The USV Annals of Economics and Public Administration

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1 ISSN ISSN-L On-line ISSN Revistă ştiinţifică indexată în baze de date internaţionale The USV Annals of Economics and Public Administration VOLUME 14, ISSUE 2(20), 2014 Editura Universităţii Ştefan cel Mare din Suceava

2 EDITORIAL BOARD: Editor in chief: Carmen NĂSTASE Executive editor: Adrian Liviu SCUTARIU Editors: Elena HLACIUC, Carmen CHAŞOVSCHI, Florin BOGHEAN, Mariana LUPAN, Ovidiu Florin HURJUI, Simona BUTA SCIENTIFIC COMMITTEE: Angela ALBU, Ştefan cel Mare University of Suceava, Romania Paolo ANDREI, University of Studies in Parma, Italy Stefano AZZALI, University of Studies in Parma, Italiy George P. BABU, University of Southern Mississippi, USA Christian BAUMGARTNER, International Friends of Nature, Austria Grigore BELOSTECINIC, ASEM, Chi şinău, Republic of Moldova Ionel BOSTAN, Alexandru Ioan Cuza University of Iaşi, Romania Aurel BURCIU, Ştefan cel Mare University of Suceava, Romania Gheorghe CÂRSTEA, Academy of Economic Studies, Bucharest, Romania Slobodan CEROVIC, Singidunum University, Belgrade, Serbia Simion CERTAN, State University of Chişinău, Republic of Moldova Carmen CHAŞOVSCHI, Ştefan cel Mare University of Suceava, Romania Liliana ELMAZI, Tirana University, Albania Manuela Rodica GOGONEA, Academy of Economic Studies, Bucuresti, Romania Cristian Valentin HAPENCIUC, Ştefan cel Mare University of Suceava, Romania Elena HLACIUC, Ştefan cel Mare University of Suceava, Romania Elena IFTIME, Ştefan cel Mare University of Suceava, Romania Marian JALENCU, State University of Chişinău, Republic of Moldova Miika KAJANUS, Savonia University of Applied Sciences, Iisalmi, Finland Alunica MORARIU, Ştefan cel Mare University of Suceava, Romania Maria MUREŞAN, Academy of Economic Studies, Bucuresti, Romania Carmen NĂSTASE, Ştefan cel Mare University of Suceava, Roman ia Alexandru NEDELEA, Ştefan cel Mare University of Suceava, Romania Ion PÂRŢACHI, ASEM, Chişinău, Republic of Moldova Rusalim PETRIŞ, Ştefan cel Mare University of Suceava, Romania Abraham PIZAM, University of Central Florida, Orlando, Florida Ion POHOAŢĂ, Alexandru Ioan Cuza University of Iaşi, Romania Gabriela PRELIPCEAN, Ştefan cel Mare University of Suceava, Romania Gheorghe SANDU, Ştefan cel Mare University of Suceava, Romania Petru SANDU, Elizabethtown College, Pennsylvania, USA Doru TILIUŢE, Ştefan cel Mare University of Suceava, Romania Viorel ŢURCANU, ASEM, Chişinău, Republic of Moldova Diego VARELA PEDREIRA, University of A Coruna, Spain Răzvan VIORESCU, Ştefan cel Mare University of Suceava, Romania Marian ZAHARIA, Petroleum Gas University of Ploiești, Romania Cover design & graphic layout: Adrian Liviu SCUTARIU Contact: Faculty of Economics and Public Administration Ştefan cel Mare University of Suceava Str. Universităţii nr. 13, Corp H, Birou H105, SUCEAVA, ROMANIA Phone: (+40) ext cercetare@seap.usv.ro Journal web site: Faculty web site: University web site: Întreaga răspundere asupra conţinutului articolelor publicate revine autorilor. The entire responsability for the content of the published articles rests with the authors. 2

3 The USV Annals of Economics and Public Administration Volume 14, Issue 2(20), 2014 CONTENTS SECTION 1 ECONOMY, TRADE, SERVICES... 6 THE EVOLUTIONS OF THE WEIGHTS OF THE EU MEMBER STATES IN INTERNATIONAL TRADE IN THE PERIOD Radu Şerban ZAHARIA Marian ZAHARIA Aniela BĂLĂCESCU ENTREPRENEURSHIP, SUPPORT OF THE ECONOMIC CHANGES IN CHINA Vlăduț Severian IACOB Alexandru NEDELEA ECONOMIC FREEDOM A CATALYST FOR DEVELOPMENT Rozalia Iuliana KICSI Aurel BURCIU AN EXPLORATORY RESEARCH ON HISTORY OF CLUJ HOTELS Marius BOTA BUCHAREST HOTEL MARKET IN THE EUROPEAN CONTEXT Silvia Patricia DODU, Ioana Cristiana PATRICHI FEATURES OF THE CAPITAL MARKET S EVOLUTION IN ROMANIA IN THE CONTEXT OF THE TURBULENCES PRODUCED BY THE FINANCIAL CRISIS Carmen BOGHEAN STRATEGIC ASPECTS OF YOUTH INCLUSION IN THE EUROPEAN AND NATIONAL CONTEXT Iulian CONDRATOV REGIONAL ECONOMIC DISPARITIES IN ROMANIA. COMPARATIVE ANALYSIS OF THE NORTH EAST AND WEST DEVELOPMENT REGIONS Laura DIACONU (MAXIM) NEW COMMUNICATION MEANS AND THE ECONOMIC CHALLENGES BROUGHT IN MASS MEDIA Daniel BURTIC Alina BADULESCU APPLYING FISCAL IMPULSE IN ROMANIA IN PERIOD : DECREASING FISCAL PRESSURE VERSUS RISING TRANSFER PAYMENTS Antoniu PREDESCU Elena DIACONU Maria Loredana POPESCU Mihaela Diana OANCEA NEGESCU INFLUENCE OF RELATIONS WITH INTERNATIONAL FINANCIAL INSTITUTIONS ON INSTITUTIONAL TRANSFORMATIONS OF ECONOMY Galyna POCHENCHUK THE INFLUENCE OF THE ENTERPRISE SIZE ON THE EFFECT OF EU GRANTS Andrei Alexandru MOROŞAN 3

4 SECTION 2 MANAGEMENT AND BUSINESS ADMINISTRATION INSURANCE A RISK COVERING STRATEGY FOR HOSPITALITY INDUSTRY IN ROMANIA Marius Dan GAVRILETEA COMMUNICATION IN THE EMERGENCY SITUATIONS MANAGEMENT Ovidiu Aurel GHIUȚĂ Gabriela PRELIPCEAN THE MISSION STATEMENT OF THE BUSINESS ORGANISATION BY REFERENCE TO THE ECONOMIC MARKET REQUIREMENTS Marius Costel EȘI SECTION 3 ACCOUNTING - FINANCES COMPARATIVE STUDY REGARDING THE MAIN DIFFERENCES BETWEEN US GAAP AND IFRS Elena HLACIUC Veronica GROSU Geanina MACIUCA Marian SOCOLIUC SECTION 4 STATISTICS, ECONOMIC INFORMATICS AND MATHEMATICS TOURISM AVL SYSTEM TOURISTIC SUPPORT GUIDENCE ON THE MOBILITY CONDITIONS Pavel STANCIU Valeriu LUPU DEVELOPMENT OF OPTIMAL FILTERS OBTAINED THROUGH CONVOLUTION METHODS, USED FOR FINGERPRINT IMAGE ENHANCEMENT AND RESTORATION Cătălin LUPU PARALLEL HYBRID METHODS USED IN OPTIMIZATION PROBLEMS SOLVING Ionut BALAN SECTION 5 LAW AND PUBLIC ADMINISTRATION REFORMING THE CIVIL STATUS OF A PERSON IN THE ROMANIAN CIVIL LAW Elena IFTIME A REFLECTION ON THE WAVE OF AMALGAMATIONS IN THE ROMANIAN HEALTH SECTOR Adriana TIRON TUDOR Ina MITU STRUCTURAL FUNDS INSTRUMENTS TO SUSTAIN ECONOMIC GROWTH IN ROMANIA Elena RUSU (CIGU) THEORY OF GOVERNANCE AND SOCIAL ENTERPRISE Cristina SANDU Rosemarie HAINES 4

5 INSTRUCŢIUNI UTILE PENTRU AUTORI / AUTHOR GUIDELINES

6 The USV Annals of Economics and Public Administration Volume 14, Issue 2(20), 2014 SECTION 1 ECONOMY, TRADE, SERVICES 6

7 The USV Annals of Economics and Public Administration Volume 14, Issue 2(20), 2014 THE EVOLUTIONS OF THE WEIGHTS OF THE EU MEMBER STATES IN INTERNATIONAL TRADE IN THE PERIOD Master student Radu Şerban ZAHARIA Romanian AmericanUniversity of Bucharest, Romania Professor PhD Marian ZAHARIA Petroleum Gas University of Ploiești, Romania Lecturer PhD Aniela BĂLĂCESCU Constantin Brancuși University of Târgu Jiu, Romania Abstract: This paper examines evolution of international trade between EU Member States and between non-eu Member States and attempts to determine if there are significant changes in the weights of their exports-imports. The analysis is carried on before and after period of economic crisis, respective over the period Key words: international trade, communist countries, developed countries JEL classification: C10, F13, F62 1. INTRODUCTION There is a vast literature on international trade, its impact on the economic growth and trade policy. For example, Cameron, Proudman and Redding (1999) emphasizes that the simplest measure of trade is a behavioural measure, based on actual trade flows, such as for example import as a share of home consumption, or exports as a share of production. These behavioural measures are endogenous outcomes of trade policy and other economic factors, and the growth rate might be part of these factors. Using behavioural measures is therefore only valid if they are correlated with an underlying measure of trade policy, or international openness. Miron D. (2003) appreciates that international trade can be a positive or negative phenomenon. The rules after running this economic stream can be implemented to disadvantage those the poor and to concentrate wealth in the hands of the rich, or to create a favorable climate conducive to reducing disparities of any kind New technologies and diversification of trade, have made possible the globalization. Through decisions adopted by transnational companies in the areas of procurement and investment have created global markets and have provided impulses for increasing interdependencies (Folcut O., 2005). Although revolutions at the end of 1989 led to the collapse of communist systems, the transition economies of the former communist countries to market economies have different durations, with implications more or less significant on the economic efficiency of their economies. Economic policies implemented by governments after 1990, on the one hand, and EU enlargement and economic integration measures, have influenced the economic development and thus the external trade developments in the EU. Economic developments in the period are the result of both the policies and measures implemented in the EU in the previous period, and of the impact of economic crisis triggered in

8 2. OBJECTIVES AND METHODS The main objective of the study is to analyze evolutions of weights EU Member States in the total volume of international trade both between member states and with non-eu countries in the period prior to and after the onset of the economic crisis, the period chosen is Taking into account the fact that Croatia is a member of the EU from 1 July 2013, its foreign trade has not been taken into account in this study, the data used in reference only to the EU 27. Starting with the series of data available on the EUROSTAT ( as well as those offered by the National Institute of Statistics of Romania ( weights have been determined, hierarchy were prepared and analyzed to give a more conclusive weights and roles EU27 Member States in international trade. 3. EVOLUTIONS OF THE WEIGHTS OF EU MEMBER STATES IN INTERNATIONAL TRADE WITHIN THE EU EU enlargement and the action taken on economic integration led to the development of foreign trade between EU Member States. Economic developments in the last 10 years have led to structural changes on the ranking and grouping of the EU Member States, according to their weights in the total of trade. In the analyzed period, the weights recorded by Member States in the total of inside EU imports have not undergone major changes; it fits between -1.8 percentage points in Italy and Spain and 1.5 percentage points in the United Kingdom. In 2003, on the first place with a 19% share in total imports was Germany (Figure 1), followed by France (13.6%), the UK (11%), Italy (9.1%), Belgium (8.4%), and Spain and the Netherlands with 7%, so these seven countries held a weight of 75.5%, while the other 20 Member States had a share of less than 25 % (24.5%). In contrast, on the last two places were two relatively small countries Cyprus and Malta, with a share of only 0.1% of imports from EU Member States. Romania, in 2003, ranks 18th with a share of total EU Member States imports of only 0.8% at par with Slovakia. In the same year, the Czech Republic and Poland recorded 1.8%, Hungarian 1.5%, and Bulgaria 0.3%. Romania 0.8% Poland 2.3% Portugal 1.8% Netherlands 7.0% Malta 0.1% Hungary 1.5% Luxembourg 0.6% Slovakia 0.8% Slovenia 0.5% Aus tria 3.9% Finland 1.4% Lithuania 0.3% Latvia 0.2% Sweden 2.9% 2003 Import%Intra EU27 United Kingdom 11% Italy 9.1% Cyprus 0.1% Belgium 8.4% Bulgaria 0.3% France 13.6% Czech Republic 1.8% Denmark 2.0% Spain 7.0% Estonia 0.2% Germany 19% Greece 1.3% Ireland 1.6% Figure no. 1 The weights of the Member States in the volume of total imports within the EU in 2003 Source: own construction 8

9 In 2012 (Figure 2) on the first 3 places are still Germany (20.9%), France (12.8%) and the UK (9.3%). Note that unlike Germany whose share in total imports increased in the period, by 1.5 percentage points, the share of France decreased by 0.8 percentage points and that of the United Kingdom by 1.7 percentage points (0.2 percentage points more than sum of the weights recorded in 2012 by Lithuania, Estonia, Latvia, Cyprus and Malta). Slovenia 0.6% Romania 1.5% Poland 3.7% Portugal 1.5% Austria 3.8% Netherlands 7.6% Malta 0.1% Hungary 1.9% Luxembourg 0.6% Slovakia 1.6% Sweden 3.1% Finland 1.4% Lithuania 0.5% Latvia 0.4% 2012 Import%Intra EU27 United Kingdom 9% Italy 7.3% Cyprus 0.1% Belgium 8.4% Bulgaria 0.5% France 12.8% Czech Republic 3.0% Denmark 1.8% Spain 5.2% Germany 21% Estonia 0.4% Greece 0.8% Ireland 1.2% Figure no. 2 The weights of the Member States in the volume of total imports within the EU in 2012 Source: own construction With a reduction in the weight of total imports from the EU Member States by 1.8 percentage points (7.3% in 2012 to 9.1% in 2003) Italy passes from the 4th place, to the 6th place, being surpassed by Belgium whose weight remains at 8.4% and the Netherlands (7.6%). A decline of 1.8 percentage points recorded in Spain (from 7% in 2003 to 5.2% in 2012), it moving from 6th to the 7th place. Although during the period there have been changes in the weights of the states in imports from the EU, in 2012 in the first seven places shall be maintained the same states except that their weight decreased from 75.5% in 2003 to 71.5% in 2012, the weight of the other 20 countries in total imports increased by 4.0 percentage points. Regarding Romania, its weight in total imports from EU countries almost doubled, reaching in 2012 to 1.5%, which brings it from the 18th place, recorded in 2003 up to 16th place. This increase can be interpreted as an increase in dependence of the Romanian economy of the ones EU Member States. Significant increases in the weights of total imports from EU countries were registered during the period under review, in many former communist countries such as Poland (1.4 percentage points from 2.3% in 2003 to 3.8% in 2012), Czech Republic (1.2 percentage points from 1.8% in 2003 to 3% in 20012) and Slovakia (0.8 percentage points from 0.8% in 2003 to 1.6% in 2012). On the last places on the weights of total imports from EU member states are maintained in 2012, Cyprus and Malta, with only 0.1%. Regarding exports of Member States within the EU, their weight is relatively similar to that for imports. In this case, in the first 7 seats (Figure 3), the weights of over 5%, in 2003, were Germany (22.5%), France (12.5%), the Netherlands (11.0%), Belgium (9.1%), Italy (8.6%), the UK (8.4%) and Spain (5.4%), covering 77.1% of total exports in the EU, the other 20 states covering only 22.9% thereof. 9

10 Comparing the share of exports to these countries in total imports recorded in 2003 in the EU, we see that the weight of total exports is 1.6 percentage points higher than the share in total imports. If you look at the individual, we observe that higher values of the share of total exports than imports within the EU, in 2003 there were only in Germany (3.1 percentage points), Belgium (0.7 percentage points) and the Netherlands (4, 0 pp), in the other four states, the situation is reversed, the biggest difference (of -2.6 percentage points) registered in the United Kingdom where its share in total exports within the EU was 8.4%, while the share its total imports was 11.0%. A second group of countries, in terms of weight in total exports within the EU, with values between 2% and 5% recorded in 2003 were Austria (3.4%), Sweden (2.8%), Ireland (2.7%), Denmark (2.2%), and two former communist states, the Czech Republic and Poland with weights of 2% Germany France Netherlands Belgium Italy U.K. Spain Austria Sweden Ireland Denmark Czech Poland Hungary Finland Portugal Slovakia Romania Luxembourg Greece Slovenia Bulgaria Estonia Lithuania Latvia Malta Cyprus Germany France Netherlands Belgium Italy U.K. Spain Austria Sweden Ireland Denmark Czech Poland Hungary Finland Portugal Slovakia Romania Luxembourg Greece Slovenia Bulgaria Estonia Lithuania Latvia Malta Cyprus Figure no. 3 The weights of the Member States in total exports within the EU in 2012 compared with 2003 Source: own construction Romania, as in the case of imports in 2003 was ranked 18th with a weight of 0.6% in total exports within the EU27 by 0.2 percentage points in weight of imports. Among the former communist countries, in addition to the Czech Republic and Poland, with higher values of shares in total exports within the EU27 was still Hungary (1.7%) and Slovakia (0.9%), lower values recorded Slovenia (0.4%), Bulgaria (0.2%) and the Baltic countries. In 2012, in the first seven places, with weights over 5% of total exports within EU countries shall be maintained the same, except that the Netherlands ahead of France, now ranked second place with a weight of 13.7% in total, compared 9.2% for France. In total, the ones seven countries covered in 2012, 72.6% of total exports within the EU27 by 1.1 percentage points less than in Significant differences between the weight in total exports and imports, within the EU27 recorded in the Netherlands, where it is, in 2012, of 6.1 percentage points (weight in total exports is 13.7% compared to 7.6% for imports), and in France, where it is -3.6 percentage points (weight in total exports is 9.2% and that of imports is 12.8%). 10

11 In the former communist countries, significant increases in the share of total exports in within the EU, registered in 2012 compared to 2003, is recorded in Poland (1.8 percentage points) and Czech Republic (1.2 percentage points), which went from 13th and 12th places, on which were in 2003, on the 8th and 9th place in 2012, with weights of 3.8% and 3.2%, surpassing the countries like Austria (3.2%), Sweden (2.7%), Ireland (1.9%) and Denmark (1.8), the last two being surpassed in 2012 also by Hungary (2.2%). With a weight of only 1.1% of total exports within the EU, Romania was in 2012 up on 17th place. Comparing population, geographical size and Romania's natural resources with the ones other former communist countries and not only, Romania should be somewhere in the top 8 places. 4. EVOLUTIONS OF THE WEIGHTS OF EU MEMBER STATES IN INTERNATIONAL TRADE OUTSIDE THE EU To analyze the weights of the Member States of the EU in international trade outside the EU, these were grouped into three categories: - countries with weights above 5%; - states with weights between 1% and 5%; - states with weights below 1%. This structure allows highlighting the weights of each group in total, as well as highlighting the number of states that make up each group. In 2003, in the category of states with weights over 5% of total imports from outside the EU, were part seven states. Of these two had share above 15% (Germany 19.4% and the UK with 16.3%), followed by three states, with weights ranging between 10% and 15% (11.3% Netherlands, France 11.2% and Italy by 10, 3%) and two states, with weights between 5% and 10% (6% in Spain and Belgium with 5.9%). In total, these seven countries covered 80.4% of total imports from countries outside the EU. In the second group were part nine states. In this group, in addition to Sweden (2.2%), Ireland (1.9%), Greece (1.8), Austria (1.7%), Denmark (1.4%) and Finland (1.3%) in 2003 were also three former communist countries: Poland (2.0%), Hungary (1.4%) and Czech Republic (1.4%). For the third group, the countries with the share in total imports from outside the EU, less than 1% were 11 countries including Romania with a weight of only 0.7%. Although this group in 2003 comprised 40% of the EU27 Member States, their share in total imports from outside the EU was only 4.2%. In 2012, in the first group shall be maintained the same seven countries (Figure 4), their total weight remaining constant. However, in three of them, the weight in the total imports from outside the EU increased to 14% in the Netherlands, 6.6% in Spain and 6.1% in Belgium. In the other four countries have registered decreases in weights ranging from 0.3 percentage points for Italy and -1.6 percentage points for France In the group of countries with weights between 1% and 5% in 2012 are contained only eight countries, Ireland due to the reduction in the total of weight of imports from outside the EU by 1.0 percentage points, passed from the 10th place, to the16th place, leaving this group. 11

12 % Malta Cyprus Latvia Estonia Luxembourg Slovenia Lithuania Bulgaria Romania Slovakia Portugal Ireland Finland Hungary Denmark Greece Czech Austria Sweden Poland Belgium Spain France Italy Netherlands U.K. Germany Figure no. 4 The weights of the Member States in the volume of imports from outside the EU in 2012 Source: own construction At the same time, a significant increase registered Poland, which with a weight of 2.8% of total imports from outside the EU, surpasses Sweden. However the weight of this group of countries decreased from 15.4% in 2003 to 13.5% in The weight of countries in the third group increased from 4.2% in 2003 to 6.1% in Though Romania's weight in total imports from outside the EU increased in 2012 compared to 2003, it is surpassed by Slovakia, passing from the 18th place, on the 19th place. The structure of the EU Member States on the three groups share in total exports differs from that determined by their share in total imports from outside the EU. In 2003, in the first group, that of states with weights above 5% of total exports from outside the EU has only six countries, Spain with a weight of only 3.9% entering into the second group. The first place in the group is Germany, with a weight of 26.8%, greater than the sum of the weights of the other two groups (total 21 of the 27 EU countries). Unlike the weight of Germany, the weights registered of France, of United Kingdom and Italy are less than half, while the weights of Belgium and of Netherlands are more than four times smaller. Differences from the registered situations on states with weights between 1% and 5% of total imports from outside the EU, which in 2003 were included 9 states, there is also for exports outside the EU where this group are only seven countries: Sweden (4.3%), Spain (3.9%), Ireland (3.5%), Austria (2.4%), Finland (2.2%), Denmark (2.0%) and Poland (1.0%). The third group included in 2003 a total of 14 states, more than half of EU27. With the exception of Poland, with a weight of 1%, which was part of the second group, in this group there were all other former communist countries. The structure of the EU member states according to their share in total exports outside the EU in the period there were some changes of places and of groups, especially in the groups of countries with weights of total exports outside the EU between 1 % and 5% and between 0% and 1%. 12

13 % Cyprus Malta Luxembourg Latvia Estonia Slovenia Lithuania Bulgaria Slovakia Romania Portugal Greece Hungary Czech Finland Denmark Poland Ireland Austria Sweden Spain Belgium Netherlands Italy France U.K. Germany Figure no. 5 The weights of the Member States in the volume of exports outside the EU in 2012 Source: own construction Thus in the second group (states with weights between 1% and 5%) of the 7 existing states in 2003, in 2012 thereof were joined Czech Republic, with a weight in total exports outside the EU, of 1.4 % and Hungary with a weight of 1.2%. In this period the largest increase in the weight of total exports outside the EU, of 1.1 percentage points recorded in Poland which from 13th place, 2003, reached 11th place in 2012, surpassing Denmark and Finland, which recorded decreases of - 0.2, respectively, -0.6 percentage points. The largest decreases were recorded by Ireland (-1.3 percentage points) and Sweden (-0.9 percentage points). With an increase of 1.0 percentage points, Spain reach first place in the group, only 0.1 percentage points lower than the limit of the first group. Following the passage of the Czech Republic and Hungary in the second group (Figure 5) in the third group, the share in total exports outside the EU less than 1%, in 2012 there were 12 member states. A positive fact is that in the period the weights of all these countries in the total exports outside the EU-27, increased in some of these, including Greece, Romania and Slovakia, causing even doubling of the weights. In Romania, the share in the total exports outside the EU27 increased from 0.4% in 2003 to 0.8% in Nevertheless, Romania remains in 18th place, which was in Although the economic crisis has significantly affected most European economies during the period total weights of the countries in the second group (1% to 5%) and third (below 1%) in the total exports outside the EU increased from 19.3% to 21.0% and from 4.5% to 5.4%. However significant discrepancies shall be maintained, the ones six countries in the first group (Germany, UK, France, Italy, the Netherlands and Belgium) continue to hold a weight of 73.6%. It is also stressed that Germany's weight in the total exports outside the EU, which in this period increased from 26.8% to 27.8% is greater than the sum of the weights of the 21 states in groups 2 and 3, with weights below 5%, although it increased from 23.9% in 2003 to 26.4% in CONCLUSIONS The recent economic crisis emphasized the importance of external relationships in sense that economic activities in one country may have strong impact on the markets of another. Thus, both in 2003 and 2012, on the first place by share in total imports was Germany (19% respectively 20.9%), 13

14 followed by France (13.6%, respectively 12.8%) and the UK (11% respectively 9.3%). To note that France is the most important trade partner of Germany. On the last places on the weights of total imports from EU member states are maintained in 2012, Cyprus and Malta, with only 0.1%. Regarding exports of Member States within the EU, their weight is relatively similar to that for imports. Germany's weight in the total exports outside the EU in this period increased from 26.8% to 27.8% and it is greater than the sum of the weights of the 21 states in groups 2 and 3, with weights below 5%, although it increased from 23.9% in 2003 to 26.4% in BIBLIOGRAPHY 1. Cameron, G, Proudman, J & Redding, S (1999), Openness and its association with productivity growth in UK manufacturing industry, Bank of England working paper no Folcuţ O., (2005). Comerţ internaţional; Avantaje comparative si competitive, Editura Universul Juridic,Bucureşti, p Miron D., (2003). Comerţ internaţional, Editura ASE, Bucureşti, p Paliu-Popa L., Babucea A. G. (2013), Evolution of national international trade in the period before the economic and financial crisis for selected economies, African Journal of Business Management, Vol. 7(39), pp NBR (2012) Romania s Balance of Payments and International Investment Position, Annual Report 6. accessed on May 10 to 30, accessed on May 10 to 30,

