8, No.3, pp.125-133. 16. Pinker, S. (2007) The stuff of thought. Language as a window into human nature. New York: Penguin Books.

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17. Saaty, T.L. (1994) Highlights and critical points in the theory and application of the Analytic Hierarchy Process, European Journal of Operational Research, Vol.74, pp.426447. 18. Stewart, D. (2001) Reinterpreting the learning organization, The Learning Organization, Vol.8, No.4, pp.141-152. 19. Wang, X.,H.,Yang, B.Z.,(2003) Why Competition may Discourage Students from learning ? A Behavioral Economic Analysis, Education Economics, Vol.11, No.2, pp. 117-128.

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MOUNTING E-WASTE OF EUROPE: POLICIES, MANAGEMENT PRACTICES, AND BUSINESS SOLUTIONS Associate Professor PhD. Ildiko IOAN Associate Professor PhD. Carmen Valentina RADULESCU PhD. Cristina POPA Academy of Economic Studies, Bucharest, Romania [email protected] Abstract: EU is among the communities recognized for their high environmental profile. This could be surprising for an informal recycler from Nigeria and Ghana who regularly receives out of use computers from EU member states and lights up open fires to recover materials. Departing from this paradox the paper attempted to build up a framework for the analysis of e-waste management options. E-waste is the fastest growing waste stream in Europe, although waste generation in general is an important environmental concern. There are huge differences among member states, although the hierarchies could vary a lot. The European waste policy framework is quite well developed with a strong branch for WEEE. Nevertheless, most of WEEE is dumped in third world countries. The initiative of several companies to build up a European Recycling Platform is an important step to improve effectiveness in e-waste management. The widespread use of the shipment business solution is however evidence that it is still not cost effective. The analysis of the typology and spatial patterns of waste generation, the current waste policy framework, the main waste management practices employed in case of WEEE, and the business solutions resulted in a number of observations. Among these, we stress the urgent need for improved data collection procedures, reporting guidelines and development of simple and effective control tools. Key words: e-waste, European policy, take-back system, clearing-house system, ERP, export JEL Classification: Q53

1. INTRODUCTION Waste generation is one of the most visible and concerning environmental effect of the development. Its path exceeded the capacity of technical and managerial solutions for processing toward neutralization. This is also true for the European Union (EU), although it is recognized for its leadership in environmental matters. Waste of electric and electronic equipment (WEEE) or e-waste is one of the major challenges in this field because of it is among the highest growing waste type. The total of WEEE will grow annually with an estimated 2.5 to 2.7%, reaching 12.3 million tones per year in 2020 (Sawhney et al., 2008). Total waste generation is growing with an annual rate lower than one percent, while the annual rate of municipal waste is 2% (EEA, 2008). The Basel Convention bans the trans-boundary shipment of hazardous waste and its transfer to developing economies. Nevertheless, there is no restriction for computers or other electronic devices that are functional to be exported and surveys conducted by EU institutions and NGOs revealed that these are in fact e-waste shipments escaping legal restrains for waste management. In other terms, there are a number of factors that transform trans-boundary e-waste shipment in a business solution under the one of the “greenest” administration of the world. These factors are the subject of our analysis which aims to identify and describe them by over posing data and information coming from the latest reports on waste and especially e-waste policies, management practices, and business solutions. In order to perform this we will start by framing e-waste’s pattern in the European waste generation picture. Further the European policies that inflict on waste will be “dismantled” and widespread management practices described. The underpinning economic reasons that encourage trans-boundary shipment of e-waste among EU Member States and to the developing world (non-OECD countries) will be given a special focus. Finally we will conclude by outlining several strengths and drawbacks of current policy framework. 185

