DEVELOPMENT PROBLEMS IN CEE REGIONS SUCCESSFUL INDUSTRIAL RESTRUCTURING?

Transcription

1 DEVELOPMENT PROBLEMS IN CEE REGIONS SUCCESSFUL INDUSTRIAL RESTRUCTURING? Maciej Smętkowski, Jiři Blazek, Daniela Constantin, James Scott, Boglárka Szallai GRINCOH WP 6 Task 3 Subtask 1 The research leading to these results has received funding from the European Union's Seventh Framework Programme (FP7/ ) under grant agreement Growth-Innovation- Competitiveness: Fostering Cohesion in Central and Eastern Europe (GRNCOH) 1

2 Development problems in the Central and Eastern European countries successful industrial restructuring Introduction Undertaking economic restructuring was one of the key elements of the systemic transition in the post-socialist states, necessitated by the intended shift to free-market economy, with competition as an inherent principle and demand for the goods or services determining success or failure in business activity. For this reason, it was necessary to make management more based on rational premises, in particular to limit the scale of resource-intensity of the economy. Restructuring was a daunting task as it was taking place at the time when the former Comecon (Council for Mutual Economic Assistance) markets were being dismantled, accompanied by a simultaneous opening up of the national economies to competition from goods and services from highly-developed countries. In particular, restructuring comprised large state-owned enterprises, the dominant form of economic activity in the socialist states. As a rule, this meant their ownership transformation, usually in the form of privatisation. The privatisation models in the CEE countries varied from country to country in terms of both scale and pace, ranging from the Hungarian model (much and fast) to the Romanian model (little and slow). In addition to that, many countries, having to cope with macroeconomic problems, would forgo active industrial policies, although various forms of public aid addressed to unprofitable enterprises were quite popular until the EU accession, when such activity began to be regulated by the EU competition policy. This means that public aid is now conditional and restricted in time, with a view to stimulating favourable restructuring processes. 1. National restructuring As a consequence of these restructuring processes, the economies of the CEECs underwent a process of rapid deindustrialisation in an effort to adapt themselves to the post-fordist development paradigm. In particular, this was accompanied by a heavy employment downsizing in specific sectors, while maintaining a relatively stable share of industry in GVA, as this in turn was translated into considerably increased labour productivity. In the period post 1995 (most countries lack comparable data for the initial transformation period), most of these countries recorded a decrease in industrial employment (Fig. 1a). The trajectory of changes varied from country to country, although the role of this sector in the labour market was decreasing at a relatively stable pace in most of the CEECs. The smallest such decrease was recorded in Slovenia, which had the greatest share of employment in industry of all the CEECs until as late as the mid-1990s, and also in Slovakia, Bulgaria, Lithuania, Latvia, and Hungary (albeit in this case the period is shorter, owing to the availability of data). In consequence, the Czech Republic became the leader of the group, recording periodical increases in industrial employment (post 2003, this share remained rather stable at a level of 29%). In Romania, no significant fall in the employment in this sector could be seen until post 2006, and in Estonia until post The situation of Poland was exceptional to some extent, as it had a small but stable increase of employment in this sector in the period post The development trajectories regarding the share of industry in gross value added (GVA) were more varied (Fig. 1b). In four countries, the role of industry was seriously diminished, especially in Latvia and Romania, but Slovenia and Estonia also took the brunt of deindustrialisation. The situation was relatively stable in the Czech Republic and Bulgaria, similarly to Lithuania and Hungary, although the former two countries saw a noticeable fall in the recent years, whereas a decline in Hungary could be 2

3 observed until 2002 similarly to Slovakia and Poland, where however the share of industry in GVA rose quite rapidly post Labour productivity in industry relative to the national average varied from country to country. In the case of Latvia and Estonia, it was markedly lower, with a sharp decline observable in the years in Latvia. The highest productivity values compared to the national average were found in Romania and Lithuania, but with a rather stable situation in the former, and considerable fluctuations in the latter case. Slovakia joined this group following a sharp increase in labour productivity in industry post In this period, also other CEE countries witnessed a faster increase in productivity in this sector, which however slowed down after 2007 due to the economic crisis. Fig. 1. Change in the role of industry in CEEC economies a) change of employment in industry (%) b) change of share of industry in GVA (%) c) productivity in industry (national average = 100) 3