15 The USV Annals of Economics and Public Administration Volume 14, Issue 2(20), 2014 ENTREPRENEURSHIP, SUPPORT OF THE ECONOMIC CHANGES IN CHINA Lecturer PhD Vlăduț Severian IACOB Ştefan cel Mare University of Suceava, Romania Associate Professor PhD Alexandru NEDELEA Ştefan cel Mare University of Suceava, Romania Abstract: Viewed as an extremely tempting and complex topic, entrepreneurship is still a young, emerging field of study with a low paradigmatic evolution which arises strong interest among researchers, practitioners and political deciders. The detailed examination of the multiple nature of entrepreneurship has revealed the manifestation of more analysis stages, each of these contributing to a deeper understanding of the field. The focus of the studies was directed mainly to the individual, corporations and nations. The research of entrepreneurship at an individual level focuses on the people s entrepreneurial skills, on their ability to take risks and other personal particularities. The analysis of the corporate level of entrepreneurship emphasizes the companies potential to develop strategies to ensure their existence in the business field. At national level, entrepreneurship seen as a result of culture, research-development, access to financing and technology can be considered the engine of economic growth and poverty reduction. The present study wishes to combine all these aspects to argument the force of entrepreneurship in China, a country with an economy in transition, where, in the last three decades, an assumed economic development was registered. Thus, it is shown that at individual level, the Chinese entrepreneurship focuses on entrepreneurial education that is closely related to individuals intentions. The corporate level is captured through the evolution of generations of entrepreneurs and their concepts regarding the development strategies of their companies. At national level, the development of entrepreneurship has completed on behalf of the Chinese government s efforts to ensure an economic friendly environment, a better life standard, a coherent education reform, a change of business attitude and the regional economic opening. Key words: entrepreneurship, China, education, economic development, women entrepreneurs JEL classification: O1, O4, O5 INTRODUCTION The national economic transition may be a predictor of development of the entrepreneurial spirit. Although the consensus was reached that the entrepreneurial spirit contributes to the economic development by introducing innovations, consolidating the rivalry and creating competition (Wong, Ho, and Autio, 2005), the determinants of the development of the entrepreneurship in the transition countries, like China, are not yet clear. The Chinese government worked in order to build a friendly environment for the entrepreneurs and the impact of the transition on the development of the entrepreneurship is of interest. Some studies investigated the institutional entrepreneurial environment and its cultural dimensions (Li & Materlay, 2006), but there are few investigations of the impact of the economic transition on the development of the entrepreneurship. The interest manifested by the decision makers to facilitate the economic growth in China is seen in the more and more clear role of the entrepreneurship in the economic life of this country. Generally seen as an important means of stimulating the development of the private sector, the entrepreneurship influences the direction of the economy from poverty to richness. By creating or developing the economic activities and identifying and exploiting new products, pocesses and markets (Baumol, 2002; OCDE, 2007), the entrepreneurs want to generate value. Recognizing its importance, people are willing to learn more about this concept. That is why the mechanisms of entrepreneurship attracted the permanent interest of the population and 15

16 specialists. Nevertheless, there is no single definition of the entrepreneurial spirit, but only a common idea that refers to initiative and risk. 1. THE PRIVATE ENTERPRISES IN CHINA Before 1949 there were about 9 million private businesses (Liu, 2003) in China. After the proclamation of the People s Republic of China, the private sector in China was treated as the tail of capitalism which had to be cut (Zheng and Yang, 2009). Liu (2003) considers that after the period of socialist reconstruction , no private businesses would have worked. Still, in the vast lagging rural areas, where the control of the totalitarian state was quite weak, this tail of private economic activity was not cut but reasonably survived in private plots, in family sideline businesses and the bazaar trade, operating in a subterranean way. Thus, at the end of 1978, across the country there were around 150,000 private businesses (Liu, 2003). The presence of private capital goods and their exploitation by employment emphasizes that there is capitalism and the private sector is part of it. The private companies played the role of filling the gaps in the national economy, especially in distributing goods and consumption goods and in employment. The role and the effect of the private economic activity were recognized by law (1982), as a promoter of the recovery and development of the urban private economic activity. The revival of the private economy in cities was possible as a consequence of the pression generated by the unemployed young people in the urban area on the government. The young people employment became a heavy burden of the government, reason for which the government encouraged young people to self-employ. This policy was clearly stated in many documents issued by the government and the party in 1981, offering guidelines in order to solve some problems related to private companies (like: using the plots of land, supplying with materials, business managment, etc.). The second stage of China s economic reform, at the end of the 1980s and the beginning of the 1990s set the stage for Chinese entrepreneurs to exploit the labour cost differences between the Western countries and China (Zhou, 2012). China became the world s largest low-cost manufacturer in the global market. The central government of China has begun to implement new policy initiatives to maintain economic growth and address the problems described above by helping SMEs go global. This was stated in 2011 by the National Development and Reform Commission, which wants to implement the go global strategy and to improve fiscal, taxation, financial and insurance policies to help the Chinese enterprises go global. (Zhou, 2012). The Chinese entrepreneurial spirit has two important attributes: familism (Gao and Kotey, 2008), and the social capital known as Guanxi (Yang, 94; Zhang and Zhang, 2006). Humanism and hierarchy follow (Zapalska and Edwards, 2001; Sheh 2001). These are specific challenges and opportunities to the Chinese Small and Medium Enterprises. Guanxi is known as the most powerful force in the Chinese culture. It can be considered as a special type of currency (Zhou, 2012). Without proper Guanxi, it is very difficult to new ventures to go global. Although Guanxi plays a special role in business functioning in China, especially in building business networks (Kempster and Cope, 2010), there are controversies concerning the possibility to be, or not, viewed as a personal value dimension. In the Chinese context, many researchers treat guanxi as a sociocultural factor (Gao and Kotey, 2008; Huang and Bin, 2006; Luo and Chen, 1997; Kirby and Fan, 1995) 2. THE GENERATIONS OF THE CHINESE ENTREPRENEURSHIP In the development of China and implicitly of the entrepreneurial spirit, beginning with 1978 three stages can be identified (Zhang, 2013). Each stage corresponds to an institutional environment, a certain set of policies and, evidently, a generation of entrepreneurs. The start of the entrepreneurial activities was given at the beginning of the 1980s with the reforms that endorsed The four modernizations : agriculture, industry, science- technology and 16

17 military. Thus the first generation of Chinese entrepreneurs emerged (Eesley, 2009). These entrepreneurs helped the transformation of China into a market economy that is more and more integrated in the global economy.thus, in order to understand the Chinese firms, one has to understand the Chinese entrepreneurs. The previous research has been done on Chinese entrepreneurs both as individuals and as a group. Neither approach is fully satisfactory, since these entrepreneurs differ significantly in terms of their personal backgrounds, development paths and the business models. The criteria of classification include the nature of businesses and industries, as well as specific business management models developed by the respective generation of entrepreneurs. This generational comparison helps foresee the ways towards which the Chinese firms are developing. FIRST GENERATION: MANUFACTURING SECTOR China s First Generation of business leaders are more than 45 years old. At the beginning of the 1980s (at the time of China s opening to the outside), many of them were either university graduates or military personnel. After accumulating first - class technical or managerial experience, these people and their expertise emerged in the transition of the Chinese society towards a market economy. In the opinion of Teng and Xiang (2007), this generation was the first to experience China s new economic policies and gave the most prominent members of Chinese entrepreneurship: Liu Chuanzhi (Lenovo), Zhang Ruimin (Haier), Ren Zhengfei (Huawei) and Li Dongsheng (TCL). With the courage to experiment and with strong personalities, these entrepreneurs made possible the successful transition from their planned economy to companies lead by the principles of the market economy, becoming symbols of the economic transformation of the time. The entrepreneurs of the First Generation lived and worked in important state owned enterprises in China in a period in which it was hard to break away from the traditional ideology and systems, still they dared to adapt the style of doing business by experimenting the conditions of the market economy. Thus the first group of firms in China was founded, which were truly based on the notion of market competition, achieving great success in China and beginning to explore international markets. The reason of their success can be attributed, according to Teng and Xiang (2007) to a vast domestic market which is rapidly developing nurtured by great growth opportunities for competitive enterprises, and to the transition characteristics (lack of market regulations, lack of transparency or hidden rules, the trade barriers against imports, the reduced home competition and relatively weak foreign competitors). At the same time one can bring forward that many multinational corporations didn t set up regional general headquarters in China, nor did they send their elite managers to China. These factors mitigated the competitive pressures on the first generation of Chinese entrepreneurs. The majority of the first generation entrepreneurs chose to focus on the traditional sectors of manufacturing, that can be divided in mainstream, conventional, branch (see table 1). The first generation took advantage of manufacturing opportunities at the global level. 17

18 Table 1 Orientations and opportunities of the entrepreneurs of the First Generation Industry Mainstream Telecom Conventional Branch PC, Containers Textile, shoes, sewing machines etc Typical firm Huawei Lenovo Younger_CAokang 1. Cost advantage Advantages 2. Worldwide industrial shift to developing countries and 3. Large and fast growing Chinese market opportunities 4. Multinationals focussing on high value- added areas Weaknesses Limited ability in competing against global leaders 1. Low cost manufacturing leads to low profit margin. 2. The OEM mode limits capabilities in areas such as branding, marketing, and R&D. 3. Inexperience in global management 4. Lack of capable professionals 1. Rising value of RMB (local currency) 2. Rising labor costs, labor shortage Challenges 3. Competitors with low cost labor (i.e., Vietnam, India, & Poland) 4. Difficulties in global operations Source: Taken according to Teng and Xiang, 2007, Three generations of chinese entrepreneurs: will the third generation be as successful? The new entrepreneurships generated small salaries for workers and small profit margins. Consequently, these firms didn t contribute to the creation of a rich middle class in China. SECOND GENERATION: THE SERVICE SECTOR The second generation of Chinese entrepreneurs became active at the end of the 1990s. It can be named 30-40, as most of them were in their thirties. Age is not a definitive criterion for the second generation of the Chinese entrepreneurs. According to Teng and Xiang (2007), among the representatives of the second generations are a series of personalities: Shen Nanpeng (Ctrip), Chen Tianqiao (Shenda), Jiang Nanchun (Focus Media), Ma Yun (Alibaba.com),and Li Hongyan (Baidu.com). The emergence of the second generation of entrepreneurs is of great importance for the development of the Chinese economy and society. The effects were seen in the increases in the personal income of the population, and the service sector grew at a rapid pace. Consequently, China s industrial structure improved, the pressure to import was reduced and helped the balance international trade. At the same time alleviated concern over China threats (Teng and Xiang, 2007). But the most important thing related to the second generation of entrepreneurs is the new perspective of China s current technology- driven development model. The increase of employment and the development and expansion of the middle class in China is important. Unlike the first generation, many of the did not start from the bottom and did not experience the constraints of the planned economy. Most were well educated and went overseas for advanced education. They started their businesses in a more transparent business environment and enjoyed more clarity on legal issues. Open to learning new business models from developed countries, the entrepreneurs of the Second Generation are skillful in dealing with the financial markets and capable to enter various relations in order to access the international private capital funds. Hence, their personal wealth has reached levels unmatched by the first generation (Teng and Xiang, 2007). While the first generation served as role models for society, the second generation is closer to youth idols. More independent financially, the second generation emphasizes the previous experience, (learning from the experiences of the predecessors and their business models, from families and their associations), being oriented to self- satisfaction - coming true of their own dreams and objectives (Chelliah and Lee, 2011). These entrepreneurs didn t keep as a 18

19 business model the traditional low-cost manufacturing, rather focus on the service sector, localize advanced business models from the developed countries in order to adapt them to local market conditions (ex. Shen Nanpeng, who co-founded Ctrip and Home Inns). The conclusion of the study of Chelliah and Lee, (2011) is that unlike the results of the first generation entrepreneurs, those of the second generation reflect a greater dependency from the Guanxi connections. These connections, they consider, are achieved in order to develop mainly personal business networks and not necessarily their use as support of foreign affairs. The difference is due to the bigger needs for financial back-up and consolidation of the entrepreneurship by creating personalized business networks. The existence in China of the second generation of entrepreneurs generates a rivalry on the scene of the economic life: manufacture vs service. Anywhere in the world it is obvious that the emergence of the service sector challenges the traditional view of economic and social development which put a priority on manufacturing and technology development. The service sector is an indispensable part of any advanced economy. The service sector is critical in solving unemployment and stimulating consumption, supporting the medium and long term economic growth. Like in the US, where companies like General Motors, IBM, Hewlett Packard, were surpassed from the top positions by service providers like Wal-Mart, Starbucks, Google, in China, similarly, many firms founded by the second generation entrepreneurs are eclipsing the firms founded by the first generation. For example, Focus Media, with a real value of US$27.8 billion, and, by comparison, Lenovo, with over 20 years of history, has a market value of only US$12 billion (Teng and Xiang, 2007). While the second-generation entrepreneurs are more active than their predecessors in global financing, and with the mindsets generally more open, their business success is still mostly within China. Their firms significantly lag behind global leaders in management capability, business model innovation, and human capital. These firms have not yet made great strides towards globalization, evidenced by their lack of cross-border acquisitions. As such, the second generation could be viewed as a transitional generation not yet prepared to break significant ground in China s globalization efforts. (Teng and Xiang, 2007). THE THIRD GENERATION: CONSOLIDATING THE GLOBAL RESOURCES Despite considerable investments, the globalization effort has been rather disappointing, and has not made major progress in penetrating the U.S. and European markets. As a result, there are discussions about whether Chinese firms can become world-class enterprises. Indeed, Chinese firms have limited resources and capabilities, and lack the experience to compete in developed markets. The rapid speed of globalization means that there is not much time left for local firms trying to go global. Given this backdrop, Chinese firms pursuing traditional approaches have little hope for success. Chinese entrepreneurs are searching for improved global strategies to enhance the global competitiveness of their firms. A new approach towards global competition has emerged. The global ambitions of Chinese entrepreneurs may only materialize once these Chinese entrepreneurs learn to effectively integrate global resources. The essence of this strategy is to counter global competition with global resources. In today s world, no nation can possibly possess the best resources in all areas. Thus, the strategy of using Chinese resources to compete against the whole world will be increasingly ineffective. The firms must mobilize local resources (such as low cost labor) global resources (such as advanced technologies). Chinese entrepreneurs may also develop a group of world-class firms in mainstream industries. Only then will the third generation of Chinese entrepreneurs emerge onto the stage (Teng and Xiang, 2007). 19

20 3. EDUCATION, ADVANTAGING FACTOR OF ENTREPRENEURSHIP In the economic development of countries and regions, the academic institutions play a very important role (Paco, 2010), reason for which the responsible factors must plan the way in which education is done. The necessary abilities for a person to solve some problems are increased by the education he/she has achieved. The universities can stimulate the economic growth by cultivating the enteprising spirit and education of students who become entrepreneurs or employees of these entrepreneurs. Thus, the entrepreneurial gifts are not lost. Education is traditionally viewed as an investment for the future. As determinant factor for the entrepreneurial achievement, it can be easily influenced (Van der Sluis and Van Praag, 2004). Education develops the leadership capacity. That is why the firms lead by people who are university graduates have higher probabilities of growth than those run by people with a low level of education, irrespective of the market situation (Kangasharju and Pekkala, 2002). In order to start a new business the entrepreneur must have new ideas (Stam, 2008). Materializing the new idea and taking advantage of an opportunity is undoubtedly a challenge that any entrepreneur will have to overcome. Kirzner, (1973) emphasizes entrepreneurship as a profit opportunity previously unnoticed. Consequently, the entrepreneur who sees a new opportunity is that who studies the ideas previously developed by other entrepreneurs combining them in order to produce a new process or output (Holcombe, 1998). For this reason, any new scientific information represents an important source of entrepreneurial opportunities. A first remark would be that the entrepreneurial activities may be viewed as opportunities as long as that who turns them to good account has access to more information, and particularly to knowledge that allows him/ her to reveal and filter them in order to find new ideas (Holcombe 1998; Acs et al 2009). Although knowledge doesn t create entrepreneurial perspectives directly, one can consider that as it becomes more accessible, it may be absorbed easier by individuals or groups, others than those who generate them (Foray, 2004). Consequently, as initiators, the Universities and the research organizations may be recognized as knowledge generating sources for the entrepreneurial activities. Thus, education plays a more and more important role in the development of private enterprises in China, many new entrepreneurs starting their own businesses by a good use of their knowledge achieved in universities. The attitude of the government and people towards education began to change when taking again the entrance examinations in universities in 1977, 10 years after the Cultural Revolution (Wang, 2008). Trying to attract advanced technologies and rebuild the country energetically, this open policy managed to confer Chinese people a broader perspective on the world. Education, academic education improved significantly by making remarkable progress and bringing into prominance many types of talents in various sectors of activity.the development of private economy in China benefited by the improvement of the levels of education and the increase of the knowledge sources during three stages (Dongtao, 2008). The early stage of transformation of the Chinese society ( ) was characterized by enunciation and supporting education by the Chinese Government as a strategic objective, a battle instrument in the ideological change and social development, respectively. In the second stage ( ), the access to education and technology was brought to the top position of the development plan of the Government, that generated the social concept of a prosperous nation dependent on science and education (Hui, 2010). In the third stage (2000 to the present), the role of education in China is that of keystone for the triumph of the nation, the Chinese considering that only education can guarantee the correctness in society. For them education refers not only to the development of a country and modernization of the economy, but also to the improvement of the living standard and the human progress (Hui, 2010). In 1986, in order to raise the education level in most parts of the country, the Chinese Government, at the initiative of the Ministry of Education of China, promulgated a law that established nine -year compulsory education. As a consequence, education made a great progress and the education structure improved and diversified being more comprehensive. The 20

21 educational system in China comprises: basic education, vocational and technical schools, higher education and adult education. Through the strategies and policies in the education field, the Chinese Government seems to be a mechanism to maintain a high economic growth through qualification modernization. As a result of these political initiatives, was a sudden increase of the number of persons with a high level of education, in various fields, apparently without an analysis of the demand in the labour market and without defining the work demands of different kinds, that created syncopies of absorption and unemployment for associated activities (Li, Whalley, Zhang and Zhao, 2008). These educational policies lead to the considerable improvement of the access to higher education of the persons who came from the rural households. As a result, the difference of access between the rural and urban areas are gradually diminished. With the increase of the number of students, the higher education policies in China promoted the ten biggest universities, the so-called elite universities. These are the higher education institutions that receive the biggest fund allocations from the central and local administration. They have priority in the selection of students through the national admission examinations, having significant endowments and the best research resources in China. The focus of the policy is on raising a small number of Chinese universities to the world class status, strenghtening them and making them bigger. The content of the entreprenorial education of the Chinese universities is mainly made of entrepreneurship courses and practical activities in the enterpriser activity. In the configuration of the entrepreneurial education, the entrepreneurship courses are limited to orientation in employment or career planning, lacking systematization and standardization, Yanhong and Yibin, (2012) precise. They specify that only a few universities have more mature and regular courses, like Tsinghua University, Beijing University of Aeronautics and Astronautics, and Renmin University. Consequently, the current entrepreneurship education in the Chinese universities is limited mainly to operating in different qualifications, that leads to the separation between the entrepreneurial education, speciality education and basic education, assuming that what is good for business is only skill in certain abilities or techniques (Jiaxiao, 2011). So, it is necessary that the Chinese universities reconfigure the entrepreneurial education content towards practical activities in order to integrate the entrepreneurial knowledge and abilities with entrepreneurship. Also, it is important to change the professor s ideas concerning his/ her profession. He/ she mustn t be in the first place an instructor, but an adviser, a guide or a facilitator whose responsibility is not simply teaching so that the students learn, but teaching the students how to learn (Yanhong and Yibin, 2012). Thus, the professor, as a co-ordinator, must guide the students so that they observe and think by themselves. At the same time, a greater attention is necessary to promote the quality of the professorial staff, attracting professors that have an entrepreneurial experience. 4. THE WOMEN ENTREPRENEURS IN CHINA Entrepreneurship plays an important role in global economy, and within it the women entrepreneurs are more and more important (Deng, Alon, and Wang, 2011). In this context, the women entrepreneurs in China are the most active segment that contributes to the rapid growth and globalization of economy. Thus, according to All-China Women s Federation (ACWF) at the level of 2011 China had over 29 million women entrepreneurs, about 25% of the national entrepreneur total, of which 41% private business owners or who carry on independent activities (Xiaosi, 2011). In China, as in most Asian cultures, women had a secondary role over the history. They had no financial independence, they were discriminated, being submitted to the three obediences (towards their father, their husband and their sons) for thousand years of feudal, semi-feudal and semi-colonial society (Taylor, 2005, Alon, Deng and Wang, 2011). Considered accessories by men, the Chinese women had no right to receive education, their dignity and the right to participate in social activities being denied, so much the more the right to do business (IOSC, 1994). As a 21

22 consequence, before the proclamation of the People s Republic of China, in 1949, women entrepreneurs hardly existed. The laws of the socialist system facilitated a high level of participation of women, in political life as well as in the economic life (Li, 1998). The Chinese government eliminated the discrimination of women and pleaded for the gender equality through legal, administrative and educational means. The traditional opinions that women couldn t start a business were eventually discouraged. Assuring the equal opportunity was supported by the state that issued a series of regulations and laws for the assurance of workplace safety of women (Cooke, 2001). Two decades of economic, ideological, legal reform and experience training opened the full-time work access under gender equality conditions, and the way to entrepreneurship, also existing a high degree of egalitarianism in the family roles (Sheng, Stockman and Bonney, 1995). The principle of remuneration equality for equal work for men and women is a recognized principle. In China, workers that have the same technical skills, in the same industries and make similar types of work, benefit by the same salary, irrespective of gender. The percentage of women employees in China is about 44%, that is bigger than the global average of 34.5% (Hu and Zhu, 2006). Women represent more than a half of all workers in the agriculture, forestry, zootechny, fishing and water conservation, cotton production. Of more than 100 million workers in the rural area, considers Zhe (2005), 40 million are women, and among these, 14 million women are self- employed in commerce and service activities. The women in rural areas in China work in the food, clothing, knitwear and other weaving products industry, toy and electronics industry, and traditional handicraft wares and as freelancers. They are an important driving force for the development of the enterprises, % of the total value of outputs being generated by these (Zhe, 2005). The number of women with higher education is growing: 42.4% of all college students are women, while 55.27% of all high school students are women (All-China Women s Federation 2002). The motivation of women entrepreneurs was strenghtened by the Chinese government through a series of specific entrepreneurial policies, that include subsidies for professional training, guarantees for loans and also preferrential treatment on taxation, offering favourable conditions (IOSC, 2005). In their researches, Tong and Chen (2004) synthesize the entrepreneurial motivations of Chinese women aiming at a better life, personal success and independence. They consider that due to the psychological need of security and the previous lack of incomes, in the motivational category for a better living, are situated the women entrepreneurs with a low-level of education. The link between business performance and the motivations that make women become business owners can be outlined according to the push/pull framework which makes the difference between determined necessity (push) or the possibility to lead (pull). Women that are pulled in the entrepreneurship are much more liable to be oriented towards growth than women that are pushed in entrepreneurship by external circumstances (Fielden and Davidson 2005).There are opinions that consider that there are no factors that influence the activities of the women entrepreneurs. Their choice to become entrepreneur can be rather a combination of the two pull/push factors (Hendrischke and Li, 2012). The new economic strategies of the Chinese state that gave an impetus to the industrial restructuration and the reform of enterprises, and the favourable legislation to female entrepreneurship doubled by the opportunities of growth in the private sector stimulated some women entrepreneurs to take advantage of the market gaps and thus break the traditional restrictions concerning them. The first tendencies leant towards the opportunities offered by the industry and agriculture, but the emergence of the economy based on knowledge and the information society reoriented women entrepreneurs towards the service sector, where they are very active and where there are small entry barriers and abundant development opportunities. The fields in which the rapid expansion of women entrepreneurs is seen are medicine, social services, consulting agencies, insurance, estate agencies and education, high-tech industry. These women, between years old, usually have a good education and are qualified in technology and marketing, being considered a value force in the development of high-tech 22

