Evaluation of inclusive growth and development policies in Central and Eastern European countries

Tsapko-Piddubna Olga Ivan Franko National University of Lviv

The primary intension behind this study is to assess and compare policies that deliver inclusive outcomes to economic growth and development across economies of Central and Eastern Europe (CEE). The EU and Norway (the most inclusive country in 2018) were added into the study as a benchmark countries. As a result of the comparative analysis based on the World Economic Forum Inclusive Growth Policy and Institution Framework, we argue in favor of policies that would increase broad-based human economic opportunities and consequently both equality, and economic well-being of CEE economies.

Positive strong influence on inclusive growth and development is associated with the employment and labor compensation policy that allows people directly increase their incomes; the basic services and infrastructure policy which is a necessary ground for present and future human and economic development; the asset building and entrepreneurship policy should provide diminishing inequality and rising economic opportunities by fostering medium and small business creation and enlarging possibilities of home and other asset ownership. In addition, an effective and inclusive redistribution state system of CEE economies should accentuate on supporting broad-based economic opportunities (like productive employment possibilities, asset building and entrepreneurship possibilities), along with infrastructure and human basic services development, rather than solely on social fiscal transfers.

Key words: inclusive growth and development, income and wealth inequality, economic opportunity.

Анотація

Оцінювання політики інклюзивного зротання та розвитку в країнах Центральної та Східної Європи

У науковій літературі та у творенні політики розвитку інклюзивне економічне зростання вважають основою стійкого соціально-економічного розвитку країни, адже у зазначеній концепції економічного зростання увагу зміщено з темпів зростання ВВП на користь рівномірного розподілу багатства між населенням, зростання його економічних можливостей. Зважаючи на наукову актуальність теми та практичну необхідність переходу країн до стійкого соціально-економічного розвитку, у статті здійснено порівняльний аналіз політик, реалізація яких дозволить підвищувати інклюзивність економічного зростання у країнах Центральної та Східної Європи (ЦСЄ). З метою порівняння, наслідування та дорівняння, до аналізу додано Норвегію (найбільш інклюзивну економіку у 2018 р.) та ЄС. Серед досліджуваних країн ЦСЄ, Чехії та Словаччині найкраще вдалось змістити акценти з досягнення високих та стійких темпів економічного зростання на широко-роз- повсюджене підвищення добробуту населення та розширення його економічних можливостей. Загалом, варто відзначити, що економічний розвиток країн ЦСЄ - членів ЄС є більш інклюзивним. На противагу, для Російської Федерації, Молдови та України спостерігаємо негативні тенденції в цьому аспекті. На основі проведеного аналізу, виділено політики, які стимулюють інклюзивність соціально-економічного розвитку. Зокрема, це політики, реалізація яких забезпечує розвиток рівних економічних можливостей. Серед них: політика зайнятості (зростання продуктивної зайнятості, підвищення кваліфікації та перекваліфікації працівників, забезпечення врахування інтересів працівників як у оцінюванні їхньої оплати праці, так і у діяльності компаній), політика розвитку інфраструктури та базових послуг (умова для гідного розвитку теперішнього та майбутніх поколінь, їхніх можливостей), політика сприяння генерування активів та розвитку підприємництва та ін. Варто окремо виокремити важливість політики з питань освіти та розвитку здібностей для забезпечення інклюзивної віддачі від зростання економіки. Згадана політика є основою для соціальної мобільності та конкурентоздатності економіки, за умови існування/стимулювання продуктивного виробництва та законодавчо врегульованого захисту інтересів працівників. В іншому випадку добре освічене та висококваліфіковане населення емігрує. Найменш розвинутою в Норвегії є політика фіскальних трансфертів. Припускаємо, що для досягнення та підтримання інклюзивного зростання перерозподілу доходів не є достатньо. Проте, ця політика є не менш важливою, оскільки покликана створити соціальну систему захисту та водночас не стримувати економічне зростання.

Ключові слова: інклюзивне зростання та розвиток, нерівність доходів та багатства, економічні можливості, продуктивна зайнятість.