4 2. Regional restructuring Post most regions saw a distinct decline in the role of the industrial sector in the economy, visible mainly in the sphere of employment and also in GVA. As a rule, this fall was the faster the greater the share of industry in the economy of a given region (Fig. 2). Nevertheless, the observable correlations were not high, which means that many regions did not follow this regularity. However, no statistical correlation could be established between the changing role of industry in the economy and the changes in the position of a given region relative to the national average. Still, a typology of regions can be proposed in order to formulate certain generalisations, which are offered below. Fig. 2. Change of role of industry in regional economy (NUTS3) a) Employment b) GVA It should also be noted that there exist wide differences regarding the role of industry in the economy both across the entire CEE macroregion and within individual countries (Fig. 3). In general 1 For the earlier period, both the reliability and comparability of data between countries is much lower, just as their availability. 4

5 terms, the regions situated in the western parts of the respective countries have a higher level of industrialisation. It can be assumed that this is a consequence of a number of phenomena, some of which are strongly embedded in longue durée processes. Amongst others, they include: Better accessibility to major sales markets (as the EU-15 countries, particularly Germany, are the main trade partners of the CEE countries), Better accessibility for foreign investors, especially from the neighbouring countries, Well-established industrial traditions which date back to the pre- and post-war industrialisation processes, Diffusion of innovation, manifested by a more advantageous development of cities, which has also facilitated the growth of more modern processing sectors. Fig. 3. Share of industry in the economic structure of regions (NUTS3) in 2008 Employment in industry % Share of GVA in industry % The increasing role of industry in employment was best visible in Poland, with the exception of subregions situated in the Śląskie, Łódzkie, Zachodniopomorskie and Podkarpackie voivodships (Fig. 4a). Modest growth could also be observed in some of the Czech regions (the surroundings of Prague), whereas Slovenia, a country with a similarly strong industrial capacity, saw a decline in the role of this sector in nearly all of its regions. On the other hand, the role of industry increased in the western regions of Lithuania and Latvia (especially the coastal ones) and Romania, particularly those 5

6 along the border with Hungary and Serbia, but also in some of the regions situated elsewhere in the country, also in the south-western part comprising the coastal and Danube regions. In terms of GVA values (Fig. 4b), the role of industry was higher in the majority of Czech, Slovakian and Hungarian regions (although with some exceptions), and large parts of Bulgaria. Fig. 4. Change of economic structure in Employment in industry change in pp GVA in industry change in pp When comparing the changes in the share of the industrial sector in the economy and labour market to the relative position of a given region in relation to the national average, four model situations can be distinguished: a) improved position of the region and reindustrialisation taking place; b) improved position of the region and deindustrialisation taking place; c) deteriorating position of the region and reindustrialisation taking place; and d) deteriorating position of the region and deindustrialisation taking place (Fig. 5). The former situation could be encountered in the surroundings of six metropolitan centres in Poland (Warsaw, Poznań, Tricity [Gdańsk-Gdynia-Sopot], Wrocław, Łódź, Kraków), and in the Upper Silesian conurbation, a process partly driven by the existence of well-developed raw materials and power generation sectors (such as lignite mining). To some extent, this phenomenon was also visible in Romania in the vicinity of Bucharest, Cluj and Timișoara; in Slovakia near Bratislava, and in Bulgaria 6