23 industries (Shi, 2005). According to Deng, Wang and Alon, (2011), in a service business women have an advantage compared to their men counterparts due to their natural intuition, flexible personality and harmonious features. They also emphasize that many Chinese women entrepreneurs have special management skills, being capable to manage huge capitals and high level connections. CONCLUSIONS Entrepreneurship has had different forms in China. One of them was the índependent entrepreneurship supported by some subsistence businesses. The most interesting entrepreneurship form was created in the 80 s by taking over the management of some state companies by trained persons in China. This can open new investigating areas of entrepreneurship. A different form of entrepreneurship was born in the 90 s which supports the today Chinese economy. This is the privilege of the people who used their initiative and were educated abroad and returned to China to set up impressive businesses especially in IT. Education plays an increasingly important role in the development of private companies in China. Thus, many new entrepreneurs have set up their own businesses on the basis of the knowledge acquired in universities. The presence of women cannot be ignored in the context of the Chinese entrepreneurs. In order to motivate them, the Chinese government has elaborated specific entrepreneurial policy that includes subsidies for professional training, guaranties for small loans and a preferential tax treatment. In this way the Chinese women entrepreneurs represent the most active group that contributes to the rise and quick internationalizing of economy. This paper contributes to the scientific literature concerning entrepreneurship in China against the background of the economic criteria of this country. Though highly documented, it is limited and does not cover all the entrepreneurial benefits of China, which is a good reason for us to continue a possible research in this direction. BIBLIOGRAPHY 1. Acs Z. J. și Audretsch D.B., (2003), Handbook of Entrepreneurship Research, New York: Springer Publishers, pp Agarwal, R., David, B. Audretsch și Sarkar, M.B. (2008), Process of Creative Construction: Knowledge Spillovers, Entrepreneurship, and Economic Growth, Strategic Entrepreneurship Journal, 1(1). 3. Audretsch B.D., și Keilbach M., (2008), The Knowledge Spillover Theory of Entrepreneurship and Economic Growth, Max Planck Institute of Economics, Available at 4. Audretsch, D. and Thurik, R., (2002), Linking Entrepreneurship to Growth, OECD STI Working Paper, 2081/2, OECD, Paris Audretsch, D.B. & Thurik, A.R What is new about the new economy: Sources of growth in the managed and entrepreneurial economies. Industrial and Corporate Change, 10: Baumol, W.J., (1990), Entrepreneurship: Productive, unproductive and destructive. Journal of Political Economy, 98: Baumol, W.J., Entrepreneurship in Economic Theory, The American Economic Review, Vol. 58, No. 2, Papers and Proceedings of the Eightieth Annual Meeting of the American Economic Association (May, 1968), pp ,

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29 The USV Annals of Economics and Public Administration Volume 14, Issue 2(20), 2014 ECONOMIC FREEDOM A CATALYST FOR DEVELOPMENT Associate Professor Ph.D. Rozalia Iuliana KICSI Ştefan cel Mare University of Suceava, Romania rozaliak@seap.usv.ro Professor Ph.D. Aurel BURCIU Ştefan cel Mare University of Suceava, Romania aurelb@usv.ro Abstract: Liberal doctrine, in its various attempts to find legitimacy, has exerted a real influence on the architecture of the world economy. Liberal rhetoric, validated by historical reality, has shown that liberalism, through its virtues, design a proper environment for both individuals and nations development. In this equation of development the catalytic role of economic freedom and free trade was a theme of reflections during the evolution of many nations, but emphasis on the quantitative dimensions was obvious. In the last decades, attention has been focused on the quality of development too, understanding that the wealth of a nation is reflected not only in the improvement of macroeconomic indicators, but in the better quality of individuals life. Key words: economic liberalism, growth, development, industrialization JEL classification: F13 1. INTRODUCTORY CONSIDERATIONS Human development has always been an exciting and generous topic for economists, philosophers, sociologists and not only, thanks to its various theoretical and practical interpretations. From the promoters of mercantilism, preoccupied with ways of increasing wealth to the contemporary economists, this theme of reflection has stirred debates that vacillated between the theoretical-doctrinaire side and the real economy one. From all doctrines, it seems that liberalism brings best into light its valences, and at the same time, it creates a milieu suitable for development. The entire liberal rhetoric spins around freedom, the importance of individuals as well as around the rights offered by the natural functioning of society. From this perspective, freedom becomes a catalyst of development, and the latter one in its turn, triggers the expansion of freedom. Amartya Sen looks deeper into this duality insisting upon the role freedom plays as a primary goal, as well as the main means of development. (Sen, 2004: p. 14). The market capacity of inducing economic growth and development has been acknowledged in the economic literature. The professor Ion Pohoaţă analyses the virtues of the free market, showing that the hypotheses of free market overlap with the premises of an efficient economic development. (Poahoață, 2000: p. 79); briefly, the market is a source of earning and of harmony, it is a factor that reduces the organizational risks, it becomes a means of rationalizing the economy, the creator and the conserver of freedom, as well as a good way of transmitting information. Thus, the market stands for the most eloquent frame of expressing freedom; its entire philosophy, its functioning mechanisms depending on the reduction or elimination of restrictive intercessions. In this context, according to Adam Smith, the freedom of exchanges and transaction is in itself a part of the basic liberties worth to be cherished by individuals. (Smith, 1904). 29

30 2. A CATALYTIC ROLE OF ECONOMIC FREEDOM IN THE ALCHEMY OF DEVELOPMENT The conviction that economic freedom and free trade plays a catalectic role in the process of economic growth and development has become a key topic around which the fundamental doctrines of modern economy occurred. Both the debates and controversies of this topic has as a starting point the fact that in the majority of world countries, the commercial policy is a mixture between free trade and protectionism, thus the result being a real network of trade regimes with different degrees of liberalization. During the postwar period, the architecture of the world economy was marked by a relatively constant tendency of liberalization, especially imposed by the results of negotiations developed under GATT patronage. Some syncopes in this evolution have been generated by a certain duality of some developed countries which, even if they pleaded for liberalization, negotiated in fact the diminishing of the commercial protection only for the products that had a comparative advantage, showing reluctance in opening their frontiers for items coming from developing countries. The integration in the world value flow allows, as J. Stiglitz remarks, the utilization of growth and development opportunities; in this context, the freer international trade seems to be a necessary, yet not sufficient, condition of development. The long-term success of a nation cannot be imagined without a permanent economic growth, even though the recipes can differ from one country to another or from a historic period to another. What triggers the economic growth as a quantitative side of development, is linked to a more efficient utilization of the existing resources (natural and human) and to generating new productive resources through innovation and investments. The first studies and researches had as starting point the importance of capital acquirement. Fascinated by the rapid industrialization, during the 50s and 60s, many recently independent as well as developing nations, specialized on primary products, promoted developing strategies in the manufacturing sector based on investments. These strategies, built around the government, and having as key elements: development planning, industrialization under the protectionist barriers, special treatment in terms of international trade arrangements, were sustained by famous and sensitive arguments. Let us mention the well-known argument of embryonic industries and the dependence theory, also known as the center- periphery theory (belonging to Raul Prebish). Under the conviction that they had a potential comparative advantage in the manufacturing domain (yet, its development would be prevented by competition coming from industries in the developed countries), the developing nations claimed protection from the state hoping for an industrial growth. On the other hand, starting from the presumption that the development of a certain economy is determined by the moment when it integrates in the world economy, Prebish s observations led to the idea that a development strategy based on the industrialization of the poor countries (the last ones on the global economic stage) would avoid their blocking in that dependence from the center (developed countries) (McCormick, 1988: p. 255) The insufficient internal investment resources meant that the application of these strategies had imposed the appeal to loans and external help. Yet, the world economic context of the 70s proved that the planning, the growth strictly oriented towards investments, the protection of internal markets etc. were not enough to ensure a sustained economic growth. In many cases, this strategy did not overcome the limits imposed by the economic rationality, and even though it had some success when being applied according to this rationality, it proved to be just a preliminary stage of industrialization process, and not a panacea itself. Overall, there has been a growing tendency in the world economy during the postwar decades, including some poorer countries as well. The empirical studies having as a topic the global economic growth between , have revealed the importance of trade in this process (quantified as a weight of trade in GDP), higher than even that of investments. (WTO, 2003: p. 83). 30

31 Both the liberalization of trade and the market opening involve changes regarding the inner functioning mechanism of a certain economy, and impose a series of structural adjustments, especially when referring to the reallocation of resources towards more productive domains which, on long-term, can lead to economic development. (Bacchetta, Jansen, 2003) Any economy is permanently submitted to certain adjustment processes, which are not imposed only by economic reforms; technological innovations, political reforms, demographical evolutions, climate changes, the modification of consumption traditions and not only, all these determine changes in the internal mechanics of an economy. In the context of a complex of influential factors, it becomes quite difficult to evaluate the incidence of trade liberalization measures upon the production pattern and employment. Trade liberalization does not lead to an immediate economic growth; generally, one can speak of a transition period in which the economy can face difficulties that are even more serious than before liberalization. Empirical evidences have shown that, on medium and long-term, the benefits resulted from market opening exceed the adjustment costs occurred on short-term. Briefly, trade liberalization facilitates a series of economic benefits, such as (Rodriquez, Rodrik, 2000): - the consumers have access to a wider range of products, where the quality is higher and the prices are lower; - the countries can capitalize their comparative and competitive advantages, by means of an adequate/ efficient specialization; - the manufacturers have the possibility to efficiently utilize the production skills, thus exploiting the advantages coming from scale economies; - new investment opportunities are created/ identified, and the technology transfer is facilitated. The facilitation of technology transfer draws one s attention due to the fact that empirical studies have shown the existence of a direct connection between the commercial flows of a certain country and the overview level of productive factors (this relationship being more visible in terms of capital goods, like machines and equipments). The technology transfer by means of trade depends, on the one hand, on the amount and structure of imports, and on the other hand, on the conditions imposed by the politics of importing nations. It has been proved that customs taxes imposed to the technology import tend to be higher in countries that begin to develop themselves; in most of the states, these taxes are lower than those imposed to other categories of technological items (WTO, 2003: p. 91). Numerous studies have revealed the impact that trade liberalization had upon the evolution of GNP per capita; the OECD estimates upon the existent reality after the ending of Uruguay Round show that the countries which had opened their markets, registered economic growth rates twice higher than other countries (OECD, 1998). Yet, the economists do not want to pronounce concerning the existence of a direct causal relationship between the expansion of free trade and the rhythm of economic growth; the conclusion is that this relationship cannot be seen as a simple coincidence. D. Irwin appreciates that, in spite of some drawbacks related to measuring methods, these surveys have emphasized better performances of countries that manifest an opening towards the exterior, compared with those promoting more restrictive commercial regimes. (Irwing, 2005: p. 48) The colonialism disintegration following The World War II has sharpened the discrepancies between the rich North and the poor South. During the first postwar decades, the goods and services trade was the major binder that connected the two worlds; later on, during the 70s and 80s, the importance of transactions on financial markets increased, especially due to the avalanche of external debts that the developing countries had to face, as well as to their dependence regarding private loans. The main coordinates of industrialization strategies conceived on import substitution were: tariff and non-tariff protection (taking the shape of licenses and trade amount), the control of currency exchange, the subvention of interest rates (as a way of encouraging the investments), and so on; importing consumer goods became the main restriction, whereas importing capital goods was 31

32 affected less. This business regime led to negative effects in the economy of countries that had promoted it, the most affected one being agriculture, which was often the main source of producing goods for export. At the same time, a distorted price system occurred- cheap imported capital, expensive work, export products submitted to taxation, etc.- this system was really incompatible with the actual dimension of the economy, as well as with the existing deficit. McCormick states that during the 50s and 60s, the export controlling system led to a certain industry development and an expansion of both investments and GNP, especially in comparison to the turbulent period of the 30s (McCormick, 1988). The role of the manufacturing sector in the GNP creation, improved itself, reducing the dependence on primary products and inducing a diversification tendency of the exports structure, in the way of increasing the exports with processed items. This is how the period of glory of a strategy based on import substitution came to an end. It is important to mention that the economic successes gained during this period cannot be exclusively attributed to this orientation. Moreover, the tendencies of the following years raise questions regarding the long-term viability of the effects induced by the promotion of such macroeconomic politics. At the beginning of the 70s, the initial success started to fade away; the serious economic distortions had as consequences the reduction followed by stagnation of economic growth. The internal mechanics of economies were affected, among others, by the permanent existence of current account deficits, induced by an overvaluation of exchange rates, by the inefficient usage of both capital and labor force, and last but not least, by the extremely slow improvement rhythm of work productivity in many of the protected industrial sectors (WTO, 2003: p. 101). The infant industries did not properly respond to the expectations related to their growing and developing; the umbrella of the state provided them with a comfortable area, thus reducing the wish for learning and for acquiring technological and managerial modernization (these being absolutely indispensable for improving the competitive spirit and the work productivity). The need for an economic growth model adapted to the world economy pattern was obvious. In Asia, a new growing model was shaping itself, oriented towards export; countries like Korea and Taiwan became known in the world market as exporters of non-traditional manufactured products, thus destroying the myth according to which the South could not keep pace with the North and recommending the new type of export-led growth as a viable one. The Asian miracle has imposed the belief that the role of trade in the economic growth/ development cannot be ignored anymore. The strategy of export- oriented industrialization and growth was conceived around some key elements that made reference to the absence of any exportrestricting measures, to the ability of renouncing or giving protection to the companies that needed it, as well as to the promotion of some macroeconomic politics suitable for the social investments and for the infrastructure. (WTO, 2003: p. 101) South-East Asia is known as a real model of sustainable economic growth; between , twenty- three economies of the region brought forward all the other world areas in terms of growing rhythm. The engine was represented by Japan, the four tigers (Hong Kong, Korea, Singapore, Taiwan), China and the new industrialized economies of South-East, respectively Indonesia, Malaysia and Thailand, whose spectacular economic growth promoted consistently the dynamics of the entire world. One of the reports of the World Bank (1993), concluding upon the studies applied to the HPAEs (High Performing Asian Economies), shows that starting with the 60s, the eight economies had a dynamics twice higher than the other regional economies, three times higher than other world developing areas (Latin America and South Asia), and five times higher than Sub-Saharan Africa; they even surpassed the growing rates of industrialized countries and of nations rich in petrol (World Bank, 1993). The same survey mentions that between , the real income per capita was four times higher in Japan and in the four tigers, and twice higher in the new industrialized economies; HPAEs gained remarkable performances regarding the reduction of differences induced by the wage distribution. 32

33 The high rates of savings, the stimulation of private investments, the great attention paid to human capital are only some of the determinants of this economic miracle. Scientific literature agrees with the idea that macroeconomic management played a fundamental role in promoting the economic performance of HPAEs; in most of these economies, the state interfered systematically through multiple levers, either in order to force the development or to support certain industries (Page, 1994). This interference took the shape of various measures, the most used being subsidizing the credits given to some industries, imposing some restrictions to the interest rate for loans in order to facilitate the profit, protecting indigenous industries capable to substitute the imports, subsidizing the declining industries, establishing some export shares concerning the firm/ branch level, creating some marketing programs for export etc. (World Bank, 1993). It is difficult to estimate what the direction would have been in the case of the economies which lacked the interventionist measures; yet, it can be concluded that this intervention increased the economic growth, and at the same time, diminished its inherent costs. Many politics that had the providing of macroeconomic stability as a main objective had played, at the same time, an important role concerning the stimulation of imports. Apart from Hong Kong, all HPAEs initially proved a powerful reluctance towards exports, yet pleading for politics of import substitution; attracted at first by the mirage of industrialization, and protected by the foreign competition, they abandoned quite rapidly this approach of external relations (Japan in the 50s, the tigers in the 60s), even faster than the other developing countries, and they reoriented themselves towards policy of sustaining the industrial branches linked to exports. In most of the Asian economies, the trade policies took the shape of a mixture between measures of promoting the exports and a moderate, yet flexible protection of imports (World Bank, 1993). An essential determiner of the economic performances in South- East Asia was represented by the opening towards external ideas and technology; the state continuously maintained open some transmission channels, thus encouraging the technological absorption from outside the borders even when the internal markets were protected (Page, 1994). This strategy has transformed South- East Asia into a huge integrated factory, as it is described by R. Baldwin, where the classic production processes on a national level were disintegrated and spread in locations that provide the lowest costs; for instance, the best locations regarding components based on intensive work are China and Thailand, while Japan and Korea stand for the components based on intensive technology. The one-side liberalization of components/ subassemblies trade has played a very important role concerning the construction of this huge factory ; this type of liberalization represents the decisive majority of the intra-areas workflows. (Baldwin, 2006: p. 26) 3. RESEARCH METHODOLOGY AND EVIDENCE OF RELATIONSHIP BETWEEN ECONOMIC FREEDOM AND DEVELOPMENT What needs to be emphasized is that there might be a possible correlation between the economic and trade freedom and development (both material and human). Therefore, we formulate the hypothesis that there is a relationship between economic freedom and development. Both economic freedom and development are complex constructions which cannot be described quantitatively very precisely. Economic theory continues to focus on the quantitative characteristics of development; in this context, we appreciate that GDP per capita reflects more eloquent the level of economic development of a nation, i.e. the ability of an economy to ensure a higher level of prosperity for individuals. But the quantitative approach of the development has its own limits; the GDP reflects, as Samuelson states, the excessive materialism of a society that dedicated itself to an endless production of useless goods (Samuelson, 2001: pp ). Or, as Dinu Marin believes, if the existence of a nation is limited to its material dimension, then progress does not represent but a quantitative sum (Dinu, 2008). 33

34 At the beginning of the 90s, starting from the idea that the manner in which material wealth improves the individuals life standards, there was established inside of UNCTAD an alternative to the quantitative perspective. This one took the shape of a composite index, namely Human Development Index (HDI), which gathers several factors meant to analyze the quality of life, together with the GDP per capita. For evaluation of economic freedom, the Wall Street Journal and The Heritage Foundation have proposed The Index of Economic Freedom (IEF), a complex composite index which "quantify" economic freedom more linked to the principles of classic liberalism (property right, the free movement of goods, capital and labor, the lack of coercive measures, etc.). Index of Economic Freedom is a composite index that provides a comprehensive image of a country's performance; it covers ten areas such as financial freedom, fiscal freedom, labor freedom, government spending, monetary freedom, trade freedom, business freedom, freedom from corruption, investment freedom, property rights. To highlight the relationship between economic freedom and development, we tested the connection between IEF and GDP per capita, on the one hand, and, on the other hand, the relationship between IEF and HDI. The study was based on the data submitted from 178 countries in Index of Economic Freedom 2014 Report and on Human Development Index data 2014 (181 countries). The data has been processed with SPSS for Windows. The correlation matrix, as shown below, reveals a value of the Pearson's correlation coefficient of 0,613, at a minor limit of significance of At this stage, we can reject the null hypothesis and we can accept that there is a strong positive correlation between a dependent variable (GDP per capita) and the predictor variable (IEF); this relationship is obvious in the scatter plot, too. The analysis of correlation chart also reveals a homoscedastic relationship, meaning a linear relationship for the entire amplitude of distribution of the two variables. We think that the results would be much more accurate if we analyze the influence of components of IEF on economic development (GDP per capita). Regression analysis indicates an effect of this correlation estimated at 0,611 (R Square), corresponding to an explained variance of 61,10%; so, we can consider that economic development is influenced by dimensions of economic freedom in a proportion of about 61,10%; the difference is the result of the action of other factors/variables which have not been taken in the analysis in this study. 34

35 Model R R Square Model Summary b Adjusted R Square Std. Error of the Estimate 1,782 a,611, ,64623 a. Predictors: (Constant), financial freedom, fiscal freedom, labor freedom, gov spending, monetary freedom, trade freedom, business freedom, freedom from corruption, investment freedom, property rights b. Dependent Variable: GDP_CAPITA The result of the significance test entitled us to accept that there is a significant relationship between economic freedom and development. ANOVA a Model Sum of Squares df Mean Square F Sig. Regression , ,167 26,257,000 b Residual , ,826 Total , a. Dependent Variable: GDP_CAPITA b. Predictors: (Constant), financial freedom, fiscal freedom, labor freedom, gov spending, monetary freedom, trade freedom, business freedom, freedom from corruption, investment freedom, property rights Model Coefficients a Standardize d Unstandardized Coefficients Coefficients Collinearity Statistics B Std. Error Beta t Sig. Tolerance VIF 1 (Constant) , ,651-1,431,154 Property rights 20, ,184,030,191,849,094 10,608 Freedom from corruption 592, ,969,745 5,245,000,116 8,657 Fiscal freedom 83,082 81,569,066 1,019,310,553 1,808 Gov spending 4,008 42,247,006,095,925,663 1,508 Business freedom,596 75,956,001,008,994,382 2,616 Labor freedom -31,886 56,703 -,032 -,562,575,710 1,408 Monetary freedom -190, ,375 -,102-1,582,115,562 1,781 Trade freedom 143,457 93,718,107 1,531,128,479 2,087 Investment freedom -88,975 67,003 -,122-1,328,186,277 3,606 Financial freedom 122,731 84,248,139 1,457,147,257 3,896 a. Dependent Variable: GDP_CAPITA As we can see, freedom from corruption, trade freedom and financial freedom have a greater impact on the evolution of economic development than other components of economic freedom. Freedom from corruption has the most significant influence; the Beta coefficient indicates a strong positive influence. Trade freedom and financial freedom have a positive influence too, but rather low, on dependent variable GDP per capita. Property rights, fiscal freedom, business freedom and government spending have an almost weightless impact on GDP per capita, while labor freedom, monetary freedom and freedom does not influence the evolution of the dependent variable. To test for a correlation between economic freedom and the qualitative aspects of development, we analyzed the relationship between IEF and HDI. The correlation matrix indicates a 35

36 value of the Pearson's correlation coefficient of 0,613, at a minor limit of significance of At this stage, we can reject the null hypothesis and we can accept that there is a major positive correlation between a dependent variable (HDI) and the predictor variable (IEF), an obvious relationship in the scatter plot, too. The correlation chart also reveals a linear relationship for the entire amplitude of distribution of the two variables (homoscedastic relationship). The effect of this correlation is estimated at 0,415 (R Square), corresponding to an explained variance of 41,50 %; so, we can consider that human development is influenced by economic freedom in a proportion of about 41,50%; the difference is due to the action of other factors/variables which have not been taken in the analysis in this study. Due to the result of the significance test we can accept that there is a significant relationship between economic freedom and human development, too. The Beta coefficient indicates a strong positive influence of economic freedom in human development. So, we can describe the relationship of dependence of the two variables as a regression model expressed by the following equation of regression: y i = 0,010 x i + 0,096 36

37 The studies carried out starting with 1990 have shown, as a dominant tendency, the fact that the countries having high incomes are performing in terms of life quality and vice-versa. However, even if this correlation between a nation s wealth and the individuals life quality is obvious, there are also quite many exceptions; thus, some countries still lack many things regarding human development, even though they obtain high incomes (for example, countries rich in oil). It can be seen that the countries which enjoy relative full freedom, as well as those which are mostly free are performing in terms of development as well (both quantitative and qualitative). On the opposite side there are the countries with restricted economic mechanisms, also suffering regarding the material and human welfare. Without claiming to be a general truth, this correlation sustains the idea that freedom promotes development, and on the other hand, development imposes the expansion of freedom. 4. FINAL REFLECTIONS Economic development. What is in this phrase? We live in an era in which progress has become the main objective not only of the individuals taken separately, but also of the entire nation; unfortunately, one of the permanent feature of the modern world is represented by the gap between the world s rich and poor people. In the second half of the 20 th century and at the beginning of the 21 st century, notions like: primitive, underdeveloped, undeveloped, emergent, developing, have been used to describe a reality that characterizes too many countries, in comparison with those few strongly industrialized, developed nations. Like many other important topics, the development or, better said, the manner of dealing with its inherent features, has a powerful sign of the dominant ideology in terms of each nation and during a certain historical period. Undoubtedly, liberalism has truly changed the world, and it has proved to be the engine that sustained the process of economic and human development. The liberal rhetoric, included in the idea of freedom, emphasizes the individual and everything that freedom signifies (free competition, free initiative, free trade). The catalyst role of liberalism concerning human and economic development is difficult to challenge. The performances of the freest economies or economic entities are a good proof in this way. During the first postwar decades, both the underdeveloped and developing countries have been reluctant regarding the markets opening, trying to get oriented towards the inner areas. The industrial maturity did not respond to the expectations, the state protection offering to the indigenous firms a pretext for not admitting their age. When success was obtained, this politics of import substitution proved to be nothing but a stage in the way of healthy development. The 80s marked a change in terms of considering things, as a result of some internal politics and of pressure imposed by international organisms. The implementing of some measures of trade liberalization and market opening led to new development opportunities. The statistics from international organizations working in the business field state that the income belonging to developing countries has gone three times higher than that of the nations oriented towards their internal economy. Free trade, as a powerful dimension of the economic liberalism, is not necessarily an optimum stage, and at the same time, it is far from being a universal panacea. Even in the case of the present industrialized countries, protectionism has played a temporary role in terms of economic development. Great Britain, the biggest admirer and promoter of free trade, has known the development stage under the state protection. Japan is another well-known example; during the first postwar decades, protected from the external competition, it absorbed and adapted occidental technology, developing itself later on, but imposing itself as a model. As long as it is applied according to the limits of rational economic logics, protectionism is favorable; however, it becomes 37

38 harmful when it is expanded in time. According to the existent contexts, free trade can yet be a viable option worthy of being assumed, with all its drawbacks and possible negative effects. REFERENCES [1] Bacchetta Marc (2003), Jansen Marion, Adjusting to Trade Liberalization, WTO Special Studies, April [2] Baldwin Richard (2006), Multilateralising regionalism. Spaghetti bowls as building blocs on the path to global free trade, paper presented at the World Economy Annual Lecture, Nottingham, UK, June [3] Dinu Marin (2008), The Hominization of the Economy,Theoretical and Applied Economics, AGER, vol. 3(3(520)) [4] Irving, Douglas (2005), Free Trade Under Fire, 2nd edition, Princeton University Press [5] McCormick B.J. (1988), The World Economy:Pattern of Growth and Change, Philip Alan Publishers Limited, SUA [6] Page John (1994), The East Asian Miracle: Four Lessons for Development Policy, în NBER Macroeconomics Annual 1994, Volume 9, Editors Stanley Fischer and Julio J. Rotemberg, MIT Press [7] Pohoaţă Ion (2000), Capitalismul. Itinerare economice, Editura Polirom, Iaşi [8] Rodriquez Francisco, Rodrik Dani (2000), Trade policy and economic growth, Harvard University, May [9] Samuelson Paul (2001), Economie politică, Editura Teora [10] Sen Amartya (2004), Dezvoltarea ca libertate, Colecţia Paradigmele economiei, coordonator Dinu Marin, Editura Economică [11] Smith Adam (1904), An Inquiry into the Nature and Causes of the Wealth of Nations, 5th edition, London: Methuen & Co., Ltd., [12] Stiglitz Joseph, Charlton Andrew (2005), Fair Trade for All. How Trade can Promote Development, Oxford University Press [13] *** The East Asian Miracle. Economic Growth and Public Policy, A World Bank Policy Research Report, Oxford University Press, 1993 [14] *** World Trade Report, 2003, OMC, [15] *** 2014 Index of Economic Freedom, [16] *** Human Development Report 2012, [17] *** Open Markets Matter. The Benefits of Trade and Investment Liberalization, OECD, 1998, [18] ***UNCTAD Statistics, Economic trends, 38

