Some Skills should Come Before Jobs, Others Develop with the Job
To be clear from the onset: I will not oversimplify the unemployment (or inactivity) problem in the Western Balkan countries as solely due to a lack of skills in the population. Low employment rates result from both insufficient creation of jobs by enterprises and too-high a fraction of the workforce that is ill-equipped to take on the jobs that a modern economy creates. Both issues are intertwined. Solutions, therefore, require efforts on several fronts to enable a more vibrant private sector –including improvements in the business environment, enterprise restructuring, integration in global markets and promoting entrepreneurship— as well as to prepare workers for new job opportunities.
The Western Balkans Case
When I travel to the Balkans for work, the journey typically begins with a cab ride to the airport from my home in Vienna. The taxi company I use is run and operated by Serbs living in Austria. It’s a great company: very reliable, clean cars and friendly drivers who are always keen to discuss the politics and economics of the Balkans. When I arrive in Belgrade, I’m picked up by drivers who have very similar skills to those of their compatriots in Vienna. However, the former have better salaries and opportunities simply because the company they work for operates in an environment that is much more conducive to nurturing and growing a business. In Austria, unlike in Serbia, a company can operate efficiently, is subject to a relatively fair tax treatment and knows the industry standards it needs to comply with. In turn, this explains to a large extent why workers, at any given levels of skills, are more productive in Austria – a basic intuition which William Lewis develops in his book The Power of Productivity, projecting the gains that Mexican construction workers make when moving to the USA.
The Western Balkans Case
The Western Balkans have a lot going for them: ideal location next to the world’s largest economic bloc, a well-educated workforce, relatively low wages and decent infrastructure. FDI and investors should be rushing in … but are they?
Southeast Europe is the next frontier of EU expansion and includes six countries: Albania, Bosnia & Herzegovina, Kosovo, Macedonia, Montenegro and Serbia. These countries have a lot in common and an equal amount of differences. They are all relatively small open economies, with a growth strategy premised on deeper international integration. Some, especially Macedonia, are more advanced in attracting international investors but as a whole, the region seems to be stuck in a classical Middle Income Trap: they are too rich to compete on low-cost manufacturing but are too poor to be global innovators. After a strong recovery following war and conflicts in the 1990s, the growth momentum has stalled over the last five years and the region has been particularly vulnerable to external shocks.
One of my first assignments in the World Bank, some 13 years ago, was in a small and complicated country, better known for coups and mercenaries than for statistical capacity. Before I set off to the Comoro Islands, my then manager (now an established World Bank Vice-president) gave me the following priceless advice: “When you get there, make sure to get a lot of data. It may be difficult to get and sometimes even flawed, but data has one great advantage: It cuts through a lot of crap.”
Numbers are indeed beautiful. They can help bring clarity to our lives and save us time as well as resources. But raw data can be messy and you also need a good system for deciding which numbers to use and how to interpret them. Last week’s launch of the 2014 Doing Business rankings reminded me of the advice my then boss had given me. Doing Business started from the premise that companies are the backbone of any economy but that investors often lacked knowledge of the conditions in “frontier economies”. With the benefit of an annual assessment of the business environment in each country, investors could make more informed decisions. As for policy makers, they could more easily attract investors, provided they made a genuine effort in cutting red tape and supporting businesses.