Аннотация

В научной литературе инклюзивный экономический рост считают основой устойчивого социально-экономического развития страны, ведь в указанной концепции экономического роста внимание смещено с темпов роста ВВП в пользу равномерного распределения богатства между населением, а также в пользу роста его экономических возможностей. Учитывая научную актуальность темы и практическую необходимость перехода стран к устойчивому социально-экономическому развитию, в статье проведен сравнительный анализ политик, реализация которых позволит повышать инклюзивность экономического роста в странах Центральной и Восточной Европы (ЦВЕ). С целью сравнения, подражания и уравнения, к анализу добавлено Норвегию (наиболее инклюзивную экономику в 2018) и ЕС. Среди исследуемых стран ЦВЕ, Чехии и Словакии лучше всех удалось сместить акценты с достижения высоких и устойчивых темпов экономического роста на широко-распространенное повышение благосостояния населения и расширение его экономических возможностей. Стоит отметить, что экономическое развитие стран ЦВЕ - членов ЕС является более инклюзивным. Напротив, для Российской Федерации, Молдовы и Украины наблюдаем негативные тенденции в этом аспекте. На основе проведенного анализа, выделены политики, стимулирующие инклюзивность социально-экономического развития. В частности, это политики, реализация которых обеспечивает развитие равных экономических возможностей. Среди них: политика занятости (рост продуктивной занятости, повышения квалификации и переквалификации работников, обеспечения учета интересов работников как в оценке их оплаты труда, так и в деятельности компаний), политика развития инфраструктуры и базовых услуг (условие для достойного развития нынешнего и будущих поколений, их возможностей), политика содействия генерирования активов и развития предпринимательства и др. Стоит отдельно выделить важность политики по вопросам образования и развития способностей для обеспечения инклюзивной отдачи от роста экономики. Упомянутая политика является основой для социальной мобильности и конкурентоспособности экономики, при условии существования/ стимулирования продуктивного производства и законодательно урегулированной защиты интересов работников. В противном случае хорошо образованное и высококвалифицированное население эмигрирует. Наименее развитая в Норвегии - политика фискальных трансфертов. Предполагаем, что для достижения и поддержания инклюзивного роста перераспределения доходов не достаточно. Однако, эта политика является не менее важной, поскольку призвана создать социальную систему защиты и одновременно не сдерживать экономический рост.

Ключевые слова: инклюзивный рост и развитие, неравенство доходов и богатства, экономические возможности, продуктивная занятость.

Thus, it would be advisable for CEE economies to follow it. Besides, the EU average scores were added into research for comparison and as a benchmark for lowering the gap in the aspect of inclusiveness. The in-depth analysis and comparison of Norway, the EU and analyzed CEE countries based on the WEF Inclusive Growth Policy and Institution Framework allows highlighting policies that would increase equality, economic wellbeing, and countries' competitiveness in the long run.

In Norway, the best performing is employment and labor compensation policy (see Tab. 3). This policy is a ground for fostering of widespread economic opportunity in the form of robust job creation, broad labor force participation and decent working conditions. It should provide an increase in productive employment and subsequently a direct increase in employees' incomes and in their self-awareness as of active and productive members of the society. Fair wages and well defended employees' interests (like in stakeholder capitalist model) are a key point to lowering income inequality.

For all CEE economies, this policy performance is below 5 (except Russia) and it is lower than EU average performance (except Estonia and Lithuania). A further development of this policy is advisable to promote inclusive growth and development.

The next well-developed inclusive growth policy in Norway is education and skills development policy. It is considered to foster widespread economic opportunity as it focuses on high quality, accessible and inclusive in terms of attainment and learning outcomes education. Its effective performance implies an increase in the skilled labor supply, a decrease in the relative skilled/unskilled wage and an overall decrease in income inequality. T. Piketty (2014) argues that the poor countries catch up with the rich when they achieve the same level of technological knowledge, qualification, and education. He suggests that education and skills development policy are very important for present and future decrease in income and wealth inequality.

Ukraine is a leader in this policy implementation The Ukrainian score of education and skills development pillar is the highest among CEE countries (5,86), it is even higher than of the EU average score - 5,32 (see Tab. 3). Ukrainian education system can be described as supportive of inclusive growth, with high enrollment rates and equitable outcomes for students across socioeconomic levels. But whether it has positive influence on inclusiveness (as it is the least inclusive CEE economy) is in doubt. Perhaps people in Ukraine are well educated and intelligent but the level of education has little to do with their professional skills; or no matter how educated or skilled they are, they still fulfill the existing vacancies on labor market which are not highly productive or otherwise emigrate. Those countries, including Ukraine, that pay attention only to the supply of educated work force without creating productive workplaces, eventually prepare its people to emigration. Thus, well developed education and skill policy has no or little impact on inclusiveness of growth and development unless prudent complementary state policies are implemented. In particular policies on stimulating productive production and providing productive employment and fair labor compensation.