39 The USV Annals of Economics and Public Administration Volume 14, Issue 2(20), 2014 AN EXPLORATORY RESEARCH ON HISTORY OF CLUJ HOTELS Lecturer Ph.D Marius BOTA Babes Bolyai University of Cluj Napoca, Faculty of Business, Romania Abstract: Cluj-Napoca has a long and interesting history. The City of Cluj is considered the capital of Transylvania because it is an important academic, cultural and business center, an interesting tourist destination for various types of tourists. The present study makes an analysis regarding the hotels from Cluj during the 19 th and 20 th centuries. The analysis is focusing on history of the hotels, their market evolution and the stories related to those hotels. This period was chosen for this research because represent the beginnings of the Cluj hotels market. For the investigations it was used exploratory research, obtaining secondary data through different types of sources: history books, published studies, web sites and old pictures. The present research has two main objectives: the first one is to explore the Cluj history in order to identify the hotels present on the market during the 19 th and 20 th centuries; the second one is to revile some stories related to the hotels, owners and buildings. There were identified 11 hotels from Cluj during the 19 th and 20 th centuries. There were not included here the hotels build in the last part of the communist period. At present, the buildings in which were functioned the most important hotels, are on the list of historical monuments from Cluj County. It can be proposed some old pictures and interesting stories about the hotels, the buildings, the guests, in order to attract the tourists. Key words: Cluj hotels history, hotel market, tourism, accommodation, inn JEL classification: L83 INTRODUCTION SHORT HISTORY OF CLUJ-NAPOCA The city of Cluj-Napoca has a long and interesting history. Since the Dacian period, in the territory of the actual city we could find one of the most important Dacian settlements named Napuca. For the first time the name Napuca appears in the Greek geographer Ptolemy writings ( retrieved in ). Originally a simple vicus (village), then a municipality, the settlement is subsequently raised to the status of the colony (Aurelia Napoca Colony), the privilege granted by the roman administration from Dacia (Bogosavlievici and Zmicală, 2014). In the medieval period we can find this settlement under a new name Castrum Clus. The beginning of the 15 th century is the arrival time of numerous groups of Saxon settlers and the obtaining the free city status in 1405, but especially the modernization of the city, extending the city walls and raising the living standards (Bota, 2014). The two world wars together with the interwar period have reserved for Cluj a quite tumultuous destiny, owned successively by the Romanian Kingdom and the Hungarian crown. In 1947 became once again a part of Romania and the Communist regime changed its name in Cluj-Napoca. INTRODUCTION TO CLUJ HOTEL MARKET CONTEXT The City of Cluj is considered the capital of Transylvania because it is an important academic, cultural and business center. Cultural and historical monuments, a diversified portfolio of accommodation establishments, restaurants, clubs, important events, interesting, young and hospitable people and an attractive natural-geographic space make from Cluj-Napoca an interesting tourist destination for various types of tourists (Cosma et al., 2007). 39

40 Before 1990, at the end of communist period, the number of hotels in Cluj-Napoca was 7. Between 1990 and 2000, the number doubled to 14. By the end of 2005 on the Cluj hotels market were registered 29 hotels (Cosma, 2006). In 2013 in Cluj-Napoca and nearby are 55 hotels. It can be said that the 19 th century represents the beginnings of the Cluj hotels market. Starting from the Middle Ages until the middle of the 19 th century the accommodation in Cluj was provided by the inns. The most important inns within the Cluj city during this period can be mentioned: In the Mathias Corvinus house, had functioned an inn belongs to Mehffi Jakab until the In the Middle Ages, the exact address of the inn was 258 Holy Spirit Street (Bogosavlievici and Zmicală, 2014); Quarta Inn where George Cosbuc lived for a long period of time (Bogosavlievici and Zmicală, 2014); Calul Balan / Feher Lo Inn, functioned between the 16 th and 18 th centuries in the buildind called Reduta. The inn was opened in 1604 (Rahovan, 2012); The Szacsvay Inn bought by Biasini. The inn s location appears in documentary sources of the time, being mentioned that was located in front of the Gate Tower of Turzii Street; Another famous inn called La fagadaul lui Matei was placed outside the city walls (Bogosavlievici and Zmicală, 2014). 1. MATERIAL AND METHOD The present study makes an analysis regarding the hotels from Cluj during the 19 th and 20 th centuries. The analysis is focusing on the history of the hotels, their market evolution and the stories related to those hotels. This period was chosen for this research because it represents the beginnings of the Cluj hotels market. For the investigations it was used exploratory research, obtaining secondary data through different types of sources: history books, published studies, web sites analysis and pictures observation. All kinds of media resources were used in order to find information about the investigated subject. The present research has two main objectives: a) To explore the Cluj history in order to identify the hotels present on the market during the 19 th and 20 th centuries; b) To revile some stories related to the hotels, owners and buildings. 2. RESULTS AND DISCUSSIONS The present research started with the identification of the hotels located in Cluj during the 19 th and 20 th centuries. In the paper Short history of Cluj The development of the city, we can find some references about the hotels from that period. Thus, we can find that the Biasini Hotel was opened in 1837; the Pannonia Hotel opened its doors in 1872, renovated and opened later in the years 1890/1891 as the Hotel Central. The construction of the New York Hotel started in 1894 ( retrieved in ). Another source is positioning the Pannonia Hotel opening in the year 1878 (Lukacs, 2009). National Hotel was first mentioned in the sources and the newspapers from that period in 1865 as the second hotel of the city, the first institution of its kind being Biasini Hotel. ( retrieved in ). In the Guide de la Roumanie written by Cicio-Pop Alexandru in 1939, we can find some references for the major hotels from Cluj. The author mentions: New-York Hotel, Central Hotel, Astoria Hotel and Parc Hotel (Rahovan, 2012). 40

41 BIASINI HOTEL - THE FIRST HOTEL IN CLUJ The construction and opening of the Biasini Hotel (figure no. 1) is part of the first modern institutions of the city in the first half of the 19 th century outside the city walls, after losing the defensive role ( retrieved in ). The lack of entrepreneurs in the city of Cluj determined a lot of craftsmen to come from abroad. Thus, in 1818, at the call of his friend Count Béldy, came to Cluj from Milan, Gaetano Biasini, fencing master, a sport very fashionable in that period of time. Biasini settled in Cluj in the same year and then in 1832 he got married to a young woman from Cluj. Biasini started to set up a number of institutions necessary for the modernization of the city: the first carriages in Cluj, played an important role in organizing post-chaises which followed the itinerary Budapest-Cluj-Brasov-Bucarest ( ) and established the first public gymnastics and fencing halls. In 1837 Biasini bought the Szacsvay Inn, located in front of the Gate Tower of Turzii Street. Instead the inn he built a hotel and café, which accounted for many decades a major cultural center of the city. Figure no. 1. Biasini Hotel Source: In this hotel stayed in 1847 the composer Franz Liszt and the revolutionary poet Sándor Petőfi together with his wife, during their wedding trip. In July 1849 the revolutionaries George Baritiu and Nicolae Bălcescu and the writer Caesar Bolliac were clients of the hotel. Bolliac's visit was immortalized by a tin board, placed on the facade in the 1960s, which was removed in 1996 when a new board was settled. In 1847 Biasini hotel had 31 rooms and a bowling alley. The opening of the hotels Pannónia and National (Nemzeti) in the 1860s and 1870s led to the first signs of decline for the Biasini Hotel, that could not face the competition. At the end of the century, the opening of the hotels Central (Központi) and New York, built to the highest standards, where the most famous literary cafes in Cluj were, first led to frequent changes of customers, and then to the closure in In 1913 the hotel with 42 rooms was rented by József Varga, it became a small local theater which offered to the customers various shows or couplets. During the First World War the hotel ran as a popular brothel. NATIONAL HOTEL NEW-YORK HOTEL CONTINENTAL HOTEL National Hotel, opened in the 60s of the 19th century was built in the city center, inside the old fortress of Cluj. National Hotel rooms were positioned on the second floor of the building, the ground floor hosting a restaurant and several shops. In the 1860s the most significant commercial space was intended antiquarian bookshop of the widow of Pál Burian, than in 1870, the space was taken over by the shop for toys and household items rented by Sándor Csapó. National Hotel was demolished in 1894 to provide the necessary space for a modern hotel ( retrieved in ). 41

42 Another hotel, symbol of Cluj was the New York Hotel (figure no. 2), built in the years on the site of the former National Hotel (Nemzeti). It was located in Union Square, on the corner between University Street and Napoca Street (formerly Hay Street). It can be said for sure that it was one of the most luxurious hotels, the first building in Cluj illuminated by its own power plant. In 1895 at its opening The New-York Hotel could provide an accommodation capacity of 110 beds. The rooms were grouped around an inner courtyard, their comfort level varies depending on the orientation - the street or the courtyard - the most luxurious being placed on the east and north sides of the building (Vais, 2009). Already in 1912, the owner, József Feszl has provided to its guests luxurious conditions: central heating, bathrooms, telephone, bowling alley closed and heated and French cuisine. The first owner, the company Steier and Galosh who rented the hotel, brought from Budapest all the equipment and materials necessary for operating the hotel. Everything at this hotel had the monogram NY. It seems that this was the reason for naming the hotel New-York. At the ground floor functioned, more than half a century, a literary and press café where the literary and artistic elite of Cluj always were used to spend their free time. Here was created the literary journal "Gandirea". Figure no. 2. New-York Hotel Source: The café was called "editorial office", being the place of clubs, while having the role of reading room, entertainment and dance. The hotel has become in a short time the most famous hotel of the city due to the fame of the restaurant, the mobile roof of the court and central heating. Among the guests of the hotel it has been noted: Baron Albert Apponyi the president of the Hungarian Parliament, Ferenc Molnár a war correspondent, the famous Hungarian poet Endre Ady and the writer Mór Joka. During the Second World War the building was the headquarters of Gestapo (the Nazi secret police). After the war, in 1950, the hotel became a student hostel and the office of the Medical-Pharmaceutical Institute. Since 1960 the building has gone to another luxury hotel under the name of Continental Hotel (figure no. 3). In the summer of 2005 the Continental Hotel has left the location because the building no longer met the hotel standards. Currently the building has no tenant or function except some cultural events taking place here. We can find the building on the list of Historical Monuments of Cluj County. 42

43 Figure no. 3. Continental Hotel in 1988 Source: a PANNONIA HOTEL CENTRAL HOTEL MELODY HOTEL Opened in the 50's, Hotel Melody is known as the Cluj first jazz nightclub in the postwar period. Instead of the current hotel there were originally two buildings: the city fiscal s office, later the "Fiskus" pub and a hotel named Pannónia (figure no. 4). It is said that in the Fiskus pub were helped getting drunk young peasants who came to Cluj and they woke up soldiers in the Imperial (Austro-Hungarian) Army in which the military service lasted long time (between ten to twenty years depending to the situation). Figure no. 4 Pannonia Hotel in 1887 Source: We can find an impression about the Pannononia Hotel from an article published in New- York Times in 1884: the principal hotel of Kolozsvar is a queer old straggling house, so full of rambling stairs and mysterious passages that I never returned from a walk without a lively curiosity as to what part of the hotel I should ultimately reach and whose room I should enter instead of my own ( retrieved ). In 1890, Gábor Nagy Antal has reconstructed the building after the plans of Endstrasser Oriold and Benedek, by bringing it into its current form. Reopened as Central Hotel (figure no.5), Központi Szállóda in Hungarian language, the building has received famous guests such as: the composers Brahms and Franz Liszt, the archbishop of Eger, József Samassa and many others. 43

44 Figure no.5. Central Hotel in 1914 Source: In the interwar period in the building has worked the Society Social Sisters ("Szociális Nővérek KFT"), on the second floor it was arranged a small chapel. The photos from the last century still preserved the inscription "Pro Deo" on the building, due to the frequent visits of Roman Catholic Bishop of Alba Iulia. After nationalization, in the building was a student hostel and lather the Pescăruş restaurant. ASTORIA HOTEL At the intersection between Horia Street and Dacia Street, in 1910 András Udvardi and the architect Géza Kappeter have built in secession style the Palace Urania, with a modern cinema with 400 seats, 10 shops and 17 apartments. It is considered to be the first mall from Cluj. Figure no. 6. Hotel Astoria Source: Across from the Urania, also around 1900, it has been built Astoria (figure no. 6), one of the most famous hotels of the city. The hotel operated until 1990, when the building became the seat of the Chamber of Commerce and Industry ( retrieved in ). 44

45 REGINA ANGLIEI HOTEL Today s Transilvania Hotel from Cluj-Napoca has an interesting history. The hotel appears in the documents as Regina Angliei Hotel according to the historian Tudor Salagean ( retrieved in ) and Hungaria Hotel according to other authors (Bogosavlievici and Zmicală, 2014). The hotel has an interesting story related to the Bram Stoker s novel called Dracula. It s supposed that Jonathan Harker, the main character, enjoyed the hospitality of the hotel during his overnight stay. In Stoker's novel Jonathan Harker, spends his first night in Transylvania at Royale Hotel from Cluj (Klausenburgh). The historian Tudor Salagean suspects that perhaps the name of the hotel translated in English Queen of England impressed Stoker. In the novel the hotel is called Royale, and only approached to this name would be Queen. The Royale Hotel can not be found between Cluj hotels in 19 th century, although it should be noted that, in that period the hotels often changed their names ( retrieved in ). In the table below (table no. 1) we can find the old hotels from Cluj during the 19 th and 20 th centuries. In the table were not included hotels build in the last part of the communist period (Napoca, Sport, Transilvania/Belvedere and Victoria). Table no. 1. Cluj hotels during the 19 th and 20 th centuries No. The name of the Opening year Closing year Remarks hotel 1 Biasini Interesting stories Historical monument Old pictures 2 National / Nemzeti Interesting stories 3 New-York /48? Historical monument Interesting stories Old pictures 4 Continental Historical monument Interesting stories Old pictures 5 Pannonia Historical monument Interesting stories Old pictures 6 Central / Központi 1890/ ? Historical monument Interesting stories Old pictures 7 Melody 1950/60 present Historical monument Interesting stories 8 Astoria 1900/ Old pictures Interesting stories 9 Ferencz Jozsef not available not available Old pictures 10 Regina Angliei not available not available Historical monument Interesting stories 11 Parc not available not available - Source: produced by author About the National Hotel we know that it was demolished for the New-York Hotel to be built. The closing year for the New-York and Central hotels is considered to be 1948, the nationalization year. Concerning the Ferencz Jozsef, Regina Angliei and Parc hotels, the opening and closing year for those hotels are not available. The Parc Hotel is mentioned in only one source that could be found (in the Guide de la Roumanie written by Cicio-Pop Alexandru in 1939). We found out about Ferencz Jozsef Hotel from old pictures. The building still exists and belongs to the Faculty of Business, Babeş-Bolyai University. 45

46 Figure no. 7. The timeline for Cluj old hotels Source: produced by author In the figure above (figure no. 7) it can be seen a timeline for Cluj old hotels from the 19th and 20th centuries. As we can see Biasini Hotel and Astoria Hotel remained on the market the longest period of time (approximately 90 years). The hotels were concentrated in four major buildings, presently representing tourist s attractions. 3. CONCLUSIONS The conclusions of the present research concerning the hotels are: The Biasini Hotel is known as the first hotel from Cluj; Continental Hotel is considered to be the most famous hotel in the communist period; Astoria it seems to be the only hotel having the same name during the 20 th century; Melody Hotel is the only one from the old hotels still on the market; At present, the buildings in which were functioning the most important hotels, are on the list of historical monuments from Cluj County; The majority of the hotels were concentrated in four major buildings, presently being tourist s attractions; The closing motives are different for each hotel: competition, new hotels in the same building or at the same spot, the nationalization and the today s hotels standards; It can be proposed some interesting stories and old pictures about the hotels, the buildings, the guests, in order to attract the tourists. The identification of all the hotels from Cluj during the 19 th an 20 th centuries represents an objective difficult to accomplish due to the several factors: The long studied period (the 19 th and 20 th centuries); The poor electronic available resources; The languages in which the references can be found (Hungarian, Romanian, French); The difficulty to identify the buildings from old pictures and the year when the picture was taken The frequently change in the names of streets, companies, brands. 46

47 BIBLIOGRAPHY 1. Bagosavlievici, V-A., Zmicală, L. (2014), Clujul văzut şi nevăzut, Ghid istorico-turistic, Editura Mega, Cluj-Napoca 2. Bota, M., (2014), A short history of Cluj hotel market, Proceedings of The International Conference, Entrepreneurship in the Hospitality Industry, Risoprint, Cluj-Napoca, pp Bugheanu, I., (2014), Cluj-Napoca: istorie şi cultură în inima Transilvaniei [retrieved in ] 4. Cosma, S., (2006), Tourist Destination Cluj-Napoca, Romania, Studia Universitatis Babeş- Bolyai, Negotia, 2, pp Cosma, S., Bota, M., Negruşa, A. (2007), Marketing mix analysis for Cluj-Napoca hotel market, Romania, Pro-Active Partnership in Creativity for the Next Generation, Proceedings on the 31 th Annual Congress of the American Romanian Academy of Arts and Sciences, Presses Internationales Polytechnique, Quebec, pp Lukacs, J., (2009), Povestea oraşului comoară, Editura Apostrof, Cluj-Napoca 7. Mihaly, M., (2012), Fostul Hotel Biasini, Cluj-Napoca, [retrieved in ] 8. Mihaly, M., (2012), Hotel Continental (Fostul Hotel New-York), Cluj-Napoca, [retrieved in ] 9. Rahovan, A.-L., (2012), The individualization of the hotel as tourist attraction in the urban area of Transylvania, Forum geografic. Studii şi cercetări de geografie şi protectia mediului, Volume XI, Issue 2, pp , Rahovan, A.-L., (2013), The old hotels of Transylvania: heritage tourist resources, Forum geografic. Studii si cercetări de geografie si protectia mediului, Volume XII, Issue1, pp , Vais, Gheorghe, (2009), Clujul eclectic, programe de arhitectură în perioada dualistă , UT Press, Cluj-Napoca [retrieved in ] Un turist american la Cluj, în 1884, [retrieved ] [retrieved in ] %9Bi-c%C4%83?&Itemid=202 [retrieved in ] [retrieved in ] [retrieved ] [retrieved in ] [retrieved ] [retrieved in ] 47

48 The USV Annals of Economics and Public Administration Volume 14, Issue 2(20), 2014 BUCHAREST HOTEL MARKET IN THE EUROPEAN CONTEXT Lecturer Ph.D. Silvia Patricia DODU Romanian American University, Bucharest, Romania Lecturer Ph.D. Ioana Cristiana PATRICHI Romanian American University, Bucharest, Romania Abstract: The European hospitality industry currently sees an increase in all specific indicators, a fact that shows, on one hand, the ability of this sector to overcome the economic turbulences of recent years, but also the real perspectives for future growth. Today s hotel industry can no longer rely on the traditional growth methods, and needs to prepare for the major confrontation with the next-generation technological developments that generate modern marketing channels but, by default, incur significantly higher costs for simply being on the market. The Bucharest hotel market is no exception; in the recent past, it has witnessed a slight upwards trend generated by the increase of demand in the business tourism area, while also facing the challenge of integration of modern technologies in the hotel business. Key words: hotel sector, Bucharest hotel market, hotel performance JEL classification: L83 1. INTRODUCTION Hotel industry through its position within the tourism system, meets many features of globalization: one of the largest economic sectors, international expansion, scale economy by great internationally operations, important export sector and generator of jobs, place of interference of cultures, nationalities, values and different traditions, both in terms of employees and customers and the transshipment of the operations abroad. The hotel chain becomes the place where travelers from all over the world meet with local employees and the management model of the owner company interfere with the cultural model, often completely different of the country where the hotel is located. We admit that the hotel becomes a cultural mixture where all the parties must learn the lesson of tolerance and respect for other nations and values and accept that hospitality is in the very core of the globalization process, being a force that stimulates the development of environment business: generates economic development and metaphorically "secondary residence" to those traveling to build new business development, increasing trade and promoting new-technologies the business travelers. "Hospitality industry plays a psychological important role in bringing people together in a global community" [1]. The size of the hospitality industry now exceeds any imagination. "In a single day, in the world, 500 million people use the services of a restaurant, while 300 million are staying overnight in hotels and other tourism structures in different parts of the world."[2] 2. EVOLUTIONARY FEATURES OF THE HOTEL INDUSTRY In the last decade, the hotel sector has known substantial changes in both the hoteliers view on the sector and its development, which is under the empire of technological evolution and also the behavior of customers consuming such services. Cross - border hotel companies were created as a result of identifying the development potential of this industry toward new destinations, after the local and regional development, as well as a need for the passengers safety, the quality of service, certainty in ensuring food and accommodation when traveling. 48

49 It is about the market need for hotel brands, especially since their development occurred when the access to these services was difficult. Major transformations of the sector were caused by market opportunities and of the steady growth in demand for all hotel segments and they materialized in the creation of alliances and hotel groups, generalization operations related to purchases or sales of property, the massive investment increase in the development of hotels for customer business and leisure component, creating numerous hotel brands of the identification of market niches or segments of untapped demand that have resulted in a highly competitive environment and thus to an overall development hotel quality standards. The expansion of global hospitality did not exhausted the potential of the market, for the future suggested development trends not only territorially (the conquest of new markets), and especially in terms of increasing the quality of products: innovations of the hotel concepts, raising the bar in terms of quality benefits, hotel typology diversification interrelated with consumer needs. If in the 70s and 80s of sec. XX, through the implementation of the hotel brands standards of architecture, design and hotel benefits in the own networks resulted in a certain uniformity of brand hotels, designed to lead to an easier recognition of the mark, in present, the international hotel market applies to all the individualization and uniqueness principle within the same brand, respecting the standards of quality benefits and deceiving a typical atmosphere of the brand. Also, as general trends of modern international hotel market can be specifyed that related to hoteliers common vision ability to create for their present and future business, to experience new design techniques, to create and maintain a high quality of services regardless of hotel segment addressed. The flexibility of pricing policies, of the winning methods for customer loyalty, of strategy implementation for customization services and unique benefits, paying speciall attention to detail, the employee orientation and active involvement in the results represent values of modern hospitality industry, leading to a clear separation of hotel new trend, a new vision for the millennium. Modern hotel must provide sensations and color, harmony and animation, but above all, the feeling of being "home". The characteristics of a successful hotel evokes professionalism, innovation, respect for people and the environment and, last but not least, the prestige, and the strategies necessary to combat the competition with the product differentiation and diversification. The hospitality sector has unprecedented expansion mainly due to the interest of big hotel groups in profitable investments in new markets, and the general development of tourism. However, the major role in this development is of the great players in the hospitality, the giant hotel companies who compete both to increase hotel portfolio and also to obtain the international recognition through a major expansionist policy. Along with hotel groups, there are on the market a variety of hotel consortia formed by association of independent hotels and hotels holding idividually. Note, however, that the global hotel industry is dominated by independent hotels, the literature estimating that they hold about 80% of the market, while the groups have a share of only 20%. The fact is that the hospitality industry, only through accommodation capacity (in addition to hotels, there are many other types of tourist accommodation from motels, guesthouses, cottages, campgrounds, private homes and apartments in luxury accommodation until river and sea vessels or other alternative structures) is impossible commensurate globally. Currently there are a number of methods to quantify the volume of tourism, but in the absence of international cooperation for the development of complete statistics for each country's specific indicators, the assessed value is often based on qualitative research. According to Eurosif [3], there are over 300,000 hotels worldwide (but with an unknown accommodation capacity), out of which only about 60,000 are integrated hotels owned by hotel companies operating locally, regionally and internationally. The multinational hotel chains, even though they do not hold a dominant position based on the number of properties managed, still lead in terms of general trends and developments in the sector, being able to set the standards currently driving market developments and service quality improvements. 49