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2. WASTE GENERATION AND THE E-WASTE OUTLOOK Waste is the cause for the most common environmental problems: air pollution, stream contamination, land occupation inflicting on human health. Meanwhile waste is a channel for resource loss by blocking down valuable materials that are less and less available worldwide. The European economy is a highly resource intensive one, which uptakes large amounts of raw materials, energy, and land in order to perform properly. According to the European Environmental Agency (EEA), around one third of the materials used are turned into waste and emissions. Each citizen produces four tones of waste per year, out of which 520 kg is household waste entering municipal waste management systems. As long as waste types are considered, construction and demolition is on the lead, along with manufacturing activities. Municipal waste is also of concern since almost half of it (45%) is still land filled (EEA, 2010). Between three and four percent lies the proportion of hazardous waste which presents special risk for human and environmental health. In statistical records the share of recyclable waste and discarded equipment is about 10%. This fraction is dominated by metallic wastes, closely followed by wood wastes and paper and cardboard wastes (fig.nr.1). Metallic Wood Paper and cardboard Glass Plastic Discarded vehicles Textile Rubber Discarded equipment Batteries and accumulators 0

25000

50000

75000

100000

Thousands tones Source: Eurostat

Figure no. 1. Structure of recyclable waste including discarded equipment in EU-27 E-waste falls in the discarded equipment category. Although is not very important in the current structure of wastes the estimated annual growth rate (2.5 to 5%) is large enough to give more and more weight to this issue in the policy debate.

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Bulgaria Luxembourg Romania Estonia Finland Sweden Ireland France M alta Poland Austria Netherlands United Kingdom Belgium Greece Germany Spain Portugal Slovenia Denmark Slovakia Italy Czech Republic Cyprus Lithuania Hungary Latvia 0

5

10

Source: Eurostat

15

20

25

30

35

tones/capita

Figure no. 2. Waste generation per capita in EU-27 Across Member States there are differences in waste generation patterns. The largest amounts of waste are generated in France, Germany, and the United Kingdom and account for 39% of the total waste generated in EU. Nevertheless, the per capita amount situates these countries in a “milder” position (fig.nr.2) testifying for their efforts towards eco-efficiency. It is interesting to notice that Romania is among the leading countries in terms of waste generation. Per capita waste generation puts in the third position among EU-27. There is no specific classification in Eurostat statistics for WEEE, but considering the existing definitions this category could be assimilated with the discarded equipment excluding discarded vehicles and batteries and accumulators waste. On average each EU-27 citizen generates annually 7.5 kg of discarded equipment. The range of value is comprised between 0.2 kg/capita/year in Romania and 23.6 kg/capita/year in Sweden.

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Sweden Portugal Belgium Finland Austria Luxembourg Netherlands United Kingdom Estonia Germany Denmark Italy Lithuania Malta Spain Hungary Slovakia Czech Republic Slovenia France Greece Poland Bulgaria Latvia Cyprus Ireland Romania 0

5

10

Source: Eurostat

15

20

25

kg/capita

Figure no. 3. Discarded equipment wastes generation per capita in EU-27 Leading positions are occupied also by Finland, Belgium, and Austria (fig.nr.3). It is surprising to find Portugal in the second position. One possible explanation could be the changes in recording data. This factor is reported by several authors (Ioan and Radulescu, 2008; Sawhney et al., 2008; Nordbrand, 2009; Fischer and Davidsen, 2010) as sources of bias in the analysis of waste, and especially e-waste management. These figures are much higher than the total amount of discarded equipment considered previously (3.4 million tones), but they were produced using independent surveys which could take in account patterns that escape from official statistics. Nevertheless, the estimates for the per capita generation of e-waste fall on similar figures as those of statistics. Thus Nordbrand (2009) gives 24.0 kg/capita/year as maximum level of e-waste generation, which is very close to the 23.6 kg/capita/year derived from Eurostat data in case of Sweden, but almost three times the average value. Reports on e-waste management estimate the amount generated in the EU to be of about 8.3-9.1 million tones (Nordbrand, 2009), representing around four percent of the municipal waste (ECT/RWM, 2006). The e-waste issue climbed on the environmental policy agenda because of several reasons. Firstly, the amount of e-waste is expected to increase further. The annual growth rate falls somewhere between 2.5 and 5.0 percent leading to 12.3 million tones e-waste to be generated in 2020. These figures make WEEE the fastest growing waste stream in EU.