7 - in some of the regions adjacent to Sofia. In the Czech Republic, such a situation could be observed in Moravia (including the old Moravian-Silesian industrial district - Moravskoslezský kraj), and in Hungary in one of the regions adjoining Budapest and in the area of Miskolc, also an example of an old industrial district. In turn, industrialisation processes accompanied by a relative worsening of the situation in comparison to the country s average in GVA terms were characteristic of Poland, Czech Republic, Slovakia, Hungary and Bulgaria. On the other hand, an improvement of the situation domestically in the conditions of an ongoing deindustrialisation could be observed only in the regions of large cities that played an important part in the settlement systems of the respective countries, which was well visible especially in relation to GVA. At the other end of the spectrum, there were regions still undergoing a process of industrial restructuring, which could partly explain their weaker pace of growth relative to the national average. Such a situation could be found in Romania and to a lesser degree in Bulgaria, both countries which started to restructure their economies relatively late. Interestingly, Slovenia, where according to some authors restructuring processes have been delayed, provides a similar example. In terms of GVA, this pattern applied to only a few regions in the Visegrád countries, whereas in terms of employment it characterised most regions of Hungary and Slovakia. In the Baltic states, similarly to other dimensions of the analysis, the situation in this regard varied across countries. Fig. 5. Change of role of industry in the economic structure in relation to development dynamics in a) Change of employment in industry compared to GDP dynamics relativised with the national average b) Change of GVA in industry compared to GDP dynamics relativised with the national average 7

8 Based on the above typology, we can identify regions which offer interesting prospects for the qualitative research on successful restructuring projects, that is those where the role of industry has grown, with a simultaneous increase in labour productivity and improved position in terms of per capita GDP in relation to the national average. The contextual analyses of the extreme observations within individual countries have largely corroborated the generalisations formulated above (Tab. 1). Reindustrialisation was a process typically encountered in the direct surroundings of large cities, either direct in the metropolitan area, or indirect in the metropolitan macroregion. In the typical urban regions, it usually occurred only in a specific context, created when the NUTS3 region also incorporated the surroundings of a given city (such as Tallinn, Brno or Timișoara). Another type of regions included those with the mining or processing of raw materials (such as Płock and Legnica in Poland and Telšiai in Lithuania). In this group, there were also many old industrial districts, some of which were coping relatively well compared to the rest of the country, e.g. the regions of Ostrava or Miskolc. Tab. 1. Special cases in the analysed countries industrialisation accompanied by economic growth ( )* Country Region Change of GDP per capita (national average) pp Share of industry 2002 employm ent 8 GVA Change of share of industry (pp) employm GVA ent Type of region Estonia Põhja-Eesti Capital city region Czech Jihomoravský Large city Republic kraj Romania Timis Large city Latvia Pieriga Metropolitan area Bulgaria Pernik Metropolitan region Slovakia Trnavský kraj Metropolitan region Hungary Komárom- Esztergom Metropolitan region / Old industrial district Latvia Zemgale Metropolitan region Slovenia Jugovzhodna Metropolitan region Slovenija Czech Moravskoslezs Old industrial district Republic ký kraj Hungary Borsod-Abaúj Old industrial district Zemplén Lithuania Telsiu apskritis) Raw materials Poland Poland Legnicko- Głogowski Ciechanowsko- Płocki Raw materials Raw materials

9 Slovakia Zilinský kraj Transport corridor Bulgaria Pazardzhik Transport corridor Romania Alba Other * regions marked in green were selected as case studies 3. Regional restructuring based on case studies On this basis, three regions from the most extreme group were chosen for qualitative research; these were regions that had considerably improved their position relative to the national average, but also recorded a significant increase in the share of industry in GVA. They included Komárom-Esztergom in Hungary (with Tatabánya as the major city), Moravskoslezský kraj in the Czech Republic (with Ostrava as the major city) and Alba in Romania (with Alba Iulia as the major city). In these regions, additional quantitative research has been conducted, using more statistical, and qualitative research based on in-depth interviews with regional development stakeholders. The analysed regions were predominantly administrative in character and had a population ranging from 311,000 in Komárom- Esztergom, 371,000 in Alba and 1,243,000 in Moravskoslezský kraj. The first was an example of an old industrial district situated in the metropolitan macroregion of Budapest, whose restructuring began in the 1990s. The second was situated in the central part of Romania and bordered on the macroregion s major city, Cluj. The third represented a classical example of an old industrial district whose restructuring began with the onset of the transformation process Development trajectories and restructuring In terms of per capita GDP expressed in EUR, the Romanian region was the least developed, and had twice as low per capita income compared to the Czech and Hungarian regions (Fig. 3). Over the analysed period, their development paths were basically similar. Until 2000, the GDP per capita values in EUR slowly but steadily increased, to accelerate rapidly later, especially in the Komárom- Esztergom region, whereas the pace of this process did not significantly increase in the Moravskoslezský kraj and the Alba region until The highest development levels were recorded in 2007/2008, followed by a fall in the wake of the economic crisis, which was not halted until Fig. 3. GDP per capita relative to the national average,