50 The market reports from industry shows a positive situation for the international hotel sector, showing the development trends on geographical areas: -Asia region: China emerges through global investment opportunities due to tremendous growth in demand forecasts. All major hotel chains battle to expand in this market on all hotel segments. In Japan stands luxury hotel development, while in India, the market opens its doors to the world and allow the entry of international companies; -Eastern Europe and Russia are seen as having significant growth potential for profitable business for investors in the hospitality industry, due mainly to the current lack of accommodation capacity and poor infrastructure development in the tourism industry; -Latin America conveys recovery period and stabilise the economy, a fact that generates a real interest of investors for the segments of "luxury" and "upscale"; -Middle East passes through phase of overall economic development that allows the deployment of grandiose projects in the hotel industry; -Australia develops massively the tourism sector implicitly the hotel sector; -USA is going through a period of stagnation in investment, and Western Europe is in a slight decline, although Mediterranean Sea area continues to be of interest to foreign investors. The increasing of the tourist traffic as predicted by WTTC is surely premises optimistic for hospitality industry and the development of new hotel properties all over the world. 3. HOTEL MARKET IN EUROPE Europe continues to hold first place in the classification of international destinations, with more than 560 million visitor arrivals in 2013, with increases in all tourism indicators. In this context, at the European level, the market hospitality becomes increasingly stable, having developed under the auspices quality standards, becoming part of investments by market performances recorded and the dynamism of the sector. Regarding the top of the largest European hotel companies, in the year 2014, French hotel groups have the important places, Accor, has the first position, while Louvre Hotels Group is on the fourth. In Europe, "Accor differs considerably from rivals: the group has almost 3 times more rooms than the closest competitor, and they even managed to consolidate their position on the market in 2013 with an increase of 1.6% of the number of rooms, and a net increase of 43 hotels only on the continent".[4] On the whole, by analyzing "Top 10 oh Hotels Groups in the European Union", accomplished by MKG Hospitality, shows an increase in the capacity of the accommodation for 7 hotel companies, during which 3 hotel groups, IHG, Louvre Hotels Group and NH Hotels have a slight decrease in the number of rooms, a fact that proves the situation relatively stable for European hotel market in the context of the difficulties due to post crisis period. Top hotel groups in Europe are mostly present in the Bucharest market by brands in franchise or management contract: Accor represented by 4 hotels (2 Ibis hotels, 1 Novotel hotel, 1 Pullman hotel), Best Western with 2 hotels (Best Western Stil and Best Western Plus Mari Villa), IHG 2 hotels, InterContinental and Crowne Plaza, Hilton Hotels (Hilton Athenee Palace hotel and DoubleTree by Hilton), Carlson Rezidor by Radisson Hotel Blu and Park Inn in pipelines, while Marriott and NH groups were present with one brand hotel from their portfolio. 50

51 Figure no. 1- Top 10 of Hotels Groups in The European Union) (Source: MKG Hospitality) In terms of performance indicators of major European hotel market, most towns know a gradual economic recovery, without reaching the peak recorded in According to PWC, 2013 "while both occupancy and ADRs is returning to their 2007 highs, the recovery in occupancy has been stronger; occupancy at 67.4 % in 2013 was very close to the 2007 high of 68.0 percent in By contrast, ADR was further behind, at compared to in 2007, i.e. 5.7% lower than the pre-recession levels in nominal terms but 17.9 % lower in real terms". [5] ADR means average daily rate. It represents a measure of the average rate paid for rooms sold, calculated by dividing room revenue by rooms sold. (ADR = room revenue / rooms sold). The ADR index measures a hotel s ADR performance relative to an aggregated grouping of hotels or market. To calculate an ADR index: (Hotel ADR / Aggregated group of hotels ADR) x 100 = ADR index). [6] As mentioned by STR Global, in their report for July 2014, Europe's tourism indicators increased year over year, ADR reached , occupancy 67.2 % and RevPar [7] Based on estimates, in the period , most of the European cities will increase in light of the major hotel indicators, with cities such as London, Paris, Geneva and Edinburgh ranked at the top of the list. Bucharest, although outside the Top 18 European tourist cities, would still be part of an extended list of such important European tourist cities. By analyzing the 2013 data from the table above, we can note, however, that Bucharest is within striking range compared to the cities ranked last among those analyzed by PWC: 2.8% lower vs. Madrid in terms of room occupancy rates, 5 lower vs. Prague for RevPar, and actually slightly higher (+ 4) vs. Prague for ADR. 51

52 Table no. 1 City Hotel Performance OCC % ADR Rev Par OCC % ADR Rev Par London (82.4%) Geneva ( 232.1) Geneva ( 151.3) London (82.7%) Geneva ( 230.5) Geneva ( 152.3) Paris (81.2%) Zurich ( 193.5) Zurich ( 139.9) Paris (81.7%) Zurich ( 196.4) Zurich ( 142.7) Edinburgh (79.6%) London ( 159.2) London ( 131.1) Edinburgh (81.5%) London ( 163.8) London ( 135.5) Dublin (78.7%) Paris ( 150.7) Paris ( 122.3) Dublin (79.0%) Paris ( 155.2) Paris ( 126.9) Amsterdam (75.4%) Roma ( 142.6) Rome ( 95.5) Amsterdam (75.2%) Rome ( 144.3) Rome ( 96.7) Berlin (72.6%) Moscow ( 139.9) Moscow ( 94.5) Berlin (72.8%) Moscow ( 134.4) Moscow ( 92.2) Zurich (72.3%) Milan ( 127.7) Amsterdam ( 89.9) Zurich (72.7%) Milan ( 128.1) Amsterdam ( 90.5) Barcelona (71.7%) Frankfurt ( 120.7) Barcelona ( 83.9) Barcelona (71.9%) Frankfurt ( 123.9) Frankfurt ( 84.9) Vienna (70.6%) Amsterdam ( 119.3) Frankfurt ( 82.53) Vienna (71.2%) Amsterdam ( 120.4) Barcelona ( 84.9) Prague (69.3%) Barcelona ( 116.9) Milan ( 80.8) Prague (69.7%) Barcelona ( 118.2) Milan ( 82.4) Moscow (67.5%) Brussels ( 110.5) Edinburgh ( 74.2) Frankfurt (68.6%) Brussels ( 111.3) Edinburgh ( 76.4) Frankfurt (68.3%) Vienna ( 94.5) Brussels ( 73.9) Moscow (68.6%) Vienna ( 96.2) Brussels ( 74.0) Last Rank Madrid (61.4%) Prague ( 70.5) Prague ( 48.8) Madrid (61.9%) Prague ( 69.7) Prague ( 48.6) Source: and-2015.pdf Bucharest (58,6%)* Bucharest ( 74)* Bucharest ( 43)* n/a n/a n/a *Source:Colliers International Real Estate Market Review, Research & Forecast Report January 2014 Romania Colliers International Occupancy is the percentage of available rooms that were sold during a specified period of time. Occupancy is calculated by dividing the number of rooms sold by rooms available. OCC Index is designed to measure a hotel's share of the segment's (comp set, market, tract, etc.) demand (demand = rooms sold): (Hotel Occupancy / Segment Occupancy) x 100 = Occupancy Index.[8] RevPAR (revenue per available room) - Revenue per available room (RevPAR) is the total guest room revenue divided by the total number of available rooms. RevPAR differs from ADR because RevPAR is affected by the amount of unoccupied available rooms, while ADR shows only the average rate of rooms actually sold. Occupancy x ADR = RevPAR[9] Table no. 2- Bucharest Hotel Performance ADR RevPAR OCC% 62% 54% 58% Source: Bucharest City Report -Q4 2013, Bucharest City Report -Q

53 Bucharest, as the most European cities can recover from economic crisis, but has not reached the values recorded in 2008 for hotel performance indicators: 74 in 2013 to 121 in 2008, meaning (- 47) in case of ADR, and ( ) in case of RevPar. Figure no. 2- Bucharest Hotel Performance (Source: STR Global from Jones Lang LaSalle-On Point, Bucharest City Report -Q4 2013) According to INSSE, in Bucharest, in 2013 were operated 108 hotels (strictly hotel units, excluding any other structures of receipt type hostel, tourist boarding houses, etc), with a total capacity of beds, representing an average of 165 hotel rooms. The most important hotels entered in the tourism circuit are Europe Royale, with 90 rooms, Cismigiu Hotel, with 60 rooms, and Marshall Garden Hotel, 63-rooms, classified at 4 and 5 stars (see Table no 3). Table no 3-Hotel Groups present in Romania Hotel Groups Wyndham Hotel Group Total rooms and hotels in Romania 1,857 rooms 11 hotels Accor 1,221 rooms 6 hotels Total Rooms and Hotels 1,195 rooms 5 hotels 852 rooms 4 hotels Hotel Chains present in Bucharest Hotel Name, Number of rooms, Classification Howard Johnson Grand Plaza Hotel, 285 rooms, 5 stars Ramada Park Hotel, 267, 4 stars Ramada Plaza Bucharest, 300 rooms, 4 stars Ramada Majestic Bucharest Hotel, 111 rooms, 4 stars Ramada Hotel & Suites Bucharest North, 232 rooms, 4 stars Pullman Bucharest - World Trade Center, 203 rooms, 4 stars Novotel Bucharest City Centre, 258 rooms, 4 stars Ibis Palatul Parlamentului, 141 rooms, 3 stars 53

54 Hilton Worldwide Carlson Rezidor Best Western Group de Louvre 728 rooms 5 hotels 718 rooms 1 hotel 635 rooms 9 hotels 632 rooms 5 hotels 360 rooms 2 hotels 718 rooms 1 hotel 95 rooms 2 hotels 151 rooms 2 hotels Ibis Gara de Nord, 250 rooms, 3 stars Athenee Palace Hilton Bucharest, 272 rooms, 5 stars DoubleTree by Hilton, 88 rooms, 4 stars Radisson Blu Hotel Bucharest 718rooms, 5 stars Best Western Stil Hotel, 30 rooms, 4 stars Best Western Plus Mari Vila, 65 rooms, 4 stars Golden Tulip Victoria Bucharest, 81 rooms, 4 stars Golden Tulip Times Hotel, 70rooms, 4 stars IHG 421 rooms 2 hotels 421 rooms 2 hotels InterContinental, 257 rooms, 5 stars Crowne Plaza Hotels & Resorts, 164 rooms, 4 stars Marriott 402 rooms 402 rooms JW Marriott Bucharest Grand Hotel, 5 stars International 1 hotel 1 hotel Vienna 177 rooms 177 rooms Angelo Airporthotel Bucharest, 177 rooms, 4 stars International 1 hotel 1 hotel NH Hoteles 161 rooms 78 rooms NH Bucharest, 78 rooms,4 stars 2 hotels 1 hotel Europa Group 92 rooms 92 rooms Europa Royale Bucharest, 4 stars 1 hotel 1 hotel K+K Hotels 67 rooms 67 rooms K+K Hotel Elisabeta, 4 stars 1 hotel 1 hotel Total 7,111 rooms 45 hotels 4,608 rooms 23 hotels Source: Market statistics compiled by the authors Bucharest hotel offer consists in particular of hotels classified at 3-5 stars (about 70 %), hotels of 1 and 2 stars being least represented at city level, representing approximately 28% of the total hotels. The presence of international hotel chains is still very limited, with only 7.4% of rooms being affiliated to hotel chains, which is very low comparing to the European average (close to 30%) [10]. There are 12 hotel groups present in Romania, with a total capacity of 7,111 rooms in 45 hotels. Most chain hotels are located in Bucharest, 64.8 % of the total affiliated accommodation capacity, representing a number of 23 hotels with a total of 4,608 rooms. The tourism market statistics offered by prestigious Romanian consulting firms do not coincide with those offered by the Romanian Institute of Statistics, which presented for Bucharest a total of 136 accommodation units in One of the most renowned consulting firms and market analysis in the hotel industry, Trend Hospitality Consulting & Management, announced in 2013 a total of 168 hotels in Bucharest, with a total of 10,479 rooms. Comparable data is difficult because the National Statistics Institute shows only statistical capacity accommodation in bed places: 17,854 beds in hotels and 18,586 beds in all accommodation units in Bucharest. Table no 4- Bucharest- Hotel Supply Development No of rooms No of hotels % vs Upper Scale 1,823 1,681-7,8% 9 10 Upscale 5,601 5,342-4,6% Midscale 2,760 2,338-15,3% Budget 1,175 1,118-4,9% Total 11,359 10, Source: Trend Hospitality Consulting &Management, 2014 Report 54

55 Hotel supply decreased over the past five years, but there are some signs of stabilization and growth, although the investment activity in the hotel market is still low (there are only 2 hotels in pipeline for 2015). In regards to the tourism demand, Bucharest is visited by a little over than 1 million tourists annually, with an increase in the number of arrivals over the last few years (up to 1.3 million tourists in 2013, with over half of them foreign tourists). Table no.5- Offer and demand tourism indicators for hotels in Bucharest Number of Hotels Accommodation capacity Total hotel arrivals Foreign tourists in hotels Foreign tourists in percent 57,4% 59,4% 57,6% 54,2% 54,8% 55,3% Source: Another important aspect is the structure of demand in terms of the reason for the visit, with business tourism being more prevalent in the capital city, while the leisure tourism represents a significantly smaller component. According to the "Bucharest City Report Q4 2013" by Jones Lang LaSalle Bucharest remains relatively underdeveloped as a tourist destination, relying particularly on business travelers and a more varied selection of hotels would allow the capital to develop as a city break destination for both domestic and foreign guests alike and consequently attract a higher level of foreign investor interest [11]. 4. CONCLUDING REMARKS The challenges facing the hotel owners in Bucharest do not refer only to destination attractiveness, but also, to problems generated by digital technology and the Internet, the network of distribution channels that generate extra marketing costs for the sale of hotel rooms, to ease the burden on human resources preparation area of information and communication technology, but also accessing clunky and expensive by small independent hotels of these new technologies. The easy access to the Internet and to multiple types of mobile applications are about to transform the traditional methods of reservations, moving from those based on commissions to formulas based on clicks, which raise the booking costs significantly. In a current landscape dominated by numerous online distribution channels that placed the ability to book at just a click away, paradoxically, hoteliers are facing higher booking costs compared to the earlier period, when booking fees charged by traditional intermediaries were relatively tolerable. Another aspect consists in the changing behavior of the customers, who are influenced by marketing, by the presence of the hotel on certain distribution channels, forcing hotel owners to come into the game of modern distribution, but with higher costs. Another challenge for hotel consists in countering competition carried out by hotel alternatives, like apartments for rent or other forms of accommodation, which, as a result of Internet become accessible to consumers everywhere, drawing in particular by advantageous prices. Bucharest hotels are faced with this type of competition, as these apartments offer rich hospitality, convenient locations in the heart of the city, while charging very convenient tariffs of about /night. Most rent/vacation rental apartments are offered through specialized sites such as "Next- Accommodation" or "Luxury Apartments", which offer, in addition to reservations, specialized 55

56 transfer services. The category apart hotels are becoming better represented in Bucharest, offering not only accommodation, but other services like bar, room-service, parking facilities or Wi-Fi. Appropriate SS Residence Unirii, located in the center of Bucharest, provides 4-star services at prices in the 40 per room-range and higher. In the context of so many threats, European hotel owner s fight to discover or to implement new methods to overcome all the obstacles still generated not only of economic crisis, but also by the new trends which require rapid changes in the traditional way of selling rooms. ENDNOTES [1]Roger S. Cline, Hospitality Adjusts to Globalization, Arthur Andersen & Co. SC, p. 1, web: [2] Jones,Peter- Hospitality mega trends, Tourism Business Frontiers-Consumers, products and industry, Edited by Dimitrios Buhalis and Carlos Costa, Elsevier Ltd., 2006, p.193. [3]Eurosif, European Sustainable Investment Forum, Hotel and Tourism Report, [4] Hospitality On- Ranking of hotel groups in Europe: French champions hold fast, but France loses market shares, [5] PwC- Room to grow- European cities hotel forecast for 2014 and gateway cities, Amsterdam to Zurich, March 2014, pdf [6], [8], [9]/ Hotel-Industry-Terms-to-Know, Know [7] A Strong Start in 2014, STR Global Reports Occupancy Rate & Tariffs Up for Bucharest Hotels, [10] Lucian Marinescu from Trend Hospitality in H1 2013Romania Market Overview & outlook 2013/2014, The Advisers in association with Knight Frank, [11] Jones Lang LaSalle-On Point, Bucharest City Report -Q4 2013, BIBLIOGRAPHY 1. Roger S. Cline, Hospitality Adjusts to Globalization, Arthur Andersen & Co. SC, p. 1, 2. Colliers International Real Estate Market Review, Research & Forecast Report January 2014 Romania Colliers International 3. Patricia, Dodu- Industria turismului si dezvoltarea economica durabila. Strategii si optiuni, Doctoral Thesis, Academia Romana, EY Global-hospitality-insights-2014.pdf 5. Eurosif, European Sustainable Investment Forum, Hotel and Tourism Report,web: 6. National Institute of Statistics/ 7. Jones Lang LaSalle-On Point, Bucharest City Report -Q4 2013, 8. Hospitality On- Ranking of hotel groups in Europe: French champions hold fast, but France loses market shares, 9. Jones,Peter- Hospitality megatrends, Tourism Business Frontiers-Consumers, products and industry, Edited by Dimitrios Buhalis and Carlos Costa, Elsevier Ltd., 2006, p PwC- Room to grow- European cities hotel forecast for 2014 and gateway cities, Amsterdam to Zurich, March 2014, 56

57 11. STR Global- A Strong Start in 2014, STR Global Reports Occupancy Rate & Tariffs Up for Bucharest Hotels, Agerpres, Bucharest, Romania, 2014, STR Global, European Chain Hotels Market Review January Lucian Marinescu from Trend Hospitality in H1 2013Romania Market Overview & outlook 2013/2014, The Advisers in association with Knight Frank, 57

58 The USV Annals of Economics and Public Administration Volume 14, Issue 2(20), 2014 FEATURES OF THE CAPITAL MARKET S EVOLUTION IN ROMANIA IN THE CONTEXT OF THE TURBULENCES PRODUCED BY THE FINANCIAL CRISIS Lecturer PhD Carmen BOGHEAN Ştefan cel Mare University of Suceava, Romania carmenb@seap.usv.ro Abstract: The international financial markets, through the ampleness and speed with which envolve, are in an unprecedented process of change. Through their functioning, the stock markets have always been characterized by a high sensitivity degree to the changes that take place at investors level, on the developments and perspectives of the real economy and of the financial system. The international economy is in a continuous reorganization and transition process, with impact on all nations, these being under the necessity of adapting to the rapid changes that occur worldwide. This restructuring process is led by two dynamic and independent forces: the enhancement of the world s economy globalization process and the emergence and development of the regional economic arrangements. Even if in 2007, through its membership to the European Union the local capital market benefited from substantial funds inflows, the signs of the global financial crisis initiated in the United States became obvious, 2008 being one of the most difficult years. Due to improper risk management, to the rating agencies failures in risk assessment, to inappropriate application of the regulation and control, the existing regulatory and supervisory framework failed to prevent the crisis occurence. In the context of globalization and integration into the unique capital market of the European Union, we achieved a blueprint of the internal capital market, in order to identify the main issues that it faces, as well as its developments and perspectives. Key words: financial crisis, capital market, investors, foreign capital invasion JEL classification: G01, G12, G15 1. INTRODUCTION Among the most important modifications produced in the global financial markets were those related to the integration and globalization acceleration phenomenon. This evolution directly determined by the liberalization of the national financial markets, the rapid technological progress and the huge developments in the telecommunications field led to the emergence of new investment and financing opportunities for the financial markets participants worldwide. [1] The national capital market is one of the emerging markets, Romania initiating an economic growth process but failing to reach a high level of development, being characterized by a substantial degree of economic and political instability. Even though the stock market s creation and consolidation process began a long time ago in Romania, its advances proved to be minor, the Romanian capital market being far from reaching a development level that allows it to exercise its main role, that of financing the economy. The importance of the capital market resides in the fact that it represents a benchmark of the functional market economy s evolution and development degree, its existence and development level becoming for the national economy a condition that must be met. 2. THE IMPACT OF THE INTERNATIONAL FINANCIAL CRISIS ON THE CAPITAL MARKET The capital market s slowed down progress also resides in the fact that Romania after approximately a half of century in which did not benefited from a stock market, it basically started from scratch, without experience and without having a developed infrastructure and institutional 58

59 personnel. Among the causes that affected this market s development, we can mention some internal ones, such as high interest and inflation rates, economic environment s low profitability, economic recession, late and incomplete enactment of the securities legislation and its frequent change, but also a series of external financial events, such as the Asian crisis, initiated at the end of 1997 and the 1998 Russian crisis. [2] It must also be taken into account the national economy s maroeconomic context of the last 10 years, characterized by a foreign capital invasion that took over most of the local production factors, a banking system burst that provided loan capital at historically low costs (the LIBOR for USD registered the decade with the lowest average in the history of USD s existence), and the few Romanian entrepreneurs start-ups benefited from private-equity type structures financing (that in turn were funded by the home markets at historically low costs). The capital market is a field of activity whose existence and development depends both on its institutional components and financial availability, as well as mostly on the trust inspired by its mechanisms and the behavior of those who lead it and of those who directly perform market specific operations. The explanation can be found in the fact that these operations can considerably impact on issuers and investors economic and financial interests through numerous controllable variables, such as: the moment chosen for their initiation, the charged price, the way of using information, the used method. The capital market s ascending or descending trend, respectively the registered progress or setbacks are calculated based on quite a relevant criterion, namely market liquidity. In analysts opinion, the Romanian capital market is not a liquid market, only the Bucharest Stock Exchange listed shares and the very few shares traded on the RASDAQ market ensure investors with a reasonably liquidity. Another problem faced by the national market is that due to the instability of the legislative framework, the financial blockage and the high interest and inflation rates, the public bonds issuances funding mechanism is underused, the bonds failing to provide an alternative to the shares investments. Also, in the problem of bond issuances, Romania, as it can be seen in the chart below, has the same values as in 2010, at the lowest level, both as instruments number as well as value, compared to the similar size capital markets, namely those of Central and Eastern Europe. Of the Central and Eastern Europe stock exchanges, Vienna has the best results (with 3670 series, most issued by companies), followed by the Warsaw Stock Exchange (142 series), the Bratislava Stock Exchange (132) and the Budapest Stock Exchange (112). The Bucharest Stock Exchange with 55 listed series out of which 53 series issued by municipalities, outperformed even by the Sofia Stock Exchange, where 69 bonds series are listed. The Romanian bonds market has such a low level compared to those in the proximity, because of the disparities between interest rates and capital cost for local companies. From an operational point of view, the capital market is not very high, and the speculations, the transactions with social character and the cross trade disrupt the rates normal distribution, the truthfulness and homogeneity of investors prices anticipations. Figure no.1 The number of bonds issuances in Eastern European stock exchanges (2010) Source: Proper processing after the National Securities Comissions report, (CNVM),

60 The most important argument for the inefficiency of the Romanian capital market is the informational one. Although the listed companies have the obligation to periodically elaborate reports regarding the financial situations, managers and auditors reports, on the Romanian capital market the lack of public information is felt, fact that can influence investor s decisions as they take into account the issuers appreciation prospects. Therefore an impaired communication relation was established between issuers and investors. The issuers are reluctant in exposing more than required to by the supervisory and regulatory authority, fearing that competitors might use their "weaknesses" to their disadvantage. When concerning the listed stocks prices information, things are clear, these information being immediately available (including on the Internet), not the same can be said about the information of the listed compnies, in Romania being possible to speak of an informational asymmetry. There still are listed companies on which exist only occasional periodic information regarding the company s situation and evolution, a fact that has negative effects on the correct substantiation of the investment decision, especially for individual investors. In order to have a company s performances and market prestige officially recognized, it should create a financial and non-financial communication with investor s policy, aiming to gain the loyalty and the relative dispersion of the shareholders, the ensuring of shares mobility, and the inveiglement of new shareholders through public offerings. Also, the local capital market is defective in terms of protection offered to minority shareholders. This problem resulting from the lack of legislation in this field, to which is added the dispersed shareholding structure of the Romanian companies as a result of the mass privatisation program enabled certain abuses of the majority shareholders against the minority shareholders. The main obstacles that held back the market s development were mostly legislative. The frequent changes in the tax code regarding capital gains taxing, the National Securities Comissions Regulation regarding delisting or the SIFs holding limit modification ordinance were negatively perceived by both foreign and local investors. The investors from the Romanian capital market pay among the highest taxes in Europe and do not benefit from tax remission. For example, in Austria and Germany the investors enjoy tax remission for the sale of the shares held for more than a year that represent less than 1% of the company s capital. In France, the incomes of less than 15,000 euros are tax free. In the Czech Republic, tax exemptions are given for shares held for more than two years, and in Hungary taxes are not charged for the capital market gains or for interest earnings. Another provision that bothers investors is the introduction the prepayment concept, by retaining 5% of the earnings all over the year, so as at the end of the year to apply the 16% rate on the net gain. [5] This 5% retention tax is a decision that ignores the capital market s reality, where complex operations such as hedging or in absentia trades are performed. The taxes increase will only hold back new investors inveiglement and capital market development. [11] 3. COMPARATIVE ANALYSIS REGARDING THE CAPITAL MARKET S DEVELOPMENT IN ROMANIA VERSUS THE EMERGING COUNTRIES For many years, the Romanian capital market did not evolved in isolation and its correlation with various other markets becomes ever stronger. The explanations are related to the institutional investors strategies, which often cause the major trends in the market. Nevertheless, we can not talk about a real correlation, the direct correlation of the national capital market with the countries in the proximity commenced with Romania s integration in the European Union, although the susequent developments experienced due to the global context influences (the Southeastern Asia financial crisis in the last years of the twentieth century, Russia's entry into payment default, the trends set by the New York stock exchange) were similar. 60

