Lessons from the recent history of Central Europe and the Baltics
Economic growth has returned to Central Europe and the Baltics. With the exception of Slovenia, all countries are expected to see positive growth in 2014 - ranging from a tepid 0.8% in Croatia, to more respectable growth rates of 2.2% in Romania and 2.8% in Poland, to highs of 3-4.5% percent in the Baltic Republics. Europe, more broadly, is also turning the corner and is expected to grow at around 1.5%.
Amidst this much welcome growth, however, one question remains: will economic growth be good for the bottom 40 percent and can they expect to see their incomes grow?
Labor and Social Protection
Lessons from the recent history of Central Europe and the Baltics
Governments (and donors alike) don’t like dealing with informality. It’s messy, dirty, essentially unmeasurable, and its character varies dramatically. From one industry to the next. From one city to the next. It’s also beset with fiendishly difficult problems – informal firms are often household enterprises (employing mainly family labour, and not hired labour). Thus, they have to make impossible trade-offs between production and consumption.
And yet – the size and the importance of the informal sector in most countries shows no signs of abating. On average the informal share of employment ranges from 24 per cent in transition economies, to 50 per cent in Latin America and over 70 per cent in sub-Saharan Africa. In India, employment within the informal sector is growing, while that in the formal sector remains stagnant. Yet - very little is known about the relationship, whether symbiotic or competitive, between the two sectors.
In a new paper, I notice that in India formal firms tend to cluster with informal firms – especially in industries like apparel, furniture and meal-making. The firms coagglomerate not only so that they can buy from and sell to one another – but importantly, also because formal firms tend to share equipment with and transfer technical knowledge to their informal counterparts. Such technical and production spillovers are found in clusters of domestic-foreign, exporter-non-exporter and high-tech-low-tech firms. It is no surprise then that formal and informal activity could be complementary. Informal can also be an outlet for entrepreneurial activity, especially in places with high levels of corruption, or where formal firms are often mired in complex regulations.
Between five and five-thirty in the morning is the only time she gets to herself, which she uses to work out, or read a book. After that, the grind of everyday life in Poland’s countryside takes over. She cooks, washes, cleans, irons, and cooks for her seven children, aged two to fifteen. And it doesn’t stop until late at night.
Elzbieta’s family and other families with multiple children are rather unique in Poland, which has one of the lowest fertility rates in the world. When asked why they didn’t have children in a recent country-wide survey, 71 percent of Poles said unstable employment and difficulties in balancing work and family life were big factors.
Their fears are not without reason -- with each child, the risk of poverty increases tremendously -- families with three or more children are more likely to be in the lowest income group, with 26.6 percent of households with four children living in poverty in Poland, according to the Main Statistical Office.
Even buying clothes for children is a daunting task, in such cases. “We have started participating in lotteries organized by local clothes stores, with no luck so far,” Elzbieta said. “We do it because taxes for children’s clothes and shoes were recently raised, and families like ours are most affected. Families with children are just not given a chance.”
Elzbieta talked to me as she picked flowers in a nearby field, while watching her five-year old daughter. The flowers she collected would later be dried on a bench outside her rural home and used for making herbal teas for the family. Even buying tea is a financial challenge for Elzbieta’s family, whose income, a total of PLN 3,280 (about $1,100) comes from social assistance for children, including a disabled child (PLN 2,000) and her husband’s income – after the payment of a home renovation loan – of PLN1, 280.
But hospitality is not to be spared.
There is nothing worse than having to wonder if you will be able to afford tomorrow's meal. Or the day after's.
But for millions of poor in the Kyrgyz Republic, it is routine - and their every day reality. The World Bank interviewed several families in the country recently to showcase the real face of poverty in the region, where the poor spend significantly more to stay warm and buy enough food to survive than in other parts of the world because of the region's extremely long and cold winters.
The World Bank recently interviewed several families in Armenia to depict the hardships people face when they cannot earn more than $5 a day per person. The country faces long, harsh winters and paying to stay warm and eat enough to survive the cold can quickly eat into the poor's meager incomes.
The Face of Poverty package aims to show how tough life can be for these families and their belief that education is the singular way out of poverty for their children.
Watch the full documentary here.
As the world’s self-appointed steering committee gathers in Davos, 2014 is already shaping up as a big year for inequality. The World Economic Forum’s ‘Outlook on the Global Agenda 2014’ ranks widening income disparities as the second greatest worldwide risk in the coming 12 to 18 months (Middle East and North Africa came top, since you ask).
So it’s great to see ‘Working for the Few’, a really excellent new Oxfam paper by Ricardo Fuentes and Nick Galasso, tackling an issue best summed up by US Supreme Court Justice Louis Brandeis in the aftermath of the Great Depression, ‘We may have democracy, or we may have wealth concentrated in the hands of the few, but we cannot have both.’ i.e. the politics of inequality and redistribution.
The Brandeis quote is particularly relevant because this time really is different. After the 2008 global meltdown, we have not seen anything like the New Deal, in terms of redistribution or reform. The paper argues that this is because political capture by a small economic elite is much more complete this time around.
I got together with my friend Asma'a one evening at a popular Cairo café overlooking the Nile. Like many of the young Egyptians I had met that summer, Asma'a was smart, motivated — and unemployed. Since graduating with a law degree, she had applied for countless jobs to no avail, and had all but given up on finding a job in her field of study. She was particularly upset that evening because her parents had forbidden her from accepting a waitressing job, deeming the work to be morally inappropriate. Feeling ever more desperate, Asma'a said she would be willing to take any job just to be able to work.
Asma'a is one of 865 million women worldwide who have the potential to contribute more fully to the global economy. These women represent a powerful resource for driving economic growth and development. Yet the underuse of women's talents and skills is holding many countries back. An International Monetary Fund study estimates that if women like Asma'a were to participate in the labor force at the same rate as men, they could raise GDP in Egypt by 34 percent. Employed women also invest more of their income in their children's health and education, helping families to escape the cycle of poverty.
(In observance of the International Migrants Day on December 18)
In response to looming labor shortages in the so-called “3-D” industries (difficult, dangerous, dirty), Korea has allowed the entry of low-skilled foreign workers since 1990’s. Its Industrial Trainee Scheme introduced in 1993 was inadequate to address labor demand (an increasing employment of irregular foreign workers), unequipped to warrant trainees’ labor rights and social protection, and associated with high recruitment cost borne by trainees. The latter appears to be liked with trainees’ overstay - to recoup their initial sunk cost.
Mtoto mzuri sana. Stella’s face lights up as I admire her baby, but she doesn’t reply. We are in the primary school compound in Chehembe, a village about 50 kilometers from Tanzania’s administrative capital, Dodoma. Stella is waiting to be registered in the country’s social safety net program, which is meant to cushion very poor households against sudden losses of income. And we are waiting to hear Stella’s story, to ask her how many children she has, and how she earns a living.