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Figure no. 4. E-waste roadmap in EU-27 Source: European Commission – DG Environment

Secondly, the concern is amplified by the lack of treatment capacities in EU countries. The European Commission signals that only 33% of e-waste is treated properly, while 54% is leakage toward third world countries and 13% is land filled (fig.nr.4). This could be also interpreted as missing the business opportunity for EU waste industry and related employment and increased threat for environmental health. Thirdly, through e-waste materials with high market value are lost and should be recovered from the countries that assume the risks of unsafe processing for lead, copper, aluminum, iron, and gold. 3. EU POLICIES In EU’s vision waste management should be regarded as part of a broader picture: material use. Fact is, the fourth assessment report prepared by the EEA where is no chapter dedicated to waste. This issue is treated as a matter of sustainable production and consumption. Departing from this vision, the EU attempted to develop a strategy in order to arrive at fair, non-discriminatory access to international supplies, to create a frame for the sustainable extraction of its own supplies and to arrive at a more efficient use of materials and extensive recycling in the EU. The European waste policy is outlined in the European Waste Framework Directive and further detailed by types of waste and materials. The policy is largely based on the waste management hierarchy and the principle of extended producer responsibility. The EU also developed thematic strategies on prevention and recycling of waste and on sustainable use of natural resources. Work is going on the development of Integrated Product Policy which attempts to minimize the environmental impact of products during their entire lifecycle. There are five basic principles to underpin this policy: - reflection on the lifecycle; - cooperation with the market; - the involvement of all stakeholders; - permanent improvement; and - diverse range of policy tools. The main policy measure concerning e-waste in EU is the WEEE Directive (Directive 2002/96/EC). This is completed by the RoHS Directive (Directive 2002/95/EC) on the restriction of the use of certain hazardous substances in electrical and electronic equipment. The WEEE directive already passed through a revision phase that changed the targets and enforcement conditions. The underlying objectives of the WEEE Directive are the following: - divert WEEE from landfills to environmentally sound re-use, recycling and other forms of recovery; - preserve resources - materials and energy; - producer responsibility; 189

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harmonize national measures on the management of WEEE – common minimum standards of treatment. - provide for a free producer take-back scheme for consumers of end-of-life equipment; - improve product design with a view to both preventing WEEE and to increasing its recoverability, reusability and/or recyclability; - provide for the establishment of collection facilities and separate collection systems of WEEE from private households; - provide for the establishment and financing of systems for the recovery and treatment. For the implementation, each Member State developed compliance schemes as it is presented in table no.1. Table no. 1. Compliance schemes for the implementation of the WEEE Directive Member State Austria

Compliance Schemes UFH-Emweltforum Haushalt, ERA, ERP Belgium Recupel Cyprus Chamber of Commerce Czech Republic Envidom, REMA, RETELA Denmark EPA El Retr Estonia EES Ringlus Finland SERTY, Elker Oy, SELT, FLIP ry, ICT France Eco-systemes, ERP, Syndicat do l’eclairage Germany EcologyNet Europe, ERP, ProReturn Greece Recycling of Appliances S.A. Hungary ELECTROCORD, ElektroWaste, Okhomat Ireland WEEE Ireland, ERP Italy ANIE, ecoR’it Latvia LZE, CECED Lithuania INFOBALT, CECED, LT Luxembourg ECOTREL Malta NA Netherlands NVMP, ICT, Stickting Lightrec Poland CECED, KIGEiT Portugal Amb3E Slovakia Ekolamp, Envidom, SEWA Slovenia European Lamp Federation Take Back Spain Ecofimatica, Ecolect, Ecotic, Sig Lamparas, Tragamovil Sweden El Kretsen UK Valpa, REPIC Source: Savage, M. (eds.) (2006), Implementation of the Waste Electric and Electronic Equipment Directive in the EU 25, Technical Report Series, Ref: EUR 22231 EN.