61 There are significant differences between the dimension of the Bucharest stock exchange and the dimensions of the other Central and Eastern Europe stock exchanges. But, as the national capital market reaches maturity, the correlation between it and other emerging economies becomes stronger and begins to be perceived by foreign investors as part of the Central and Eastern European area, dominated until now the by the stock exchanges of the Czech Republic, Hungary and Poland. The main feature of these markets is their sensitivity to the foreign capital s fluctuations and the permanent search for ways to limit these fluctuations effects. Unfortunately, the market lacks social and political stability, a favorable macroeconomic environment that enables it to control these fluctuations. At market s level there are also endogenous factors that might help balancing the market: high quality liquid companies listing, as well as corporate governance reinforcement. The variations between these and their deep development disparity also derive from the modality of attracting international investors. From the differences pronounced in terms of market capitalization and in terms of the average of the daily traded sums, according to which the Bucharest Stock Exchange has a dimension reduced to the region s scale, we conclude that Romania is not very dexterous in attracting investors. The market capitalization highlights that it is not unimportant to observe that at the institutional investor s trading level the other three markets (Hungary, Poland and Czech Republic) also lack liquidity, the market execution of any of these order, determining major price changes to the respective securities. From the point of view of stock exchange capitalization, the strongest exchange in Central and Eastern Europe is the one in Poland, this recording the most outstanding growth in 2009 compared to the previous year. Table no.1. The Bucharest Stock Exchange capitalization compared to other emerging markets, in 2009 Country Local companies stock market Stock exchange capitalization capitalization (mil.euro) evolution compared to 2008 (%) Romania 9.186,57 32,8 Bulgaria 6.030,96-5,3 Czech Republic ,36 5,6 Poland ,15 61,3 Slovenia 8.462,22-0,1 Hungary ,90 56,8 Source: Elaborated after the National Securities Comissions report 2009 Another figure that ranks Poland higher than the Romanian stock exchange is given by the stock transactions level achieved during 2009, the Warsaw Stock Exchange billion Euros compared to billion Euros the Bucharest Stock Exchange. Table no. 2. The evolution of the transactions value on the main European markets in 2009 Country The stock exchange tranzactions evolution (mil.euro) The transactions value evolution 2009/2008 Romania Poland Bulgaria Hungary Czech Republic Source: Elaborated after the National Securities Comissions report

62 Quotations restoring led to the stock exchange capitalization increase, but as it can be observed in the second table, did not determined an increase in the volume of stock transactions, being observed a significant decrease of these in 2009, compared to The drop in trading value in 2009 compared to the previous year has also been a characteristic for almost all the European stock markets. The decrease of the value of share transactions was of 33%, up to 5.67 billion lei. Related to the Euro currency, the decline was of 42%. In 2010, the correlation of the Romanian capital market with the neighbouring markets weakened in intensity (PX, WIG and BUX are the indices of the stock markets from the Czech Republic, Poland and Hungary) unlike in other years. The correlation coefficients between BET and WIG, PX and BUX indices were in 2010 of 0.16, 0.67 and 0.74 versus 0.97, 0.99, 0.98 in Figure no. 2 The correlation of the capital market with the neighbouring markets in 2010 Source: Intercapital Invest, The evolution of the capital market in 2010 From analysing the above chart, we can observe a slight delay in the correlation of the internal stock exchange with the foreign stock exchanges, in the strict context of the internal risks (budgetary, political and social), that intensified in 2010 and determined the embracing of budgetary consolidation measures. In 2010, the stock exchange in Poland was the first of the regional stock exchanges, with a 200 capitalization, 5 billion Euros and with a trading value of 59 billion Euros. Romania ranks slightly ahead of Bulgaria with a capitalization of 23.9 billion euros and with a trading value of 1.3 billion Euros, almost 9 times smaller than the Warsaw stock exchange. Figure no. 3. The capitalization and the trading volumes in the regional stock exchanges in 2010 Source: Proper processing after the National Securities Comissions report,

63 Even though Romania is considered to be one of the largest outlets from the Central and Eastern Europe, the second after Poland, with over 22 million inhabitants, and the attractive geographical location allows easy access for the countries of the former USSR, of the Middle East and North Africa, the foreign capital that came into Romania represents a very small part of the total investements from the Central and Eastern Europe. From the Creditanstal data it appears that the Hungarian, Polish and (to a lesser extent) the Czech capital markets depend mainly on foreign capital. After having a stagnation period in 2010 and few partial comebacks in 2009, the capital market recorded a year of decline in This can be seen from the evolution of the main index of the Bucharest Stock Exchange, according to the figure no.4. Figure no. 4. The evolution of the Bucharest Stock Exchange main index between 2007 and 2011 Source: In 2011 the BET index registered the third full year of decline (-17.7%) in its history, after the 50.2% drop in 1998 and the -70.5% in If we extend the analysis to the level of 2013, we can note that the BET index recovered, ending 2013 with an increase of 26.1%, the best annual output recorded after If in 2011, all the indices of the Bucharest stock exchange dropped, BET-FI, lost 12.0%; BET-XT lost 13.8% and BET-NG, the index of the energy sector dropped by % in BET-FI increased by 23.3%; BET-XT gained 23.4% and the index of the energy sector BET-NG ended the year with + 6.1%; BETC, the composite index of the regulated market increased with 20.0%. Figure no. 5. The evolution of the Bucharest Stock Exchange main index between 2007 and 2013 Source: The similitude occurred in the evolution of the shares listed on the regulated market of the Bucharest Stock Exchange, registering two distinct phases during the same year. In 2011, the first quarter brought slight increases for the index, this accumulating % between December 31 st, 63

64 2010 and March 31 st, 2011, while in the same period of 2013, the shares had an oscillatory evolution, with increases in the beginning of the year, followed by decreases until the mid of the year. The correlation of the Romanian market with the neighbouring markets increased in intensity in 2011 (PX, BUX and WIG are the indices of the stock exchanges from the Czech Republic, Poland and Hungary). This can be observed in figure no.6. Figure no. 6. The evolution of the BET-C and BET-FI indices, compared to BET, in 2011 Source: Comparatively, in 2013, the correlation of the Romanian market with the Czech Republic and Hungary stock markets decreased even more in intensity, as presented in figure no.7. Figure no. 7. The correlation with the neighbouring markets in 2013 Source: Therefore, in 2013 the correlation coefficients between BET and the PX and BUX indices were of 0,47 respectively -0,15 (compared to 0,57, respectively 0,53, in 2012); but the correlation with the Polish market grew, with a correlation coefficient between BET and WIG of 0,87 in 2013 (0,20 in 2012). [9] BET s volatility, calculated as standard deviation of the daily turnovers, continuously decreased in 2013 to 0.71%, compared to 1.04% in 2012, 1.39% in 2011, 1.89% in 2010, 2.58 % in 2009 and 2.68% in [10] A number of 31 companies listed on the market regulated by the Bucharest stock exchanges paid dividends in cash in 2013 based on the results obtained in 2012, compared to 29 companies in 2011, 25 in 2010, 24 in 2009 and 20 in Of the 31 companies that paid dividends in 2013, 13 were listed on the first category of the stock market, 16 in the second category and two in the international category. 64

65 4. CONCLUSIONS The national or international financial market offers to companies a wide range of financing sources. At companies level, the managers must choose between the available resources and combine them, thus outlining the financial policy of the company. One of the most important benefits of listing companies on the stock market is that by this operation, the companies shares become more liquid offering compensation and financial freedom for founders and employees. The financial resources that exist on the capital markets may represent a significant financing component for companies that enter this market and use its instruments. Financing through the capital market is a much cheaper alternative, it surpases the bank loan and it is more accessible to performant companies due to market s dynamics and investor s perception. Over the years it was proven that an IPO (initial public offering) is quickly analyzed and assimilated both by speculators and portofolio investors. Maintaining their attention through the frequent use of market instruments and after the company s shares trading admission, can provide for the company a continuous supply of financial resources associated with meeting investors expectations regarding the profitability and company s prospects. The analysis of the capital market transactions in Romania as detailed in the present research has revealed that the Bucharest Stock Exchange has had a constant and positive development, despite the current economic crisis and the subsequent long recession period. Thus, in 2013, equity transactions have amounted to 11,2 billion lei (2.5 billion Euros), as compared to 7,4 billion lei (1.6 billion Euros) in 2012, 9,9 billion lei (2.2 billion Euros) in 2011, 5,6 billion lei (1.2 billion Euros) in 2010 and 5,1 billion lei (1.1 bilion Euros) in These trends actually signal the significant increase in the investors' confidence as far as the potential of this market is concerned. The foreign capital that recently entered in Romania represents a very small part of the total investments from the Central and Eastern Europe. The statistical data reveal the fact that the Hungarian and Polish and (to a lesser extent) the Czech capital markets depend largely on foreign capital. REFERENCES 1. Buch, C. (2004), Globalization of Financial Markets, Publisher Springer, p Krugman, P. (2008), The return of Depression on Economcs and The Crisis of 2008, Norton&Company, London, p Ştefură, G., Prisacariu, M. (2005), România şi problemele întegrării europene Piaţa de capital din România în contextul integrării europene, Editura Universităţii Alexandru Ioan Cuza, Iaşi, p *** National Securities Comissions report, (CNVM), 2009, 2010, 2011, 2012, *** BVB, The Bucharest Stock Report 2010, 2011, 2012, *** Law no 571 of 22 December 2003 regarding the Tax Code with subsequent amendments and additions This paper has been financially supported within the project entitled SOCERT. Knowledge society, dynamism through research, contract number POSDRU/159/1.5/S/ This project is co-financed by European Social Fund through Sectoral Operational Programme for Human Resources Development Investing in people! 65

66 The USV Annals of Economics and Public Administration Volume 14, Issue 2(20), 2014 STRATEGIC ASPECTS OF YOUTH INCLUSION IN THE EUROPEAN AND NATIONAL CONTEXT Lecturer PhD Iulian CONDRATOV Ştefan cel Mare University of Suceava, Romania Abstract: The youngmen s social inclusion problem has known a large spread lately, both at a European and national level. The identified risks in the case of failing in finding a job, especially for the young generation, determined the member states to identify and implement a diversity of measures in order to support youngmen in occupying a job. The purpose of this study is to identify the main actual elements that refer to the legislative and institutional measures, with impact on the youngmen s inclusion, at a European and national level. Key words: Unemployment, youth, active measures, institutional framework, legal framework. JEL classification: J13, J INTRODUCTION The work market permanently represents a subject of big actuality because on this market is transacted one of the most important resource: the work force. The young population is, doubtless, one of the most important resources for the socioeconomic development of a nation. This category of population has the courage and the energy for proposing innovating ideas and progressive mechanisms in all socio-economic domains. The unemployment among young people represents a global problem, but the countries in course of development are confronting this disfunctionality in a more critical way, because of the high levels of poverty it is necessary the implication of all family members in working activities for obtaining incomes, that the most frequently insure only the surviving (ILO, 2011). According to the international statistics, the unemployment among young people at word level increased with 3,4 million people during the period and it is estimated that this trend will be kept in the future. Also, the same statistic indicates a diminution of the number of the young employees with about 22,9 million in 2012 than in 2008 (ILO, 2013a, b) Economically, the unemployment among youngmen leads to an instability of the work market, to the increase of the costs with social assistance, to the erosion of the tax rate basis and to the unrecovered of the investment costs in education and professional formation. Socially, the unemployment among young people is not only the problem of the respective unemployees, but it is also the problem of their families and of the society, generally. Failing in finding a job leads to the human capital disappreciation but also to the risk increase of some diseases like: malnutrition, stress, depression, and even cardiac problems (Msigwa1, Kipesha, 2013). There is also a considerable risk for the young unemployed people to be involved in lawbreaking activities, fact that will keep them further away from the liquidated work market. 2. PRESENT-DAY MEASURES REGARDING THE YOUTH INCLUSION PROMOTION IN EUROPEAN CONTEXT In a European context, the first strategic document destined to youngmen, The White Paper on Youth was lanced in During , the European action directions regarding the youngmen s inclusion were brought together in a strategic document EU Strategy for Youth Investing and Empowering. A renewed open method of coordination to address youth challenges and opportunities ). The strategy aims the politics concerning the youngmen from Europe, their 66

67 education, the occupancy of the work force, the social inclusion, the civic attending, the undertaking. The most recent strategic document of European level Europe 2020 proposes that Europe become an inclusive society with a durable economy based on knowledge and innovation. From the six main objectives proposed by the this strategy, two of them refer to the youth and aim the diminuation of the school abandon rate until a level of 10% maximum and the percentage rise of the population between years, with superior studies, until a level of 40% minimum, and, respectively, the reach of a rate of the work force occupancy of 75% among young population aged between years. The strategy Europe 2000 also envisages a priority theme concerning the youth, named The youth in movement that proposes the increase of the performances in the education systems of the member states and the facility of market entrance of the young people. Among the measures concerning the social inclusion of the young people in the Europe 2000 strategy, we can enumerate: the integration and the consolidation of the UE mobility programs, those destined to universities and those destined to researches ( as Erasmus, Erasmus Mundus, Tempus and Marie Curie) and their correlation with the national resources and programs; the identification of the promoting methods of the enterprise spirit through mobility programs for the professional youngmen; the launch of a Cradle for offering jobs to young people, cradle that should promote the entrance of the youth on the work market through the apprenticeships, stages or other work experiences. The European average of the allocated costs for the politics concerning the work market in 2011 (the most recent available dates concern the budget allocation from 2011) was of about 2% of the Gross Domestic Income (Eurostat, 2014) THE IMPROVEMENT OF THE CONTRIBUTION ON WORK FORCE MARKET In the context of the mentioned strategies, the member states of UE have promoted active measures on the work market. More member states have increased the financing allocated for the active measures on the work market for 2013 (Czech Republic, Ireland, Croatia, Poland and Sweden), but others (Holland, Slovenia) have diminuated it, giving a bigger importance to the efficiency (European Commission, 2013). The most common instruments used for promoting the occupancy of the work force among young people have been: the total, partial and/or sectorial salary subventions, the diminuation of the non-salary costs with the force market, the formation strategies for the young people, the apprenticeship strategies, the guidance and the opportunities of hiring in the public sector. The United Kingdom offers support for the unemployed people through a personalized assistance in searching a job, but at the same time it has roughened the conditions for keeping receiving benefits for the people who are looking for a job. In Ireland, has been launched the initiative Jobpath in order to increase the capacity of the services of work force occupancy through the involvement of some tertial private contractors, through the engagement of doubling the number of the social assistances who are dealing with the unemployed people and through the fusion with the social assistance institutions. Austria has introduced a measure of professional assistance of the young people in order to help them finding an educational or professional orientation related to their personal needs. The programme of granting the first job from Hungary pays back, during four months, 100% from the costs with the salaries and the contribution to the social insurances for the new people entered on the work force market. More member states have adopted fiscal measures for promoting the job creation. Almost all member states have introduced new measures or initiatives (or they have consolidated the already existent ones) for stimulating the private investments in research, development and innovation. At 67

68 the same time, a big part of the member states has introduced subventions for SMEs for encouraging the undertaking process among young people (European Commission, 2013). States like Italy, Lithuania, Poland or Slovenia have concentrated on the undertaking spirit stimulation among young people by diminuating the birocracy and improving the business environment. For attracting foreign investments, Czech Republic has prepared a paquet named Welcome Package, that aims the facility and the acceleration of the entrance on the work force market for the citizens who come out of the European Union, involved in major investments. More member states have taken measures for increasing the work code flexibility, by using contacts of limited duration (Czech Republic, for seasonal jobs in agriculture and building), the extention of the short duration work (Denmark, from 6 to 12 months), the diminuation of the compulsory break between two contracts on limited duration with the same employer (Italy), the extent of the work period and the using of the flexible work programme (Poland) THE IMPROVMENT OF THE EDUCATION AND PROFESSIONAL FORMATION SYSTEMS The European United States are in a continuous search of the measures that can improve the youngmen s transition from the school environment to their job, by organizing stages of professional formation and apprenticeship and by consolidating the relevant institutions. Member states of the U.E. have concentrated on the improvement of the education and professional formation systems for better reflecting the needs of the work force market (European Commission, 2013). In Great Britain, the employeers have the possibility of conceiving thier own apprenticeship stages related to their specific needs; also, it has been introduced a programme of formation stages for offering to young people, who are lacking the competences and the experience required on the force work market, a personalized paquet of support that allows them to follow stages of apprenticeship or to find other jobs. In Greece, the law concerning the restructuring of the secondary educational system put the basis of a reorganization of the professional educational system, by reevaluating the role of the Organization for the Work Force Occupancy in the implementation of apprenticeship programmes. In Denmark there have been created apprenticeship centers in the professional schools. Also, there have been introduced relevant modifications in the tertial educational systems from more member states. In Estonia, after a reform, the superior educational system benefits of a more exact orientation, related to the needs on the force work market and strongly correlated to the employeers and the resots ministers, concerning the number of jobs that should be offered in various study fields. Bulgary and Malta have implemented measures that aim the diminuation of the cases regarding the early school abandon and Austria has concentrated on the fight against the school absenteeism as a means of improving the educational results, especially for the underprivileged youngmen. 3. THE ANALYSIS OF THE LEGISLATIVE AND INSTITUTIONAL FRAMEWORK AT NATIONAL LEVEL In the context of the adopted strategies at European level and the concrete measures implemented by the member states, it is important to contour the legislative and institutional contexts that have as main subject the social inclusion of the young people in Romania. 68

69 3.1. THE LEGISLATIVE FRAMEWORK WITH IMPACT ON THE YOUTH INCLUSION The Romanian Constitution situates the following rights and fundamental liberties regarding the work and the social protection of work, by the article 41, paragraph 1, the right to work is uncompelled, ensuring the basis of exercise by youngmen of a free professional choice of the job. The general context for the organization, the administration and the function of the educational system in Romania is readjust by the Constitution and the Law of National Education (organic law). According to the National Education Law/2011, article 16, paragraph 1, the general compulsory education last 10 classes and includes the primary and the secondary education. The compulsory 10 classes education presents some advantages for the social inclusion of the youngmen at the end of the educational cycle (Work, Family and Social Protection Ministry, 2012): The implementation of some complementary measures of social protection in terms of increasing the public effort for education for the young people having a difficult material situation, especially in the rural environment, with a major risk of school abandon; It offers access to the work market for the young people beginning with de age of 15-16years; It improves the basic educational level of the young people, aspect that increase the chances of being hired; It diminuates the pressure on the work market and reduces the cost of (re)intergration by keeping the young people in the educational and professional formation system. Figure no. 1. The protection forms of the youth According to article 5 from the Law 279/2005 regarding the apprenticeship at work, the young people who are 16, but not more than 25, can be hired on the condition that they do not have a qualification for the job where the apprenticeship is organized. The apprenticeship is partially financially supported (article 17 Law 279/2005). In this way, by signing the apprenticeship contract, the employer can receive each month, as a demand, from the budget ensurances for unemployment, during the period of the apprenticeship contract, for that apprentice, a sum equal to 60% from the value of the reference social indicator of the unemployment ensurances and stimulating the work force occupancy. According to the law 72/2007 regarding the stimulation of hiring of the pupils and students, the employeers who hire pupils and students during the holidays have the right to a financial input equal to 50% from the reference social indicator, to a national level, ensured for each pupil or 69

70 student (art.1). The financial input is awarded at the employeer s demand from the budget of the unemplyment ensurances for a period of maximum 60 working days. According to the law 76/2002 regarding the unemployment ensurances system and the stimulating of the work force market occupancy, there are brought under regulation the measures for realizing the elaborate politics in the purpose of the population s protection for the unemployment risk and the ensurance of a high level of the occupancy (Art.2). The measures mentioned by the law have as purpose the reach of some objectives, among which we remember: The prevent of the unemployment and the fight against its social effects; The hiring or the rehiring of the people who are looking for a job; The support of occupancy for the people who belong to some underprivileged categories; The ensurance of the chance equality on the work market; Support for the unemplyed people in finding a job. From the unemplyment ensurances budget are paid the hiring indemnities or bonuses, while the employeers have some facilities: remission from pays, sums received from this budget. The employeers who hire students for an unlimited period benefit of remissions during a year, at the pay of the contributions to the unemployment ensurances budget. The employeers of the disabilited youngmen and who are recent graduates receive monthly subventions for each graduate for a period of 18 months. The young graduates benefit of this bonus only once on the condition that this right is required during a period of one year from the graduation. According to OUG 6/2011 regarding the stimulation of the foundation and the development of the microenterprises by the young undertakers, one of the previsions is the offering of facilities to the youngmen who want to put the basis of an entreprise. The youngmen with the age until 35, who have never had an entreprise before, can receive irredeemable finance of maximum euros for founding microenterprises, on the condition that they should hire at least two people and invest yearly 50% from their profit. Among the facilities given through the Programme for stimulating the foundation and development of the microentreprises by the young undertakers, we mention (Work, Family and Social Protection Ministry, 2012): The employeers acquittance from the pay of the social ensurance contributions for the incomes related to the worked time for maximum four employees on unlimited period; The acquittance from paying the taxes for the operations realized by the National Trade Register and its territorial offices; Receiving guidance and support from the territorial offices of the Agency of Projects and Programmes Implementation for SMEs (APPISME); Receving assurance from the National Fond of Credits Assurance for SMEs for the credits contracted on the business projects basis accepted by APPISME, until maximum 80% from the value of the required credit, in the limits of euros. The interest for the youngmen s inclusion problem is also reflected by the degree of having access to the European Grants. Until 13th of December 2013, there were made pays of 1,82 milliard euros in projects of developping the human resources (The Operational Sectorial Programme for the Human Resources Development). At the financed operations from the Social European Fond have participated people aged between years. The classification of the participants at the actions financed by the Social European Fond related to their age is presented in the following table (Ministry of European Funds, 2014): 70

71 Table no. 1. The distribution of the beneficiaries number aged between related to the primary financial axis Number of people aged between Primary axis Men Women Total 1. The education and the professional formation in supporting the economic increase and the social development on knowledge 2.The correlation of the long life learning with the work market Theadaptability increase of the workers and entreprises The updating of the public occupancy service The promotion of the active occupancy measures The promotion of the social inclusion Total The people aged between years represent 24,525% from the total number of the participants at the operations financed by Social European Fond. The most youngmen have attended activities from the field destined to the projects financed at the level of the primary axis 5 and 2 (92.841people in the case of the primary axis 5, respectively people in the case of the primary axis 2) THE ANALYSIS OF THE INSTITUTIONAL CONTEXT WITH IMPACT ON THE YOUTH From the perspective of the fundamental assurance of the youngmen s rights, mentioned in the Constitution, respectively of the rights given through the active legislation it is necessary the realization of an analysis at institutional level. Grace to their relevance in the analysis of the inclusive market for youngmen, the accent was put on the right of learning and the right of working. While the conformation to the right of learning represents the mission of the National Educational Ministry (N.E.M.), the conformation to the right of working represents one of the objectives of the Work, Family, Social Protection and Aged People Ministry (W.F.S.P.A.P.M.). The law 333/2006 regarding the foundation of the information and guidance centers for young people, anticipates their organization within the National Authority for Youth (N.A.Y.). The youngmen aged between are assured the information, the guidance and the consultancy in the fields of specific interest. The services of these information centers are free, accessible, nondiscriminatory and assure the privacy of the dates having a personal character (art. 2-4). N.E.M. W.F.S.P.A.P.M D.S.M.E.B.T.E. M.A.R.D. National Education Law Job exchange Employeers subventions START Young farmers installation N.A.Y. N.A.E. A.P.P.I.S.M.E. F.A.R.I. County school inspectorates C.A.E T.O.S.M.E.C. Figure no. 2. Institutional context with impact on the social inclusion of the youth Adapted after: Work, Family and Social Protection Ministry, An inclusive market in the rural environment, 2012 The National Agency for Employment (N.A.E.) is a public institution under the authority of the Work, Family, Social Protection and Aged People Ministry, from a central level, having in 71

72 subordination 41 county agencies and the Bucharest County Agency and also other formation centers affiliated. The National Agency for Employment ensures to the young people the possibility of finding a job or developping professionally. It facilitates the youngmen s access to the opportunities of the work market by organising job exchanges that aim the young people who have left the educational system. According to the National Project of Professional Formation for the year 2013, the number of the student-beneficiary of the free services professional formation was of , among who, 9366 (21%) were youngmen aged under 25 years. These programmes aim the increase of the qualification level and the development of some activities in other fields, different from the agricultural field. An institutional relevant actor in the encouragement of the undertaking activities among young people is the Department of Small and Medium-sized Enterprises, the Business and Tourism Environment (D.S.M.E.B.T.E.) within the Romanian Government. Through the subordinated structure, the Agency for Projects and Programmes Implementation of the Small and Medium-sized Enterprises (A.P.P.I.S.M.E.) was initiated in 2011 the Programme START in order to develop the undertaking abilities among youngmen and the facility of their access to obtain financing. The programme is implemented according to the precautions OUG/2011 for stimulating the foundation and the development of the microenterprises by the young enterprising. The beginner enterprising must be aged until 35 years, the day when he registers the license demand of the society with limitated responsability at the Trade Register and to found for the first time a commercial society with limitated responsability ( article 2, paragraph 1a and c). The institutional interlocutors from A.P.P.I.S.M.E. for the programme START are eight Territorial Offices for Small and Medium-sized Enterprises and Cooperations (T.O.S.M.E.C.) having the head office in Brașov, Cluj-Napoca, Constanța, Craiova, Iași, Ploiești, Târgu Mureș and Timișoara. Another important institutional relevant actor from the youth side from the rural environment is the Ministry of Agriculture and Rural Development (M.A.R.D.). According to the National Programme of Rural Development (2009), to the strategic objective the improvment of the commercial competivity farms and their associations, respecting the durable development principles, MADR implements the Measure 112 Young farmers installation. According to the Solicitant s Guide, the elegible beneficiaries are the farmers aged until 40 who are forced not to end their activities for a period of three years. The programme is financed in a proportion of 20% by the contribution of the Romanian Government and of 80% by the UE contribution. Also, M.A.R.D. implements the measure 312 Support for the creation and the development of the micro-enterprises having as specific objective the variety of the economic activities nonagricol from the farms and the encouraging of the small undertakers in the rural environment. 4. CONCLUSIONS The human capital is considered the most important resource both at the level of an economic organisation and at the level of a state. A category that should be given importance is that belonging to youth, to whom the society, the state, should ensure the basis of a successful start in consolidating their carrier. Although, both at the level of the developed countries, and especially, of those with a diminuated degree of development, the problem of youth unemployment persists. The causes have different nature and act differently related to the specific circumstances of each country or region. The specialists insist on the fact that the fail of a youngman in finding a job cand have bad consequences, both on the fellow, his/her family and on the economy in general. The analysis of the legislative context, at the national and European level, indicated the preoccupation of the states for the improvement of the unemployment problem among youth. The European Social Fond supports the efforts to fulfill the objectives of the Europe Strategy 2020 through actions of fighting the unemployment, with a special accent on youth, 72