10 However, the picture is quite different if we compare the growth dynamics of these regions to the national average. Whereas in 1995 the position of these regions was basically similar and reached approximately 90% of the country s average, starting from 1999 this situation would change in a way which varied from region to region. This change was particularly severe in the case of the deteriorated position of the Ostrava region, a decline which was not halted until 2004/2005, to stabilise at a level of 85% of the national average (also during the recent economic crisis). In contrast, the regions of Tatabánya and Alba improved their position, reaching the 1995 level in 2002 and 2003, respectively. This was followed by a period of rapid growth relative to the national average in the years in the case of Komárom-Esztergom, and in the case of Alba, which in both these cases generated income about a dozen percentage points higher than the national average. Nevertheless, these regions had largely diminished their advantage following the recent crisis, but in 2010 they again performed better than the national average in terms of GDP per capita. Fig. 4. Per capita GDP of analysed regions as the average of the national GDP Their improved position in relation to the national average was largely due to increased labour productivity in the industrial sector (Fig. 5), a phenomenon especially well visible in the Moravskoslezský kraj and the Tatabánya region, and less so in the Romanian region of Alba, although throughout the period under analysis labour productivity in industry was much above the national average (Alba being an exception in the years ). Economic growth in the regions of Alba and Komárom-Esztergom took place while maintaining a relatively stable unemployment rate (LFS), which was similar to the natural level (approx. 5%) (Fig. 6). This could mean that economic growth was mainly an effect of increased productivity and shifts between sectors, to more productive branches of the economy. In the case of the Hungarian region, however, unemployment grew sharply following the economic crisis which began in In contrast, in the case of Ostrava the accelerated dynamics of the economy post 2005 led to a considerable fall in the unemployment rate, which, just as in the Hungarian region, was brought to a stop by the economic crisis. 10

11 Fig. 5. Productivity in industry relative to national average [national average = 100] Fig. 6. Unemployment rate - LFS (%) 3.2. Development factors In the analysed regions, the influx of foreign capital was the main development factor, particularly well visible in the Hungarian and Czech regions and somewhat less in the Romanian one. Among the incentives which investors found attractive were industrial parks offering developed investment sites and tax exemptions (the biggest such park was opened in Hungary near the M1 Motorway between Budapest and Vienna). In addition, the investment decisions of car corporations, Isuzu which invested in Esztergom and Hyundai, which located a factory in Ostrava, also played a role. The new car factories led to the opening of many cooperating enterprises in their vicinity, although in many cases the chain of supplies reached beyond the boundaries of the NUTS3 regions or even the state borders. In Alba, the influx of inward capital was not as spectacular and was made mostly in traditional sectors light (wood and textile) and machine-building industries. In addition to the aforementioned public aid and the positive attitude of the authorities, discussed in more detail below, factors encouraging investors to invest capital were quite varied. In Ostrava, agglomeration factors were of decisive significance; they were manifested by an easy access to a large labour market for qualified industrial workers, but also cooperation opportunities and well-developed physical infrastructure. The Komárom-Esztergom region also had similar advantages to offer, in 11