The enforcement was made with several delays caused by historical amounts of e-waste, overlapping with areas of EU legislation (hazardous waste regulations, trans-frontier shipment regulations, health and safety related marking). In addition to the delay in implementation, the initial form of the directive was unable to cover issues like e-waste leakage toward third world countries, and was criticized for increasing administrative burden on producers and lack of clarity. The revision aims to enforce changed collection target, better enforcement, and changed recycling/reuse target. Thus, for collection it is provisioned that 65% percent of the marketed electric and electronic equipments in the two preceding years. For the better enforcement it is 190

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envisaged the export and treatment, and the minimum monitoring requirements. All reuse targets increase with five percent. The RoHS Directive seeks to reduce the environmental impacts of WEEE throughout all stages of the equipment’s lifecycle, particularly at the end-of life stage, by encouraging the end-oflife management of the product, eco-design, life cycle thinking and extended producer responsibility. 4. MANAGEMENT PRACTICES Across EU there are three main types of e-waste management systems: take-back systems (collective –model), Clearinghouse-model and European Recycling Platform (ERP). Take-back systems. Such systems consist in a dominant national system which is responsible for collection, recycling and financing of all (or the vast majority) of WEEE within national boundaries. This is the general approach in the countries with established WEEE systems in Europe. Underlying principle is that the stakeholders in the electronics' chain of commerce should manage the end-of-life system, and that stakeholders' responsibilities should be proportionate to their ability to implement and affect the system. The adoption of take-back systems is motivated by certain advantages. According to Savage (2006), these are mainly as follows: - Provide a predictable source of funds, pays for all returned products, adhere to principles of environmentally sound management, provide convenient collection opportunities, and do not place an extra financial burden on local governments; - Uses every means possible to minimize costs employing competitive contracting for services, working with existing businesses and organiszations, stimulating product design improvements to lower recycling costs, encouraging an extensive collection network to improve economies of scale etc; The system’s drawbacks are that its design and implementation generate higher costs than the other options and it does not encourage the reduction of e-waste amount (violating the hierarchy principle of waste management). The clearing-house model. The clearing house model is again a national framework in which multiple partners (producers, recyclers, and waste organizations) can provide services. The government ensures that there is a register of producers and defines the allocation mechanisms, and reporting and monitoring systems. Although the system has an important potential for cost savings, lack of experience and data to make a good analyses and comparisons with existing collective schemes make it less attractive. In addition, in case of smaller markets the benefits of market mechanisms are not big enough. The European Recycling Platform. This is an initiative undertaken by Hewlett Packard, Sony, Electrolux and Braun to develop Pan –European compliance structures. The ERP does not need to transport WEEE outside of the country of origin, but needs to develop pan-European agreements with networks of providers with operations in all ERP countries. Supporters of such an initiative regard it as an important opportunity to develop much-needed alternatives to the national schemes, to create competition, which in turn, will stimulate efficiency and cost reductions. The high complexity of the system and differences in national legislation are the main barriers that prevent this system to become a powerful competitor of national systems. 5. BUSINESS SOLUTIONS Despite increasing legal restrains EU continues to leak large amounts of e-waste. Although it is highly difficult to monitor what Greenpeace called the “hidden flow” there is an official recognition of the fact that many electric and electronic equipment is shipped within and outside 191