73 offering strategies of formation and apprenticeship for requalification and professional perfection, education, the support of social inclusion and the consolidation of the administrative capacity. For the period , the preoccupation of the European states concentrates on the priority of the Europe Strategy 2020 politics. The politics of the member states in the field of work market fluctuate related to the national priorities and circumstances. The common identified elements can be classified in this way: Services for supporting the unemployed people and the employeers: information services, guidance services and financial support services; Active measures: professional formation (in institutions, at work or altenative); subventions/credits for stimulating the employment: stimulations for recrutation (temporary or permanently) and stimulents for keeping the occupancy; support for occupancy and reability (destined to those having a diminuated work capacity); direct creation of new jobs and stimulents for the activities on their own; Passive measures: financial support for the people who don t work (unemployment help, compensatory pays. At national level, it was stressed the existence of a legislative and institutional consolidated cadre, but which, at least at the present, does not succeed in being efficient. ACKNOWLEDGMENT This paper has been financially supported within the project entitled SOCERT. Knowledge society, dynamism through research, contract number POSDRU/159/1.5/S/ This project is co-financed by European Social Fund through Sectoral Operational Programme for Human Resources Development Investing in people! BIBLIOGRAPHY 1. ANOFM. (2013). Planul Național de Formare Profesională. 2. Asociația Națională a Birourilor de Consiliere pentru Cetățeni (ANBCC). (2010). Tinerii și incluziunea pe piața muncii - Nevoi, Așteptări, Soluții, Obstacole. București. 3. Blanchflower, D. F. (2000). Youth employment and joblessness in advanced countries. Chicago: The University of Chicago Press. 4. Choudhry, M. M. (2012). Youth unemployment rate and impact of financial crises. International Journal of Manpower, 33(1), Comisia Europeană. (2013). Proiect de raport comun privind ocuparea forței de muncă. Bruxelles. 6. Contini, B. (2010). Youth Employment in Europe: Institutions and Social Capital Explains Better then Mainstream Economics, Discussion Paper (4718). 7. Eurostat. (2014, Septembrie). Labour market policy interventions. Preluat de pe 8. Garibaldi, P. W. (2005). Labor market flows and equilibrium search unemployment. Journal of the European Economic Association, 3(2). 9. Gomez-Salvador, R. L.-K. (2008, June). An analysis of youth unemployment in the euro area. Occasional Paper series - European Central Bank, ILO. (2008). Global Employment Trends for Youth. Geneva: ILO. 11. ILO. (2011). Global Employment Trends for Youth. Geneva. 12. ILO. (2013). Comparative Analysis of National Skills Development Policies: A Guide for Policy Makers. Pretoria: International Labor Office. 13. ILO. (2013). Global Employment Trends for Youth 2013: A Generate at Risk. Geneva: International Labor Office. 14. Levine, L. (2011). Implications of the Anti-Poverty Program for Education and Employment, Vocational, Guidance Quarterly. 14, pg

74 15. Ministerul Muncii, Familiei și Protecției Sociale. (2012). O piață incluzivă a muncii în mediul rural. 16. Ministerul Fondurilor Europene (2014), Programul Operațional Sectorial Dezvoltarea Resurselor Umane Raportul anual de implementare Perugini, C. S. (2010). Youth labour market performance in European regions. Economic Change and Restructuring, 43(2),

75 The USV Annals of Economics and Public Administration Volume 14, Issue 2(20), 2014 REGIONAL ECONOMIC DISPARITIES IN ROMANIA. COMPARATIVE ANALYSIS OF THE NORTH-EAST AND WEST DEVELOPMENT REGIONS Assistant Professor PhD Laura DIACONU (MAXIM) Alexandru Ioan Cuza University of Iasi, Romania Abstract: In Romania, the territorial development differences have historical, cultural and economic roots. The industrialization process, from the communist period, but also the structural changes that were implemented during the transition to a market economy had a long run impact on the regional development disparities. However, it was noticed that these gaps have increased very much after the fall of the communist regime. A regional policy was promoted only after 1998, when a law was promulgated in this field. Romania s development regions, created at the European Union suggestion in order to reduce the territorial development differences, are NUTS II statistical units. Even though they have been created for more than 10 years, there are significant development differences among Romania s regions, especially between the West region (the second one from the development point of view), which has a diversified infrastructure and a high and qualified demographic potential, and the North-East region (the least developed), which is among the EU poorest regions. Considering all these aspects, in the present paper we intend to identify the factors that have generated these disparities and to analyze the evolution, during time, of the development gaps between the two regions, with the help of the macroeconomic indicators. In order to achieve these objectives, we have collected and analyzed the information included in various empirical studies, yearbooks, statistical databases and reports. Key words: development regions, economic development, regional disparities, West region, North-East region JEL classification: P25, R11, R13, R23 1. INTRODUCTION Starting with the last half of the past century, but especially during the last 20 years, the analysts interest for geographical aspects of economic development has increased. Until 1950s, the economists have shared the introspective point of view, specific for the geographers, focusing on a descriptive approach of the areas, which reflected the usage of the land, the production and the commercial exchanges of goods that took place in different geographical areas. This type of approaches can be found at some economists such as Johann Heinrich von Thunen, Arthur Weber, August Losch, Herbert Hoover, Walter Isard or at the geographer Walter Cristaller. Over the past few years, a so-called "geographical economy" has developed, based on the spatial agglomeration of the industries and on the long-term convergence of the regional incomes. Pioneers in this direction were Paul Krugman, Michael Porter, Robert Barro and W. Brian Arthur. Thus, subjects which initially were of interest only to the economists and geographers, are currently investigated by sociologists, political scientists as well as by researchers from other subfields of social sciences. This increased interest of the researchers from different areas is largely due to the recognition of the fact that "space matters", meaning that the processes which generate national innovation and economic growth are essentially related to space. While Jeffrey Sachs (2005) tries to explain the regional differences through the inherent geographical differences from various parts of the world or through the population s tendency to form megalopolises, Paul Krugman argued for a synthesis of the location and trade theories in order to use geography as an important component in building a new geographical economy of trade. The purpose of Krugman's analysis (1991) is to show how a country can develop from the center, heavily industrialized, to the agricultural periphery, through the scale economies, differentiation of the products and of the transport costs. According to Krugman, the center will attract both workers, 75

76 because of a greater variety of differentiated products, and also companies, as they have a large workforce and provide a broad outlet market for their goods. This idea promoted by Krugman is not new if we consider that, even since the middle of last century Francois Perroux talked about the space as a network supported by centripetal forces, idea which was the basis for most of the growth poles theories (Perroux, 1950). According to Perroux s point of view, a growth pole represents the links between companies and industries. "Propulsive firms" are those very large companies that generate growth through inter-industry linkages. While Hirschman (1958) develops this theory of linkages between an industry s firms, Boudeville (1966) places Perroux's approach into the spatial context. Despite the fact that most analysts of the regional development problem are concerned to understand the process of regional increase and decrease, there is a lack of consensus regarding the way the region should be defined. Some analysts believe that it would be appropriate a definition which to include geographical, administrative, economic, historical and social aspects (Pearse and Thomas 1968; Dawkins 2003). A more popular approach among economists defines the region in terms of "nodal" spatial and labor market interdependence (Hoover and Giarratana, 1985). The concept of "functional economic area", developed by Fox and Kumar (1994), is also based on the nodal approach and implies the fact that the dominance of the central node on the surrounding periphery is due to the spatial addiction of the workers to adjacent employment centers. This approach provides a theoretical basis for defining "the economic zones" in the way that they are mentioned by the Department of Commerce Bureau of Economic Analysis from the USA. At the European Union level, developing a common regional policy involved a clear definition for region, which was associated with that of a well-defined territory that can be described, analyzed, economically managed and planned. The essential element of a region is the common interest regarding the welfare and development in order to stimulate the socio-economic progress. The European Union has created a common classification of the territorial units, called NUTS (Nomenclature of Territorial Units for Statistics), with 5 levels from which the most important are the first three. The EU regional development policy is made at the NUTS II regions. The regional development policy is essential for EU because its main objective is to reduce the economic and social disparities between the various regions of the Union. Created as a policy of solidarity in Europe, the regional policy is mainly based on financial solidarity, which means the redistribution of a part of the Community budget to the poorer regions and social groups. In Romania, eight development regions were established in order to be applied the regional development policy. Each region comprises several counties. The development regions are not administrative-territorial units and they do not have legal personality; they resulted from an agreement between the county and local commissions. The main areas covered by the regional policy are: business development, labor market, investments, technology transfer, SMEs sector, infrastructure, environment, rural development, education, health and culture. After 1989, the decline of the economic system made difficult to approach the issue of territorial priorities, one of the main concerns of the regional development policy. The period of transition to a market economy has continued to reflect the problems generated by communism. Thus, the transition process was difficult and long, marked by radical changes among all institutions, by restructuring the ownership and distribution rights, the organizational and political framework, as well as the formal and informal rules that regulate the relations between citizens, organizations and government (Schrieder, Munz and Jehle, 2000). During this transformation process, the role of the European Union was decisive. In the process of adhesion to the European Union, Romania has faced a considerable pressure in meeting the criteria regarding the rules and principles of regional common policy, which aimed to reduce the disparities between regions. In 1998, in Romania eight development regions were created (NUTS II territorial division), in order to meet the EU requirements and to stimulate the national structural policies. These regions were created in the context of the promulgation of a law on regional development, subsequently amended in

77 In the present paper we intend to make a general approach of the factors that influenced the regional disparities that currently exist in Romania and to analyze the economic and social situation of two development regions: the North-East (least developed) and the West region (the second one according to the development level), using the data provided by the statistical yearbooks and reports regarding the macroeconomic indicators. 2. DEVELOPMENT REGIONS IN ROMANIA GENERAL APPROACH AND DETERMINANTS OF THE DISPARITIES The first of the eight development regions created in Romania is the North-East one which, despite the fact that it is the largest and most populous, is the least developed. Development region 2 (South-East) is the most culturally heterogeneous, as it includes two counties of Moldova, two of Muntenia and two from Dobrogea. From the point of view of the economic development, region 2 is close to the national average. South region (Muntenia) is also an underdeveloped region, because it comprises four counties with a low level of development; however, it also includes three counties with a high economic development level (Prahova, Argeş and Dâmboviţa). A fourth development region is the South-West (Oltenia), with a similar level of development as the region 2 (South-East). West region is the second most developed region of the country, after Bucharest. Region 6 (North- West) is a developed area, with values of the macroeconomic indicators similar to those of the national average. The development region number 7 (Center) ranks third among the developed regions in Romania. The most highly developed is region 8 (Bucharest-Ilfov), which includes the capital. These eight regions may be seen in figure no. 1. Figure no. 1. Geographical location of the eight development regions of Romania In terms of economic and social development, the regional disparities are increasing in the country, according to the Regional Operational Program Analyzing the statistical data, we can see that, at the beginning of the transition period, Romania had relatively low regional disparities, compared to other former communist countries in Eastern Europe. This, however, does not suggest a positive situation, since after the fall of Communism all regions of the country were underdeveloped. The regional disparities have increased rapidly, since the mid-1990s, the Bucharest-Ilfov region significantly standing out from the rest of the regions. Except this region, which has a unique situation in the socio-economic context of the country, we can see that the development followed the West-East direction, the proximity to Western markets being among one of the factors that influenced the economic growth. 77

78 Comparing the situation of the Romania s regional disparities with that of other European countries, we see some similarities. Thus, both in Romania and in other countries such as Austria or Germany, while the most developed region includes the capital, the least developed areas are along the border. Analyzing Romania's macroeconomic indicators, we see that the areas located on the last places in terms of development are concentrated in the North-East part, on the border with Republic of Moldova, and in the South, along the Danube. In these areas the underdevelopment is closely related to unemployment, to the lack of attractiveness for the foreign investors and also to the predominance of rural activities. Thus, both in the North-East and South regions, agriculture has a significant share among the economic sectors and the level of foreign investments is much lower than in other regions. Enjoying a favorable geographical position, closer to Western markets, and a lower dependence on the primary sector, the West, North-West and Center regions have attracted more foreign investors, fact that significantly influenced the economic development of these areas. Apart from the above mentioned causes, which have influenced the economic development, there are also a number of other key factors, such as the training of the labor force, the internal or international migration (we notice that the less developed areas have a high number of emigrants attracted by other developed regions of the country or by other countries), the infrastructure which in the North-East region is the least developed, the distance to the sources of raw materials and the absorption capacity of the market. As we can see, all these factors are closely related to each other, so that a less favorable geographic location and an underdeveloped infrastructure significantly reduce the attractiveness of a region for foreign investors. This fact may diminish the degree of industrialization of the area, the training level of the workers and hence the amount of the revenue. In this context, individuals will be motivated to focus on those locations, internal or external, which could provide them a higher living standard. Once recognized the existence of the disparities between regions, it is necessary to quantify them. Thus, in the next part of the paper we intend to analyze the evolution of these gaps, during time, between the two regions of Romania which are significantly different in terms of development level: the North-East and West regions. 3. COMPARATIVE ANALYSIS OF THE DEVELOPMENT REGIONS NORTH-EAST AND WEST The North-East Development Region comprises six counties that belong to the historical region of Moldova (Suceava, Botoşani, Neamţ, Iaşi, Bacău and Vaslui) and covers an area of about 37,000 km 2, with a population of 3.7 million inhabitants (INS, 2012a). Although it has the largest area of the eight regions and a density exceeded only by Bucharest-Ilfov region, it is the least developed in Romania (in 2009, GDP/capita was 62% of the national average). From this point of view, the region is also situated on the last positions in the European Union s rankings. Within the region, the poorest areas are the South part of Iasi, the South-Eastern part of Neamţ, the Eastern part of Bacău, counties Botoşani and Vaslui. During time, the geographical and historical conditions have negatively influenced the socio-economic climate of the North-East region. Thus, if in the 1960s the economy of this area was predominantly agricultural and it was a low living standard, from 1965 to 1985 it was made a forced industrialization that aimed to improve the economic situation. In the end of the 1980s, despite the fact that in this region there was a large number of specialists, the industrial development did not take into account the specific conditions and the available resources. During the period , there were felt the effects of price liberalization, of the implementation of the restructuring programs and reforms, the economic situation of this region recording a considerable decline that reached its peak during All these aspects had an impact on the development level of the North-East region even after 2000, when the macroeconomic indicators had the lowest levels from all the regions. This situation has also negatively influenced the attractiveness index of the region, which is two times lower than 78

79 that of the Western part of the country. This explains the low volume of the foreign direct investments made in the North-East region, which totaled million euros at the end of 2012, representing only 3% of the investments made at the national level (BNR & INS, 2012). West Region is geographically located on the Timiş area, introduced in the administrative reform of 1938, and it includes the counties of Arad, Caraş-Severin, Hunedoara and Timiş. The area of this region is 32,000 km 2 and the population totaled approximately 1.96 million inhabitants in 2011 (INS, 2012a). In terms of the economic development level, the West region ranks second in the entire country, after Bucharest-Ilfov. It has a high growth potential and the macroeconomic indicators have higher values than the national average (for example, in 2011, GDP/capita was 13% higher than the national average, according to data from ADRVEST, 2012). Regarding the unemployment rate, the North-East region has been characterized, during time, by values systematically higher than the national average, the largest gaps being recorded immediately after the emergence of the development regions. As it can be seen in figure no. 2, since 2000, the unemployment rate has always been higher in the North-East region compared to that of the West region, except in 2007, when in the West this rate was 5.6% and in the North-East 5.1%. However, we note that, if in 2000 in the North-East region the unemployment rate was almost double than that of the West region, after this year the unemployment rate has dropped significantly, up to This reduction is largely due to the reforms implemented in the context of the preparation for adhesion to European Union. In this way, the gaps between the unemployment rate in the North-East and the national average were gradually reduced. Since 2008, when the effects of the economic-financial crisis were also felt in Romania, the unemployment rate rose in both analyzed regions. Figure no. 2. The evolution of the unemployment in West and North-East regions between 2000 and 2012 Source: Own elaboration using data from INS (2012b) and ADRVEST (2012) Analyzing the unemployment by counties, it can be noted that, in the West region two counties (Arad and Timiş) have low values at this indicator between 2007 and 2012, while in the other two the unemployment is almost double (National Commission for Prognosis, 2012). Even so, the average rate of unemployment in the West region is below the national average, during the analyzed period. The North-East region is in the opposite situation, the unemployment rate exceeding every year the national average. Among the counties from the North-East region, Vaslui recorded the highest values of unemployment, during all the analyzed years, far superior to the values of the other five counties. From this point of view, Vaslui was situated on the top position even at the national level. 79

80 If we consider the unemployment rate by level of education, we see that in the North-East region, in 2011, the value of this indicator for people with reduced level of education (2.3%) was much lower than the unemployment rate recorded in the case of people with tertiary education (6.1%). In the West region, however, the situation is reversed: the unemployment rate among people with low level of education (8.6%) is almost double than that for people with higher education, of 4.4% (INS, 2012b). These values suggest that while in the West region there are offered many jobs that require higher education, in the North-East there is a greater offer of jobs requiring low levels of education. This is not necessarily surprising if we consider population structure by areas and the employment by industry. Thus, in 2011, while in the North-East region only 41.6% of people lived in urban areas and the rest (58.4%) in rural ones, in the West region most of the people (62.1%) lived in urban areas (INS, 2011a). If we look at the employment by branch of activity, we note that, in 2011, in the North-East region about 50% of people were working in agriculture, forestry and fishing, 11% in manufacturing and 10% in commerce, in other industries being registered percentages below 10% (INS, 2012b). In the West region, in the same year, the situation is different, a large share of the population (about 30%) working in manufacturing, only 17.4% were employed in agriculture, forestry and fisheries, and 12.7% in commerce. In the West region, in the remaining branches there were also recorded percentages below 10% (INS, 2012b). In terms of the evolution of GDP per capita, we see from figure no. 3 that it was in a continuous increase since 2000, in both analyzed regions. However, it appears that in the West region, the level is far superior to the North-East, fact that explains the high level of poverty in the latter area. While at the national level GDP/capita has increased 10 times in 2012 compared to 2000, the same increase being recorded in the West region, in the North-East region the GDP/capita has augmented only 7 times during the analyzed period. Figure no. 3. The evolution of GDP/capita in West and North-East regions between 2000 and 2012 Source: Own elaboration using data from INS (2011b) and National Commission for Prognosis (2012) In order to see if the GDP/capita is a reliable indicator and how large are the deviations from the mean, it was calculated a disparity index that takes into account the GDP/capita from a given region and the national GDP/capita. This index calculated for the period has the lowest value in the North-East region, compared to the other regions of the country, the ratio ranging 80

81 between 0.6/1 and 0.62/1. For the West region, the index fluctuated between 1.09 and 1.15, during the analyzed period, which suggests a more egalitarian distribution of GDP/capita (National Commission for Prognosis, 2012). During the last 13 years, the West region has experienced a rapid growth in real wages, fact that was influenced by strong productivity gains (among the fastest of all European regions), stimulated by large increases in investments. Although the North-East region has experienced an increase in labor productivity since 2000, it has the lowest productivity in agriculture, construction, industry, information and communication, as well as in financial intermediations. The situation is worrying considering the fact that over 50% of the persons from this region are located in rural areas and a large share of the population work in agriculture. In terms of wages, although in both regions there was an upward trend during the period (see figure no. 4), the West region recorded higher values. From this region, Timiş county had the highest values, in each year. In the North-East region, the highest salaries are found in Iaşi, closely followed by Bacău. Figure no. 4. The evolution of the average net income, per month (lei/employee), in West and North-East regions, during the period Source: Own elaboration using data from National Commission for Prognosis (2012), Proiecţia principalilor indicatori economico sociali în profil teritorial până în 2015, As it can be seen from the above data, the North-East region is lagging behind the West region from the point of view of all the analyzed indicators. This situation is not temporary or recent, the explanations of this fact being found among the causes of the regional disparities, mentioned before. 4. CONCLUSIONS Romania is currently facing serious development problems in some regions, particularly in the North-East one, which could be overcome through the implementation of some strategic policy measures of regional development. The development regions, as they were built around the polarizing centers, must involve new mechanisms for regional growth, which, up to this moment, did not have the expected effects in some regions of the country, especially in the North-East one. The European Union structural instruments, which are aimed to stimulate economic growth and to reduce the disparities between regions, require a careful implementation and adaptation to the specific of the country and region. 81

82 Analyzing the factors that led to these disparities between the regions of the country, especially between the North-East and West regions, we find that most of them could be removed through actions promoted and implemented not only at the central level but also locally. Thus, starting with the improvement and expansion of the infrastructure, it can be increased the region's attractiveness to foreign investors. This aspect might increase the level of industrialization of the area, the workers training level, the labor productivity and therefore the revenues. BIBLIOGRAPHY 1. ADRVEST (Agenţia pentru Dezvoltare Regională Regiunea Vest), (2012), România - Regiunea de Vest: creşterea competitivității și specializarea inteligentă, [accessed at ] 2. BNR&INS, (2012), Investiţiile străine directe în România în anul 2012, [accessed at ] 3. Boudeville, Jacques Raoul, (1966), Problems of regional economic planning, Edinburgh University Press, Edinburgh 4. Comisia Naţională de Prognoză, (2012), Proiecţia principalilor indicatori economico sociali în profil teritorial până în 2015, [accessed at ] 5. Dawkins, J. Casey, (2003), Regional development theory: conceptual foundations, classic works, and recent developments, Journal of planning literature, vol. 18, no. 2, pp Fox, Karl A., Kumar, T. Krishna, (1994), The functional economic area: Delineation and implications for economic analysis and policy, in Urban-regional economics, social systemaccounts, and eco-behavioral science: Selected writings of Karl A. Fox, authors James R. Prescott, Paul van Moeskeke, Jati K. Sengupta (eds.), Iowa State University Press, Ames 7. Hirschman, Albert O., (1958), The strategyfor economic development, Yale University Press 8. Hoover, Edgar M., Giarratani, Frank, (1985) Introduction to regional economics, 3rd ed., Knopf Press, New York 9. INS, (2012a), Anuar Statistic Populaţie, [accessed at ] 10. INS, (2012b), Anuar Statistic Piaţa forţei de muncă, [accessed at ] 11. INS, (2011a), Rezultate definitive ale Recensământului Populaţiei şi al Locuinţelor 2011, RPL_2011.pdf [accessed at ] 12. INS, (2011b), PIB/locuitor pe regiuni, PIB%20pe%20locuitor%20pe%20regiuni%20.xls [accessed at ] 13. Krugman, Paul, (1991), Increasing Returns and Economic Geography, Journal of Political Economy, vol. 99, no. 3, pp Peare, C.W.D., Thomas, H., (1968), Regional economic statistics, Journal of the Royal Statistical Society, vol. 131, no.3, pp Perroux, Francois, (1950), Economic space: Theory and applications, Quarterly Journal of Economics, vol. 64, no. 1, pp Sachs, Jeffrey, (2005), The End of Poverty: Economic Possibilities for Our Time, Penguin Books 17. Schrieder, R. Gertrud, Munz, Jurgen, Jehle, Raimund, (2000), Rural Regional Development in Transition Economies: The Case of Romania, Europe-Asia Studies, vol. 52, no. 7, pp

83 The USV Annals of Economics and Public Administration Volume 14, Issue 2(20), 2014 NEW COMMUNICATION MEANS AND THE ECONOMIC CHALLENGES BROUGHT IN MASS-MEDIA Ph.D. Student Daniel BURTIC University of Oradea, Romania Professor Ph.D. Alina BADULESCU University of Oradea, Romania Abstract: Analogic technology, the old ways of production, distribution, consume and economic fundaments of the massmedia industry are left behind by the new demands and requirements of the creative economy in the digitalization context of the mass-media system. In fact, not only mass-media goes through this transformation, but the whole society. The implications of the digital era are far long to be over and they will affect all mass-media segments: written press, audiovisual, on-line press and social media. The economic aspects, as well as the technical ones, editorial, distribution and final consumers aspects, all will be different from what we experienced in media industry until digitalization. The question is, are we ready to enter into a new economy: the digital economy? Are we ready to enter into a new culture: the digital culture? We entered in the smart world, but do we understand what is happening? The editorial teams that experience a fundamental change of thinking, will be able to overcome this times challenges? These are some of the questions that bothered us along this research. We tried to block in the logic of the system with the new varieties and variables determined by the digital era in order to understand it. We tried to discover the elements whereby mass-media industry and economy can profit more of the digitalization advantages. We tried to find economic solutions for the negative consequences produced in the process of media industry digitalization to be attenuated. Key words: mass-media; digitalization; creative economy, internet, Romania. JEL clasification: L82; Z10; O INTRODUCTION The print, the telegraph, the radio, the printer, the television, the computer, the internet, the smartphone, the tablet and digitalization, all are instruments that metamorphosed human communication and along with this industry, mass-media economy. If the means and the messages are ontologically united, as McLuhan postulates, than, with every change of the communicational paradigm we have also a change of the message and particularly of its effect on individuals and society overall. All modern communicational instruments have generated models that transformed people. The printed media and the audiovisual contributed together interweaving, combining and completing the offer package in media market. This market grew more and more along with the technological development and the growth of global economy. Methodologically, starting from the observation of current situation in mass-media industry and economy, we propose to realize a content analysis. We will discuss from an economical perspective aspects about the current stage of media industry in the digitalization context, analyzing the opinions of other researchers regarding these subjects. We are trying to present the concept in the light of other reference works and to illustrate with real cases and examples from Romanian and international mass-media. We will go through the literature and we will try to sustain with empirical data the subject discussed theoretically. In order to achieve this, we will use official statistical data and relevant data extracted from other researchers work. In the research of mass-media economy, we will study the economic models, comparative analysis and we will analyze the positions of international organizations. In the content of this work, we will present the new communication means and the economic challenges brought in mass-media sector. We will follow the path of the economic challenges of media industry that came along with the technological transformation determined by computers and 83