12 addition to its close proximity to Budapest and accompanying benefits in the form of qualified workforce and sales markets. In the case of Alba, raw minerals were an incentive, coupled with very low costs of labour. The latter factor, together with high qualifications of the labour force, was an important incentive attracting external investors in all the analysed cases. While external factors played a major role in the development of the regions under analysis, their potential for endogenous development has as yet been rather limited. With some exceptions, the technological advancement of industry can be regarded as low to moderate, and the use of the local R&D potential as very limited. The greatest potential in this sphere could be found in Ostrava due to its university of technology and its establishment of a technological park. Another weakness was the poorly developed SME sector (with the exception of the Alba region where SMEs had largely contributed to achieving the regional success), which were hardly in a position to establish cooperation with transnational corporations. Likewise, the process of creating clusters encountered a number of obstacles, although there were some exceptions such as the automotive and ICT cluster in Ostrava. Therefore, it can be said that the relatively serious disadvantages of this development model include the rather low degree to which foreign investments are embedded in the local and regional systems, which, with growing labour costs and increasing depreciation of the industrial plants and their assets, could encourage them to relocate to countries or regions offering lower costs of labour. Another obstacle hampering endogenous development has been the relatively low quality of life that these regions can offer. This applies the least to the Hungarian region, since its border areas lie within the sphere of Budapest s suburbanisation processes. The reasons for this include the still unresolved environmental problems associated with the previous development model, and the still unreclaimed post-industrial land Role of local/regional authorities, institutional settings and governance model The local and regional policies and the involvement of the authorities in attracting inward investment has played a crucial part in achieving an economic success. This usually came in the form of opening industrial parks which, in addition to physical infrastructure, offered various financial incentives and exemptions from taxes and local levies. Development agencies operating in the regions were quite active in this respect; through their activities, they tried to minimise the red tape associated with the investment process. Moreover, the local authorities tried as much as possible to actively support privatisation processes of the state-owned enterprises. The development of physical infrastructure was accompanied by soft measures such as employee training or development of the education and training offer tailored to the labour market needs. The latter involved the strengthening of secondary education facilities run by the local and regional governments, but also efforts to develop higher education. All the analysed cities had their development strategies, which in the majority of countries were augmented by regional strategies at the NUTS2 level. Both these types of strategies equally identified activities aimed to enhance the competitiveness of a given territorial system and those intended to improve the quality of life of their residents. In the former, issues related to innovation increasingly played a role, although in many cases the relevant goals were poorly operationalised. In addition, the role of improving the quality of the human capital was emphasised, a goal which was to be attained by the expansion and improved quality of education and lifelong learning/training. The SME sector 12

13 played a notable part in most strategies, alongside activities aimed to create favourable conditions for establishing start-ups and operating the existing businesses. Some local systems among their directions of development named the promotion of supra-local functions, also administrative ones, and tourism. Most of the strategies proposed a rather clear and specific view of future development. As a rule, respondents emphasised the involvement and efficacy of the city authorities in the implementation of their strategic plans, which in their opinion was facilitated by the availability of external funds, mostly from the Cohesion policy. It should be noted that while the above activities are currently quite common, the fact that they were undertaken fast, i.e. in the initial phase of the transformation, determined the success of some regions or lack of it elsewhere; this could be observed in the case of the Hungarian but also Romanian regions. Such activities were delayed in the Ostrava region, which however had other significant strengths associated with the agglomeration effects; owing to these assets, the region, despite its late joining the competition for inward investors, has been successful in the recent years. Nonetheless, it has not been able to wholly make up for the time squandered in the initial transformation phase. In addition to the above, respondents emphasised the significant role of well-developed cooperation between the local and regional authorities both vertically and horizontally. Public institutions at different levels were open and willing to cooperate and implement joint strategies and initiatives (such as e.g. the regional bank in Ostrava). Nevertheless, the degree of involvement of the local business and academic community and NGOs was quite varied and definitely far from perfect Role of external intervention The external intervention in the investigated regions also played a significant part in their success. In particular, this can be said about the development of transport infrastructure having a national significance, primarily in Hungary (motorway) and the Czech Republic (motorway and railway line), and also the Romanian region, situated in the transport corridor of trunk road number 1, connecting Bucharest with the Hungarian border. In the latter case, this was offset by strongly preferential regional policies, which included e.g. the location of the managing authority for a NUTS2 regional programme. In this regard, the Hungarian region did not perform quite satisfactorily, as it did not have a privileged position regarding access to regional policy funds, while in the case of the Czech region respondents emphasised that the external funds still fail to address the scale of the necessary restructuring measures. One important component of external intervention has been the functioning of public institutions financed from the central budget (except the Hungarian region, which however benefits from the proximity of Budapest in that regard). Special role was given to the operation of public universities, which not only created new jobs and provided qualified specialists to the local labour markets, but also attracted students from outside of the region, which in turn produced specific multiplier effects (accommodation for students and living expenses). Nonetheless, the external funds at the local and regional level were mainly expended on activities improving the quality of life of the citizens rather than on pro-development projects. This was a consequence of many years of neglect in infrastructure development and the need to comply with the EU environmental and health protection standards. Few of the pro-development projects were directly related to the enterprise sector, support to innovation or development of information society; the majority of projects were focused on creating conditions for the development of physical 13