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EU in order to be reused, but it ends up in unsafe land fills and open fire recycling sites with highly polluting potential. This reality proves the fact that there is a vision difference between government and businesses about how waste should be managed. Some aspects are true for all types of waste, but the issue become sharp and very visible then the flow of computers invaded third world countries (Ghana, Nigeria, and Egypt) and China. Thus while for government the solution is the establishment of national collective and recycling system that improve the possibilities to enclose material loops, from a business perspective it is more profitable to export waste. This is not surprising at all considering the lack of safety standards in waste importer countries. What is surprising is the fact environmentally progressive communities agree to accept the governance of economic reasons. Fact is there are many possibilities to interpret legislation referring to e-waste, but in the framework of proactive environmental behavior it is expected that EU is a less permeable for e-waste leakage. The export of e-waste is difficult to be tracked down since the commodity to be traded is not waste, but computers, TV-sets, monitoring devices, printers etc. that are still functional and could help less developed communities to catch up with the modern world. This is the most common philosophy to justify the export of e-waste to the third world. The export statistics were browsed by several organizations in order to find the evidence of waste export. The main technique applied is to compare the quantity and the value of exported goods. Thus it was demonstrated that TV-sets were exported at a very low price compared to their market value. The average value of color television sets exported from EU to Africa is ranging between 28 and 64 euro. The market value of this commodity is 339 euro. This results in an indication that the export consist of used products. According to legal provisions these products should be functional. Nevertheless, there is not realistic to assume that a very detailed control will be performed at any custom. A testimony of a Swedish environmental crime expert is relevant in this respect: “In order to know exactly what is in these shipments, you would have to physically inspect them. In the early days we looked at everything, we opened every box to see if the content agreed with the declaration, but this is not feasible anymore. Te trade flows are so much bigger and processing has to be done quickly” Martin Johansson, specialist in environmental crimes at the Swedish Customs The size of this business solution is difficult to be estimated. Most of the authors cite trade statistics as the main data source, but ETC/RWM stresses that the information to be derived from such sources reflects only part of the problem. Nordbrand (2009) reports that the “hidden flow” accounts for the larger part of the e-waste stream (60-75%). Other figures tell a worrying story about the dynamic of exports. It is estimated that e-waste export tripled from 1997 to 2005. ETC/RWM suggests that most registered exports take place between member states, while exports to countries outside the union are less than 10% and relatively stable. According to the statistics, main recipient countries are countries in Asia and South Eastern Europe (Albania, Bulgaria, Bosnia-Herzegovina, Croatia, the Republic of Macedonia, Romania, Turkey, Serbia and Montenegro). There is little knowledge about what is happening in these countries – proper treatment or re-export. 6. CONCLUSIONS Waste generation is among the most inconvenient follow ups of the modern lifestyle. The paper highlighted several aspects of e-waste generation and management in an European framework pursuing to find strengths and weaknesses potentially useful in the ongoing public policy debate. 192

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EU generates almost three billion tones of waste each year. The management of this huge amount is framed by a quite well developed policy with specific directives, thematic strategies, and a wider contextual vision on the entire material flow. E-waste or WEEE is a relative recently concerning category because it is the fastest growing waste stream. Although the category is addressed by specific directives, one major problem is the leakage of 54% e-waste toward third world countries. Fact is the current legal framework in EU makes e-waste export a very attractive business solution, despite increase in environmental awareness and proactive environmental behavior. Improving the policy measures to fight with illegal exports depends on a wide range of factors. Nevertheless, considering the facts revealed in the paper’s sections, we conclude that one major area for research and policy making is to increase clarity of definitions in such a manner that custom controls to be simple and effective.

REFERENCES 1. Bran, F. (2002), Componenta economica a deciziilor de dezvltare economica, Bucharest, ASE Publishing. 2. EEA (2009), Waste without borders in the EU?, Report nr.1 3. EEA (2008), Fourth assessment, Chapter 6: Sustainable production and consumption. 4. Fischer, C., Hedal, N., Carlsen, R., Doujak, K., Legg, D., Oliva, J., Sparvath, S.L., Viisimaa, M., Weissenbach, T., Werge, M. (2008), Transboundary shipments of waste in the EU. Developments 1995-2005 and possible drivers, European Topic Centre on Resource and Waste Management (ETC/RWM). 5. Fischer, C., Davidsen, C. (2010), Europe as a Recycling Society. The European Recycling Map, European Topic Centre on Sustainable Consumption and Production. 6. Ioan, I., Rădulescu, C.V. (2008), Managerial dimension of using LCA, Quality – access to success, nr.94. 7. Ioan, I., Rădulescu, C.V. (2008), Assisting environmental compliance, Quality – access to success, nr. 9, pp.46-50. 8. Nordbrand, S. (2009), Out of Control: E-waste trade fows from the EU to developing countries, SwedWatch. 9. Rojanschi, V., Bran, F. (2002), Politici si strategii de mediu, Bucharest, Economica Publishing 10. Sawhney, P., Henzler, M., Melnitzky, S., Lung, A. (2008), Best practices for E-waste Management in Developed Countries, Adelphi Research.

