ECONOMICS OF TRANSITION

Pravna fakulteta Univerze v Ljubljani

Erasmus 2013Jože Mencinger, Franjo Štiblar

CONTENTS

Part 1 (Mencinger) ECONOMIC CONCEPTS AND THEORY

- ECONOMIC CONCEPTS AND SOME CONTEMPORARY ISSUES

- GDP STRUCTURES AND MEASURES OF ECONOMIC ACTIVITY

- AGGREGATE EXPENDITURE AND GDP DETERMINATION

- AGGREGATE SUPPLY, ECONOMIC GROWTH, INFLATION, AND UNEMPLOYMENT

- BASICS OF MONETARY ECONOMICS

- ECONOMIC POLICIES

- TRANSITION IN THEORY

Part 2 (Štiblar) TRANSITION IN SEE

EXAM: written exam: 4 questions

If somebody wants. a paper can be added . A short description of the major characteristics of one of the main transition features (privatization. macroeconomic stabilization. institutional changes) in a country of SEE - up to 10 pages It should include basic tools and outcomes

LITERATURE

- Bohle, D. , Greskovits, B. Neoliberalism, embedded neoliberalism, and neocorporativism West European Politics, 2007; (provided on home pages)

- Štiblar. F: The Impact of the Global Crisis on Montenegro and the Western Balkans. Central Bank of Montenegro. 2009; (provided )

- Mencinger. J: Privatization in Slovenia , Slovenian LawReview. 2006. vol 3. no 1/2. pp 65-81; (provided on home pages)

- Mencinger. J :Transition to a national and a market economy : a gradualist approach in Mrak. M Rojec. M Silva-Jáuregui. C Slovenia : from Yugoslavia to the European Union Washington: The World Bank. 2004. 67-82 (provided on home pages)

- Lectures: PP presentations (provided on home page)

SLOVENIA

• Surface: 20.273 sqkm, 66% forests, Population: 2,02 millions, • Language: Slovenian; (Italian, Hungarian minorities)• Political Arrangement: parliamentary democracy, coalition governments;

“left” or “right”• History: until 1918 part of Austro-Hungarian empire;• 1919-1941 part of Kingdom of Yugoslavia; • 1941-1945 occupied by Germany, Italy and Hungary;• 1945-1991 Yugoslav republic;• 1990 - political transition: • 1991 independence, May 2004: EU member state, January 1, 2007 EMU

member;• Economy: GDP 34 billions €, GDP/capita 17.000 €, 88% of EU27 average, • - GDP growth: 4%(2008) -7.6%(2009), 1.5%(2011), -1.0 (2012)• - unemployment rate: 4.4%, 60000 (2008), 6.9% 116000 8.3% (March

2011); • - inflation 5.7 %(2008) 1%(2009), 2.3%(Feb.2012)• - public balance/GDP: 0.4%(2008), -5,5%(2011) • - CA/GDP: -4.5%(2008) -0.6%(2011)

ECONOMIC DEVELOPMENT OF SLOVENIA

-12

-8

-4

0

4

8

80

100

120

140

160

180

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

%

transition gradualism gambling crisis

GDP index

rate of change

GAMBLING AND THE END OF THE SLOVENIAN “SUCCESS STORY”

8,000

12,000

16,000

20,000

24,000

28,000

32,000

2002 2003 2004 2005 2006 2007 2008 2009 2010

credits

deposits

mil. €

"gambling period"

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2002 2003 2004 2005 2006 2007 2008 2009 2010

credit/deposit ratio

"gambling period"

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2002 2003 2004 2005 2006 2007 2008 2009 2010

SBI index

"gambling" period

-4,000

-2,000

0

2,000

4,000

6,000

8,000

10,000

12,000

2002 2003 2004 2005 2006 2007 2008 2009 2010

mil.€

?????

"GAMBLING" PERIOD

CREDITS AND DEPOSITS CREDIT/DEPOSIT RATIO

VIRTUAL WEALTH CREATION NET FOREIGN DEBT

PERFORMANCE INDICATORS

- ECONOMIC WELFARE AND ECONOMIC GROWTH

- CAPACITY UTILIZATION AND UNEMPLOYMENT

- STABILITY AND INFLATION

- EQUILIBRIUM: EXTERNAL AND INTERNAL

- INCOME AND WEALTH DISTRIBUTION

- OTHER CRITERIA

- VALUE JUDGEMENTS

FINAFINANCIAL CAPITALISMNCIAL CAPITALISM

Financial products

Savers

Financial investors

investiments

acquisitions

speculations

privatizations

Wage share in the USA, Japan and the EU-15, 1975-2005

65

67

69

71

73

75

77

79

81

wag

e sh

are

in %

of G

DP*

EU-15 USA JapanQuellen: European Economy, 6/2002 und 6/2004, Statistical Annex, jedw eils Table 32

* bereinigt um Veränderungen der Beschäftigtenanteile

THE ROOTS OF THE CRISIS 1 (JHuffschmid)

Shares of profit and investment in the EU-15, 1975-2005

18

20

22

24

26

28

30

32

34

in %

of G

DP

share of investment

share of profits

Linear (share ofprofits)Linear (share ofinvestment)

THE ROOTS OF THE CRISIS 2 (J Huffschmid)

THE ROOTS OF THE CRISIS 3 -AGGREGATE DEMAND

FINANCE DRIVEN CAPITALISM (JHuffschmid)

Development of nominal GDP and financial stocks worldwide, 1980-2010

0

50

100

150

200

250

Nominal GDP 10,1 29,4 31,7 44,5 63,3

Wor ld Financial Stocks 12 64 93 140 214

1980 1995 2000 2005 2010*

Sour ce: McK insey Quar ter ly, J anuar y 2007, Mapping the global capi tal mar kets, p.8

CRISIS AND EU COMMISSION

Documents on the failure of strategies by EU Commission: - evaluation of Lisbon strategies: structural reforms increasing robustness of EU;

- evaluation of the crisis: drop of industrial production. unemployment: 23 millions or 10% of active

population; budget deficit 7%; public debt 80% GDP. 20 lost years in fiscal consolidation;

- causes: low investments in R&D. structural problems. population ageing. business climate;

Reality: - failed ilussions: of creation of knowledge based society and of ability to compete in a globalized

world with ruthless societies. economic cannibalism.

- destruction of European industry: growth of financial sector 6 times faster than growth of the

“real” economy;

- economy dominated by finance – finance dominated by speculations; profit making without value

and job creation;

-ideology: dogmatic liberalism. accent on the supply side. neglect of the demand side;

THE CAUSES OF PROBLEMS IN NMS AND FMS

External vulnerability of NMS and FMS has been enhanced(1) by small size of the countries. (2) transition based on Washington consensus. (3) FDI addiction. and (4) too rapid convergence of standard of living enabled by foreign savings;

The global credit reduction is hitting NMS and FMS with large external financing needs particularly hard;

Continued exposure of parent banks is critical for NMS and FMS development to weather the storm;

The recession in EU hitS NMS and FMS most through increased competition and resulting decrease of export demand