14 infrastructure, including transport infrastructure. In this context, initiatives aimed to improve the quality of the school system were particularly conspicuous, especially at secondary school level, just as projects intended to enhance the region s potential for innovation (clusters, technology parks, etc.). All in all, it can be said that external intervention was a favourable but not always necessary prerequisite of success. One example here is the Komárom-Esztergom region in Hungary, where respondents emphasised that the credit for the region s success should above all be given to the local authorities as they, in no position to hope for governmental aid, had to tackle industrial restructuring problems on their own as early as the 1990s. Lack of external aid was even quoted as the factor that mobilised the local elites to pursue an active development policy. Respondents claimed that this success had been achieved despite being discriminated by the governmental agency responsible for foreign investment, which tried to direct foreign capital to the eastern and southern parts of the country. Conclusions The first and foremost conclusion from the study of successful restructuring regions is that, in general terms, the scale of success in non-metropolitan regions is relatively small. Only some of these regions have been able to maintain or slightly improve their position relative to the national average. This is due to the burden of their industrial heritage, coming mostly in the form of traditional industries, and also due to the lack of any significant investments into high-tech industries. Furthermore, development is hampered by the fact that they have to incur considerable costs associated with the management or reclamation of post-industrial sites. At the same time, the labour markets are as a rule rather inflexible and require substantial outlays to be made on the retraining of the pool of labour, all this resulting in relatively high unemployment figures. It is predominantly external factors, mostly in the form of high FDI volumes, that play a key role in the development of this particular group of regions. It should also be noted that the linkages of foreign companies with the local enterprises are usually weak, whereas large international corporations tend to build their own supplier networks on a scale going beyond a given NUTS3 region. Another significant type of public external intervention is the central-budget financing of various institutions, particularly universities and colleges, which on the one hand create new jobs, and on the other retain the local students on the spot or attract students from other regions. Transfers from the central budget also play a role; these funds are typically intended to address various social problems accompanying the restructuring processes. The role of endogenous factors in the development processes in those regions is relatively small. This is due, firstly, to the relatively modest R&D potential, especially when compared to the capital city regions. This is true both about the public and private sectors. In contrast, the scale of development of the local enterprise is quite varied, with a predominance of microbusinesses operating in traditional sectors, mainly in the field of business services. The number of active and relatively successful SMEs is relatively small. As regards public policies, well-developed cooperation between different groups of actors plays a significant role as it facilitates the success of the adopted strategic measures. On the other hand, a rather traditional approach to external intervention could be observed, with emphasis placed on the 14

15 development of physical infrastructure (including transport and social infrastructure), and not on the economy-oriented thrust of these policies. This was reflected in the prevalently expressed opinions that large, centrally funded investments carried out as part of sectoral policies are of greater significance for regional development than strictly regional policies. Appendices: 1. Report on the Alba subregion, Daniela Constantin 2. Report on the Komárom-Esztergom subregion, James Scott, Boglárka Szallai 3. Report on the Moravian-Silesian subregion, Jiři Blazek 15