The other well-developed inclusive growth policy in Norway is basic services and infrastructure. An implementation of this policy is a necessary ground for present and future human and economic development. Such outcomes of its effective implementation as healthy nation and an adequate developed physical and digital infrastructure altogether attract investments into economies and increase economic activity there. Citizens of CEE countries are quite well provided with adequate physical, digital infrastructure, and high quality, affordable health service. The average CEE countries score for basic services and infrastructure is 5,10 and the EU average is 5,31.

Table 3. Inclusive Growth Policy and Institution performance of Norway, CEE and the EU economies

Policies of financial intimidation of real economy investment, and corruption & rents are the next well-developed policies in Norway. As these policies matter for economies' inclusive growth and development the effectiveness of their implementation should be also fostered in CEE economies. At present the outcomes of these policies in CEE economies are slow and to some extent ineffective reforms (depending on the country) in fighting bribery and corruption; lowering barriers to entry and fostering fair competition in product and capital markets; enhancing private savings for employment generating productive purposes.

In Norway, the asset building and entrepreneurship policy is also at priority as it favors more socio-inclusive growth by fostering medium and small business creation, enlarging possibilities of home and other asset ownership. As a result, an effective asset building and entrepreneurship policy should decrease income and wealth inequality and subsequently widen economic opportunities. As it concerns CEE economies, their average score for this policy is 4 (comparing with EU average - 4,58, Norway - 5,19) which implies that still much has to be done.

The least developed policy in Norway is fiscal transfers. Perhaps redistribution of national income is not that important as above policies which directly favor human broad-based economic opportunities like employment & labor compensation; education & skills development; basic services & infrastructure; and asset building & entrepreneurship policies.

Among CEE economies the most effective fiscal system in the sense of inclusiveness is in Hungary. For all the rest CEE countries there is much to be done for further improvements. The CEE countries' average score of fiscal transfers' policy pillar (3,67) is lower than of the EU one (4,62). CEE countries' governments should better use taxes and transfers to moderate differences in income and wealth. And at the same time well-designed, prudent fiscal transfers policy should not hamper economic growth. Its primary goal should be creation of such a public social protection system that is engaged in decreasing poverty, vulnerability, and marginalization. It is suggested to use better well-known fiscal instruments, for example, by making tax system more progressive, scaling back tax deductions, eliminating tax exemptions and by ensuring greater tax compliance.

Conclusions. The CEE countries' further development should go in line with inclusive growth and development theory in order to generate inclusive socio-economic progress and broad-based improvements in living standards. Prudent policymaking that simultaneously support economic growth and inequality reduction, as long as promotion of equal economic opportunities will enable broad-based prosperity.

EU membership obviously supports such the inclusive growth policymaking as EU members - CEE economies perform better in IDI scores than non-EU countries. The Czech and Slovak Republic are the best performing economies among CEE countries in inclusive growth and development patterns. On the contrary Ukraine, Moldova, and Russian Federation - the worst. These countries economic growth has not transformed well into social inclusion.

As for the inclusive growth and development policies assessment, there are no great disparities across CEE countries. These countries follow similar patterns of policy development and implementation. There are greater disparities across policies in each country.

The best performing policies that deliver inclusive outcomes from economic growth by providing broad-based equal economic opportunities to all sections of societies are: the employment and labor compensation policy that allows people directly increase their incomes and feel themselves as active and productive members of the society; the basic services and infrastructure policy that is a necessary ground for present and future human and economic development; the asset building and entrepreneurship policy that provides diminishing inequality and rising economic opportunities by fostering medium and small business creation and enlarging possibilities of home and other asset ownership; and education and skills development policy that is necessary for social mobility and for transition countries catching up processes. Although, Ukraine has the highest score in the later policy performance, its influence on inclusiveness is scarce. Perhaps, well-developed education and skill policy has no or little impact on inclusiveness of growth and development unless prudent state policy on stimulating productive production is implemented and an effective employment and labor compensation policy is pursued. Otherwise, well-educated, and qualified labor force is forced to emigrate.

The least performing policies in CEE countries are corruption and rents; financial intermediation of real economy investments; and fiscal transfers policies. As for the later policy, redistribution of national income is not determinant to inclusive growth and development, but nevertheless it should create a public social protection system that is engaged in decreasing poverty, vulnerability, and marginalization without hampering economic growth. It is advisable for CEE countries to make tax system more progressive, scale back tax deductions, eliminate tax exemptions and ensure greater tax compliance. An effective and inclusive redistribution state system of CEE economies should accentuate on supporting economic opportunities rather than on social fiscal transfers.

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