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TWO PERSONALITIES, TWO SOLUTIONS FOR BUSINESS DEVELOPMENT IN ROMANIA: ROBERT KIYOSAKI OR JIM COLLINS? Professor PhD. Gheorghe NEGOESCU “Ovidius” University, Faculty of Economic Sciences, Constanţa, Romania [email protected] Abstract: Romania, for that matter, all countries in the world can not overcome the financial crisis without business development. Robert Kiyosaki believes that financial education promoted since primary school may decisively contribute in better to the changing of business environment in a country. Jim Collins studied the activity of over 1400 U.S.A. companies during 1980-1998 and concluded that only 11 companies managed good results in financial terms because they have been able to practice a management of excellence, based on six concepts: five level leader, first "who" ... then "what", dealing with reality (without losing your trust), the hedgehog concept (simplicity within the three circles), culture of discipline, technology accelerators, the flywheel and chain destiny. The conclusion of this study is that the Romanian economic school should promote widespread economic, financial, legal and accounting knowledge in order to encourage private sector to develop. Robert Kiyosaki and Jim Collins are among the best writers of the world's economic literature. Both have sold over fifty million books in over 100 countries. Principles and concepts promoted by them in the Romanian economy will certainly trigger energies latent in each of us. In times of crisis every Romanian should gain revenue from all four lucrative poses: employee, freelancer, owner or investor. Keywords: financial education, good debt, bad debt, fast track, leading, hedgehog, discipline, technological accelerators. JEL Classification: M11, M21

INTRODUCTION Facing with lower demand, companies from Romania and from other countries from EU, once the crisis started, have decided to reduce production and to send some employees in unemployed. Job security became a concern for the remaining employees, which, as a result, have reduced their consumption, increasing trend in reduction demand. Only public investment can now revive the economy. In the euro area recession has increased strongly in the fourth quarter of 2008, when GDP was compressed by 1.5% (in annual terms). This year is expected quarterly decline of more than 1%, the economy will revert to a growth phase, only in the middle of 2011’s. In some countries such as Spain, the crisis will be even longer, growth being delayed until 2012. The sector most affected by the financial crisis was industry, which dropped with 6% in the fourth quarter of year 2008. For this reason, countries where the sector has a major contribution in economy (such is Germany) were fully affected. And the countries of Central and Eastern Europe - and Romania too - have suffered the effects, because were faced with lower demand for exports. Being highly open economies (exports and imports occupy a major share in GDP), the contraction appeared on their main market (euro area) could not have but negative consequences. Obviously, this is accompanied by an increase in unemployment, which will only increase the economic crisis. Uncertainty over jobs causes people to postpone consumption, thereby reducing aggregate demand. And the only factor that can get euro area economy from numbness in the is public spending. The scenario that takes place in the euro area is the same as that which manifests itself to us. The only difference is that in Romania’s case we’re not witness to a recession, but a sharp slowdown in economic growth, with the same effects: reduced production, increased unemployment, reduced consumption and the economy slows. IMF program is designed to remove the stalled economy by boosting public investment, after the model adopted by West European countries. 194

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1. ROBERT KIYOSAKI SOLUTION: BE A BANK, NOT A BANKER Robert Toru Kiyosaki was born in 1947, is an investor, businessman and motivational literature American author. Kiyosaki is best known through a series of motivational books "Rich Dad, Poor Dad." He wrote 18 books which have sold in a total of 26 million copies. Although he initially self-published, then, Warner Books, a division of Hachette Book Group USA, took over publication of his books, they now defending as publisher Rich Dad. Three of his books, Rich Dad, Poor Dad, Money Quadrant and Investor’s Guide were simultaneously in the top 10 best books sold, ranking compiled by the Wall Street Journal, USA Today and The New York Times. Rich kid, smart child, was published in 2001, the author having the desire to help parents to familiarize children with financial concepts. He also created the educational game "Cashflow" published in both traditional and software version. The game knows three versions and addresses both parents and children. He released numerous cassettes and discs of the series "Rich Dad". In Robert Kiyosaki's view, this means that early in career we should be aware that there are four situations in which making money ie: employee, self employed, owner and investor [1]. A

P

Employee

Employer

L

I

Self-employed

Investor

Figure no. 1. Money quadrant The emergence of the financial crisis has created a feature based on money quadrant by Robert Kiyosaki namely that from the outset, an employee must be a good worker and a good investor. The peculiarity is that once the first month of employment, a graduate school should opt for Pillar 2, private, for pension and for pillar 3, optional, if he want a soothing pension at the end of the active part of life. In conditions of economic crisis, financial analyst role in a company grow substantially. According to Robert Kiyosaki, operators should exercise caution in the market of bank loans and debt and is appropriate to divide into two categories: good and bad. In essence, good debt liabilities are those which lead to increase in real assets and reduced real liabilities and bad debts are those which reduce the actual asset and increases actual liability.

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Mousetrap

Fast track

Financial Statement of the debtor - SME

Creditor’s financial statement - BANK

Income

Income

Costs

Costs Balance

Balance Active

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Passive

Loan

Active

Passive

Credit line Income Costs

Active

Income Costs

Passive

Loan Loanline Credit

Credit line

Real balance

Active

Passive

Real balance

Figure no. 2. – From „Mousetrap” to „Fast Track” Table no. 1 – Fundamental corelations in economic cycle in financial crisis SME

Bank

Income < Costs Income > Costs Debts < Receipts Loans Actual liability

2. JIM COLLINS - BUSINESS EXCELLENCE. EVALUATION METHODOLOGY FOR HUMAN RESOURCES Jim Collins is probably the most read writer in the world economy. The book "Business Excellence" was the result of efforts to analyze more than 1,400 companies included in Fortune 500 companies, from which ultimately only 11 met the criteria of excellence in business. And the results of these research efforts have rapidly developed. In less than three years of its appearance, the English edition of this book is already sold 1.5 million copies. And from then until now has been translated into over 30 languages, quickly became a bestseller worldwide. 2.1. EVALUATION OF MANAGEMENT SKILLS. TOPPROFIL PRESENTATION The model proposed by Jim Collins (Collins, Jim (2007)) on promoting excellence in business is one of the strongest currently available on the market. TopProfil (TopProfil (2009)) instrument built in Romania is the only evidence, starting from the premises to promote business excellence by Collins. From this point of view, using the sample may be useful in identifying people and team performance, especially in identifying a number of strengths and areas for further development to increase performance at work. The data collected indicate the usefulness of proof segment of coaching and training, enabling people and teams alike to become more competitive, by implementing the suggestions offered by HR consultants, after the review of TopProfil [2]. 196

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Test validation studies show a positive correlation between the results of the test and job performance of individuals tested, while internal consistency coefficients are found between 70 and 90, favorably securities rated appreciated by the scientific community. Top Profile is a comprehensive assessment tools based on managerial behavior "Business principles of excellence" identified by Jim Collins. Operational core model Operational core: the heart of the organization, responsible for business performance motor. Core operational areas:  People - people who are responsible and accountable to employees and their job duties creation and action capacity of the core operations;  Processes - the processes governing the organization and structure work - thinking of all the shares in the form of strategies, tactics and procedures;  Technology - how the act occurs or when the organization performs the process. In Romania there is a concept "business tuning” promoted by 4 Business Tuning Company, which essentially consists in applying the principles of Jim Collins for a business in Romania. We present, in short, this concept, in the figure below.

Figure no. 3. Business Tuning 2.2. JIM COLLINS PRINCIPLES a. Principle I: The leader of level V "Every employee of an excellent company is the leader of the V - one who manages to build a lasting excellence in his performance and those who follow him through a paradoxical blend of personal humility and professional will." [3]

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b. Principle II: First "who" and then "what" "In a company, choosing the right people is the key to the team. Most important is to identify the size of "being" - "who am I (are we)?" - at the individual and then to the team. Strategies and targets members / team, that "what we do" pragmatic will follow by itself as long as the identity of members and of the team has been identified." Managers who live mainly - Who first and then "what" - are artisans of a system built on people's character traits and not based on their experience. They listen to their subordinates and motivate them for maximum contribution, using rewards to retain and not to lead to work. Not binding and does not tolerate employees unsuitable, give the best conditions for developing the right employees with the building and shared mission, vision and values of the organization. Managers who are in opposition to accept the compromise, tolerating inappropriate employment candidates and employees comply with rules which they impose. c. Powers characteristic behavior that reflects the principle of