84 internet. We propose to realize an analysis of internet expansion and the role of the internet in media industry and economy. 2. COMPUTERS AND INTERNET MEDIATED COMMUNICATION For a period a fifty years, the dominant position in media industry was owned by television, but in the last twenty years, the television supremacy was overtaken by computers. These modern instruments have more wider dimensions and application as well as a design that bundle movement, imagine, word and sound, introducing among the ones that are seen simulated and virtual realities. Technology intrusion in daily life indeed demonstrates that proxemics, domestic and trivial values receive cyber culture help. Imagination, fantasy, the desire for communion, forms of solidarity finds in,,cyberspace and internet highly performing vectors. (Maffesoli, 2003) Mass-media professionals anticipated that the technological contribution will give a boost to media sector development. Giovannini (1989) affirmed that,,technology determines us to prevent the number increase of communication channels, a bigger capacity of compressing information in each channel and a bigger facility to takeover, storage, assort and recover information. Computers and the internet managed to increase the number of communication channels and their capacity of depositing, processing, assorting, recovering or transferring surpassed all expectations. Moreover, computers interconnection offers the possibility of users to see, to transmit images and messages in text format. The internet changed the face of media industry! As Friedman (2008) states,,,on internet people take and give, chat and establish connections, deliver and receive ideologies, buy and sell all these in a practically impossible way to control. The world of communication had been revolutionized by the internet like never before! The first inventions: the print, the paper, the telegraph, the telephone, the radio, the television and computer had prepared the land for this integration of the world interconnection like never before. Moreover, the new information technologies (i.e. internet, data bases, mobile phone etc.) allow a mass personalization, which can be defined as a desire to provide communications, products and services adjusted to customers (Badulescu, 2012, p. 62) PARADIGM SHIFT: FROM ECONOMY OF SERVICES TO DIGITAL ECONOMY IN MASS-MEDIA The new course of things is oriented towards the new technologies abandoning step by step the traditional forms of media. Mass-media products and services, packed in years on paper format printing and audio-visual based on analog broadcasting, are on the way to be transformed due to digitalization process. Digitalization changed not only the face of media industry, the way of governing, the economy or affairs administration, but also our daily life. The preoccupations and the way people live an ordinary day of their lives is significantly different compared to a few years ago. Policy, economy, industry and trade had been affected and transformed by the impact of digital world. The change of paradigm from the economy of services to digital economy brings an important change in media industry. The first step in this change was the internet. But any change in the way of communicating messages has supporters and opponents. In the actual situation is seems that we are witnessing saturation and apogee regarding traditional forms of the mass-media: print and audiovisual. Both wings of this industry are involved today in the reinvention process. Politicians, economists, journalists and IT specialists talk, plan and act trying to reset media industry in the new frame of creative economy. Neelie Kroes, vice-president of the European Commission and European Commissioner for Digital Agenda, declared:,,fast and large scale internet represents digital oxygen, and it s crucial for the prosperity and welfare of Europe. These measures will allow us to make sure that European people will benefit high class internet, just how they expect and how they deserve, so they could have access to the content and services they desire. (Neelie Kroes, 2010) Mrs. Neelie Kroes promises require the change of paradigm from services economy to digital economy. The changes are multiple, targeting technological, 84

85 juridical, social, political component and most important, the economical component. In fact, transformations in media industry are determined by global realignment marked by computers, online and digitalization ECONOMIC IMPLICATIONS OF THE NEW TRENDS IN THE CONSUMPTION OF MASS-MEDIA CONTENT It seems that multimedia equipment draw more and more users to the online sector. The traditional forms of media are step by step replaced with more interesting versions. If in the 90, CD-s were the main support for music, today, a large part of the musical content is accessed on the internet. It seems that the same trend remains regarding TV, radio or newspapers. Economic data show the consumption trend and speak for themselves.,,in Europe, the consumers expenses for video digital contents (movies and television serials provided on internet) reached EUR million in 2011 (+41,8% towards 2010), in a market of physical and digital video contents worth 9493,8 million (-4,6% towards 2010). It is estimated that the unsatisfied demand for the services VoD -,,video-on-demand offered on pay by television operators from other member states is between EUR 760 million and EUR 1,610 million annually. It is expected that the number of video content users on internet to raise, at a global level to 1.5 million until 2016, towards 792 million in In the third trimester of 2012, in EU there were 306,,video-on-demand (VoD) services; 72 hours of video content are loaded on YouTube per minute (COM 2013 / 231 final). Increased interest manifested by consumers of digital video content, as the data presented by The European Commission show, are primarily materialized in economic effects. Consumers of digital content prefer to pay for this type of information even if similar products in analog version are delivered for free. Media Initiatives in the Media FactBook annual report presents us the structure of mass-media market according to the channel used for distributing the information and advertising revenues. Based on these criteria mentioned in Media FactBook report presented in 2013 and 2014, we discover the trends of Romanian media market and the surrounding countries of Romania (countries that share some common elements: a relatively similar past, obstacles and challenges of economic relocation based on market economy, go through similar stages of development and seek to reduce the economic gap compared to de developed countries). So we can notice that the digital sector monopolize more and more the mass-media advertising market detrimental to other traditional media sectors. An important indicator of the economic analysis is the advertising revenues according to the channel used for distributing the information, aspect that we try to catch in the Figure no.1. Figure no.1. Percentage shares of the advertising market according to the channel used for distributing information in Romania and the surrounding countries Source: Authors representation based on Media FactBooks data, Romania, 2013 and

86 It seems that in Romania, but also in the surrounding countries, between 2012 and 2013 it was registered a growth of the incomes gained from mass-media advertising distributed on internet and a decrease of other mass-media versions. In Romania we observe a 1% growth of the incomes gained from internet distributed advertisement while we have a 1% decrease in TV distributed advertising. The decrease tendency is also observed regarding printed publications of 1%, while radio maintains its revenue shares of 6% drawn by advertising in 2012 as well as In Hungary the change is much bigger, according to Media FactBook data we have a growth of the incomes gained from internet distributed advertising of 6% in 2012 to 23% in 2013 and a decrease from 71% to 41% of advertising drawn by TV sector. In Hungary we observe as well an important decrease of the incomes obtained by the radio from 9% in 2012 to 4% in 2013 and a growth of the incomes gained by the newspapers from 8% in 2012 to 21% in Regarding Bulgaria, our neighbors from the south, we observe an important step ahead of the incomes gained from internet distributed advertising from 6% in 2012 to 14% in 2013, detrimental to television witch drops off from 68% in 2012 to 61% in In Bulgaria, the decrease tendency of the incomes gained from publicity maintains on all traditional mass-media segments, a drop of 3% of the incomes obtained by printed publications and a drop of 1% regarding radio. In Poland, in seems that television and radio maintain their revenues shares on publicity market, 47% TV and 7% radio but the incomes obtained from printed publicity drops off with one percent between 2012 and We can notice overall an encouraging evolution regarding the access and the consumption of media content on internet, that changed media audiovisual landscape; we could also affirm that remains a very large space for improvement, growth and development. 3. THE INTERNET: AN AMPLENESS ECONOMICAL PROJECT The internet transformed the communication world and the media industry. Even if it started as a research project, it grew as an,,economically successful project with billions of euros invested annually (Barry et al, 1997). At the beginning of 2014, while one of the authors was shopping at an important store, an,,internet blackout appeared; all cash registers were blocked and all the buyers were asked to live their product baskets and get out. If the internet didn t work, the filming system was down as well, surveillance-security, they couldn t make any receipts through the bank and the stock products could not be held any more. When the internet is inoperative, the banks are unable to make any operations. If we imagine a day without the internet, it would be with jams, accidents, and huge economic losses. Think what it would mean for a television newsroom, radio, newspaper and the,,new media the computers and the internet to disappear: the work would be paralyzed; information, which are now collected in a few minutes would be gathered in a few days; the work a person is making now would have to be complemented by dozens of people. We would have to write by hand or by typewriters But this is just an imagination exercise, not to forget where we started! 3.1. INTERNET EXPANSION AT A GLOBAL LEVEL Just 40 years ago, in 1974, only a few thousand people were connected to a rudimentary version of internet. The increasing number of internet users worldwide was slow at the beginning: it took 16 years to reach a penetration rate of 0.5%. Only in 1996 the number of internet users exceeded 1% of the world population. Internet expansion occurs after year 2000, the number of people connected to the Internet reached from one billion in 2005, to two billion in 2010 and to 2.7 billion in 2013, namely 38.49% of the world population. The chart below captures this dramatic increase. 86

87 Figure no.2. The increase of internet users at global level Source: Authors processing based on the AREPPIM data The data presented in Figure 2 shows us that between 1990 and2010 the increase of the number of internet users was exponential, with an average annual rate of 35.27%. After 2010, the increase is still important, but we can notice a slowdown. This slowdown does not seem to be caused by the economic crisis after 2008, but rather by the saturation in the developed countries and by the lack of economic development in other areas. This situation it seems that will accentuate the differences between does that have internet access and does who don t benefit of this facility. As Ulmeanu (2011) states,,,revolution, even if its political, technological, social or any other nature, it is a fundamental change that happens in a relatively short period of time. The internet itself represents such a fundamental change, visible among other by the way we communicate to each other, in the way businesses work, in the collapse of mass-media business model, etc. The internet became, from a computer network, a human beings network. Moreover, the economy of persons, societies and nations gravitates around internet. Affairs relationships, commercial trades, financial transfers, information about new affairs opportunities are depending on the internet. This modern communication instrument not only that facilitates affairs relationships, but itself it is a business with a significant economic contribution. Indeed,,,Internet is in the center of cross-borders services, and the contribution of the internet in the economy of the European Union it is expected to grow from 3,8% of the gross domestic product (GDP) in 2010 to 5.7 in 2016 (Digital Agenda 2011) INTERNET EXPANSION IN ROMANIA In Romania, according to the data presented by the National Authority for Administration and Regulation in Communications, there are 12 million internet connections. Among these, 3.8 million are fix points connections and 8.1 million are mobile points connections. The growth was spectacular, as in 1993 there were only 850 internet connections and in 1997, when joining European Union, the number of internet connections raised to As revealed by Ban (2006), her research proved that for the year 2005, the preferred environment for advertising is no longer classic media but the internet and new communication channels. During recent years, both quantitative and qualitative growth of internet services has occurred. This growth is determined by the economic interests on this market, the economic potential development and the national and international policies that aim digital networking and convergence. In the next figure we present the latest developments of the internet networks in Romania. 87

88 Figure no.3. The structure of the internet connections number according to the way of connecting in the period Source: Authors representation based on the data provided by ANCOM We can notice in Figure 3 the obvious tendency of interest growth regarding mobile technologies and a lent growth in the number of fixed point s connections. Between , the connections of fixed numbers raised with 700,000 units, while the mobile connections raised with 4,600,000 units. Figure no.4. The evolution of the penetration rate of 100 peoples internet active connections provided at mobile points in the period Source: Authors representation based on the data provided by ANCOM Figure 4 represents the actual situation: 55.8% of the Romanian population has got access to the internet by mobile connection, but only 40.7% has access to mobile internet. Talking about these mobile connections, no matter if it s on prepaid cartels or subscriptions, the packages are in fact very limited. Only 7.5% of the Romanian people benefit of a truly stable internet connection on a large scale. No matter if it s a large scale connection or not, at a global level the internet revolutionized the computers world, the communications and mass-media. Internet is an environment where information is disseminated, where you can find a collaboration and interaction between individuals and their computers, overcoming the spatial-temporal boundaries. This brings changes, economic development, increase of the well-being and the quality of life. 88

89 4. THE ROLE OF THE INTERNET IN MEDIA ECONOMY AND INDUSTRY The internet is more and more present in media industry. In 2014, almost 3 billion of the people on Terra are equipped with computers, modems, cellar phones, cable systems that facilitates the internet connection. All these digital instruments seem indispensable to the modern man. Withal, the permanent development of these communication systems knew a qualitative and quantitative jump. According to the law of Moore, microprocessors double their performance each 18 months, while the price goes down to half. Economically speaking, the profit and the benefits don t come late. But changes almost never come without complications. As McLuhan and Zingrone (1995) state,,every new technology creates an environment considered corrupt and degrading; however, the new environment transform its predecessor into a new form of art This transformation is so radical that every new technology changes not only the image but also the frame. By the intrusion of the computers and the internet in mass-media, says McLuhan,,,we head to household economy, because industrial activities of maximum importance could evolve in any individual home, anywhere on the globe. (McLuhan and Zingrone, 1995). The internet and the world of computers changed the frame, the message, the image and the economy of mass media. We have today a totally different logic, the journalists can work in their bedroom, they can interview people from other continents, and all these will be available to publish almost instantly. Due to the internet, there is no needs to move in order to find information because information is brought were the people are. This new world of the internet bring s the nostalgia of the times when newspaper was edited on the typewriter, printed in the typographic industries with thousands of employees and distributed in the markets, at the traffic lights, in kiosks or brought by the post man. The internet brings a,,vintage light on the classic mass-media. But this new world of the internet changes mass-media economy, because the market is divining more and more, and the consumers have extreme diverse offers they can find in their proximity MASS-MEDIA MARKET IMBALANCED BY THE OFFER The dynamics of supply and demand is slightly imbalanced in terms of media products and services in the digital world. If the initial offer came as a response to market demand, we discover today that the offer took over the scene having the hope of finding costumers to take over these offers. Media industry in fact aligns to the general tendency of the market. As Paul Krugman (2009) shows,,,during the last decades, the focus of economic thought constantly diverted from the demand side to the supply side of the economy. In the last decades the economy generally offered on the market more than was the demand. That inevitably led to imbalances. Regarding massmedia, the sector that invaded the market was the internet. On-line mass-media offers grew strongly in the recent years, due to the rapid spread of the digital platforms. It seems that now, most users don t replace a platform with another; instead, mass-media services utilizers use platforms to access these market offers. So,,,54% of those who use the tablet, use the smartphone as well; 77% also use a laptop or a desktop computer; 50% of the mass-media services utilizers use all five platforms (TV, radio, newspapers, mobile and computers) (Krugman, 2009). Thomas Friedman, talking about this situation, says that,,the world became more and more interconnected, and today no matter if it s about a country or a company, the threats and the opportunities come from the ones you are connected with (Friedman, 2008). All the wings of the economy and industry had been affected on a way or another by the internet. Of all these, it seems that media industry was the one who benefited the most of the communications technologies innovations. Paradoxically, the produced changes in media industry led to a transformation of this kind of business regarding the way of production, distribution and also regarding the financialeconomic aspect. Ulmeanu (2011) states:,,brought together by interests, age or common occupation, the intelligent crowds use the wonders of technology to stay connected and to make themselves a better live. Nobody 89

90 wants to be excluded from these communities, so, intelligent phones, computers and PDA s help people to integrate and to learn from one another. We have a global broadcasting system as well as a mechanism for the dissemination of information, but we also have an appropriate collaboration and interaction environment between persons or institutions, that easily overcome the impediments of geographic localization.,,in the informational society, the internationalization of the communication becomes a more extensive phenomena, being a direct consequence of the new technologies and media industries spread (Ferguson, 1992) THE INTERNET AND DIGITALIZATION: SOURCES OF GROWTH FOR MASS- MEDIA ECONOMY The role of the internet in the economic life is increasingly important. Regarding massmedia market as well as the market of goods and services, on-line trade became a more important part of the economy of affairs. Leiner (1997) affirms:,,internet represents one of the most successful examples of benefits brought by investments and a commitment for the research and the development of the informational infrastructure. Starting with the first researches, the government, the industry and the academic environment had been partners in the change and in the implementation of this new and interesting technology. This partnership of the political world with the academic world, combined with the economic pragmatism, brought through the internet important benefits for mankind. Internet can play an important role in the economic development of the European Union. The contribution of on-line services and economy has a cross-border nature and it can accelerate the European integration and creating the single market (COM 2011/ 942 final). In fact, global economy is strongly stimulated by the contribution of internet, regarding direct incomes that internet generate, as well as the collateral incomes and advantages that arise from on-line services utilization. Boston Consulting Group (BCG) analyzed from the economic point of view the impact of the internet in the member countries of G20. According to the data presented by the BCG (see Figure 5), the internet economy of G20 countries represented in 2010, 4.1% of the GDI, namely 2,300 billion USD, and in 2016 it is estimated to reach 5.3% with a total value of 4,300 billion USD. In these developed markets. the economy of the internet it is estimated to reach a growth of 8% per year, being the sector with the most spectacular growth. BCG report shows that in the European Union the economy of the internet represented 3.8% of the GDI in 2010, and the estimations indicate a growth. The internet economy in EU in 2016 it is expected to reach 5.7% of the GDI. BCG data demonstrate that the role of the internet it s not just about creating connections between people and accelerating the globalization process, but has also economic value, the internet becoming one of the most important vector for the economic growth. Figure no.5. GDI internet contribution in the G20 countries economy and EU 27 Source: Authors representation based on the data provided by the report of Boston Consulting Group. Mass-media industry is a part of this picture because internet and digitalization are the main sources for the economic growth of mass-media. A realignment of mass-media economy in creative economy frame will bring, hopefully, the possibility of developing this sector and realigning it in the new communication environment offered by modern technology. Apparently we are on a road 90

91 not so easy to cross, although thanks to this technological instruments the globe,,diminished ; but,,,it is better not to be so glad that through media the globe diminished, because we ended up living in a,,global village, where every human (collectivity) knows about the other one (Preda, 2006). Always the greatest benefits are balanced by danger and challenges, and when we talk about internet, these are high. We have a world connected by billions of invisible wires that are more and more like a labyrinth and one day order will have to be made. Internet managed to connect computers to each other, this way the users, man, are interconnected. The change of messages accumulated the volume of information that grew exponentially. Browsing the internet through billions of pages without digitalization would have transformed the internet into the,,tower of Babel. 5. CONCLUSIONS Preparing for the future, it is essential to understand the bits fluxions. Those who create media content, as well as leadership factors, programmer schedule producers, the,,gatekeepers, will have to adapt to the new conditions. In the digital world, the market will be different: receivers will have not only 50 TV channels but or maybe ! They won t have just 5 daily newspapers to choose of, but thousands and tens of thousands! There will not be just 20 radio stations to pick up in the car, but ! For each show it will be known the exact audience, the rating of the compere, what offers there are on the same product segment in the other part of the world. The discussions about the audience surveys determined by the establishment of publicity price list will be over, because in the digital system we will know the audience every moment. Mass-media consumers will be able to realize their own programs list chosen from an unlimited number of offers and possible choices. The opinion we head on to is that the European Union, Romania being part of it, is characterized by cultural and linguistic diversity, fact that may be a competitive advantage on the global market, in an environment that remarks through networking effects. The network effects from digital mass-media universe and the internet may offer an important advantage. Mass-media sector in the digital world face opportunities and challenges. The change it is not simple or without risks, maybe it s expensive but it may be the only way of survival for each of the societies is this sector. In order to build a successful business in media industry, as well as in other sectors, the main characteristic has to be sustainable growth. Sustainable growth, predictability and ascended economic evolution are possible only bearing in mind the context in which the organization works. Adapting the press organization, the external environment, the creative response to the market challenges and optimal management of the financial capital, especially the immaterial one, are some of the challenges of the societies involved in mass-media in the digital era. ACKNOWLEDGMENT: The author Daniel Burtic would like to specify that this paper has been financially supported within the project entitled SOCERT. Knowledge society, dynamism through research, contract number POSDRU/159/1.5/S/ This project is co-financed by European Social Fund through Sectoral Operational Programme for Human Resources Development Investing in people!. BIBLIOGRAPHY 1. Badulescu, D. et al (2012), The Economics of Entreprise, Oradea University Press, Ban, O. (2006), Analiza canalelor de transmitere a mesajelor publicitare utilizate de structurile turistice din Oradea, in The Annals of the University of Oradea, Tome XV 2006, available onsite: accessed on 10 th August

92 3. Boston Consulting Group (2012), The Internet Economy in the G-20. The $4.2 Trillion Growth Opportunity, available on site: accessed on 10th August Digital Agenda: Broadbandande-comunications, available on accessed on 10 th August European Commission (Comisia Europeană), Cartea Verde Pregătirea pentru convergenţa deplină a lumii audiovizuale: creşterea economică, creaţia şi valorile, Bruxelles, COM(2013) 231 final, p. 5, available on site : accessed on 17 th August Ferguson, M. (1992), The mythology about globalization in Japan, in: Wilhoit, G.C.; Bock, D (eds), Mass Communication Review Yearbook 2. Beverly Hills, CA: Sage. 7. Friedman, L. T. (2008), Lexus şi măslinul, Polirom Publishing, Iaşi. 8. Giovannini G. et al. (1989), De la silex la siliciu, Tehnica Publishing House, Bucharest. 9. Krugman P. (2009), Întoarcerea economiei declinului şi criza din 2008, Publica Publishing House, Bucharest. 10. Leiner, Barry M. et al (1997), The Past and Future History of the Internet, in Communications of the ACM /Vol. 40, No Maffesoli, M. (2003), Clipa eternă, Meridiane Publishing House, Bucharest. 12. McLuhan, M. and Zingrone F. (1995), The Medium is the Message Texte esenţiale Marshal McLuhan, Nemira Publishing House, Bucharest. 13. Neelie Kroes, in: Comunicare din partea Comisiei către Parlamentul European, Comitetul Economic şi Social European (2010), available on site: accessed on 17 th August Preda, S. (2006), Jurnalismul cultural şi de opinie, Polirom Publishing, Iaşi. 15. Ulmeanu, A.B. (2011), Cartea feţelor - revoluţia facebook în spaţiul social, Humanitas Publishing House, Bucharest. 92

93 The USV Annals of Economics and Public Administration Volume 14, Issue 2(20), 2014 APPLYING FISCAL IMPULSE IN ROMANIA IN PERIOD : DECREASING FISCAL PRESSURE VERSUS RISING TRANSFER PAYMENTS Assistant Professor PhD Antoniu PREDESCU Spiru Haret University, Bucharest, Romania Associate Professor PhD Elena DIACONU Spiru Haret University, Bucharest, Romania Assistant Professor PhD Maria Loredana POPESCU Spiru Haret University, Bucharest, Romania Associate Professor PhD Mihaela Diana OANCEA NEGESCU Academy of Economic Studies, Bucharest, Romania Abstract: The first goal of a market economy is to obtain and preserve, in long term, economic growth; for this goal, there are a number of tools macroeconomic policies, there is: fiscal policy, monetary policy, budgetary policy, etc. at disposal of policy makers, so as to make such a project come true. This is not so easy, however: all these tools must be carefully calibrated and carefully used. One of the most important policy is fiscal policy (which can be defined, in brief, as the sum of all measures, procedures, tools and policies a government uses so as to modify, to its liking, macroeconomic outcomes); an important tool, also, is monetary policy which tinkers, so to speak, with money, in all its forms and shapes. This paper, however, it is not limited to simply assess, theoretically, best uses for fiscal policy; it aims to analyze, meaningfully, the effectiveness of fiscal policy in Romania, between years 2002 and 2013, in order, not only to state what did go wrong with it in that interval, but to establish best ways in which, in Romania, fiscal policy and monetary policy can be put to best use, inclusively in order to do what is to be done for achieving long-lasting economic growth in the future. Key words: fiscal policy, impulse, taxes, economic growth, interest rate JEL classification: E01, E17, E27, E43, E65 INTRODUCTION Market economy, in our time, face a harsh economic environment, and, as such, have to solve difficult dilemmas if they are to take difficult decisions. And, first goal of any market economy being obtaining and preserving, in long term, economic growth (Schiller, 2008), all the tools at their disposal must be carefully calibrated and even more carefully used. One of the most important tool or policy, in this case is fiscal policy; an important tool, also, is monetary policy. Both policies must be enforced conjunctly, to attain maximal results, given a strategic goal such as the goal named in previous paragraph exists, and that it is pursued not only on paper, but in practice. Fiscal policy can be put to good use, for the entire economy, and on long term; for example, working with fiscal policy through tax cuts can boost the economy by means of increasing investment spending or, simply, spending (and, thus, consumption) in general. Conversely, fiscal policy can be used just as monetary policy can also be used for dayto-day affairs, in general for short term objectives. These are, of course, important, but employing macroeconomic policies in order to obtain only minor (if positive) outcomes not only comes into 93

94 conflict with the very principles, ideas and targets these policies were designed in the first place, but because it can cause great damage to market economy a policy such as fiscal policy is called into action to best manage. Romania, in the period , recorded both good times and not so good time for its economy: between 2002 and 2008, maybe even between 2004 and 2008, economic growth manifested itself, but it was not as beneficially as would have been expected, since it was largely conjectural (i.e. built on a roller coaster expansion of real estate sector of Romanian economy). As a result, Romanian benefit did not benefit from it as much as it would seem. After 2007, present economic and financial crisis set itself in Romania as well, with well-known results. Finding and assessing what fiscal economy, in particular, did in order to smooth the edges is the main focus of this paper. CONTENT Fiscal policy is a very important tool, in order to achieve and to consolidate economic growth; this is true in any economy, but especially in a somewhat less-than-perfect operated economy as almost any market economy from states affected by present economic and financial crisis, and, it goes without saying, as Romanian economy. Considering both economic growth targeting as much or as real as it was, and is, done and policy making, it is worthwhile to analyze the last decade and especially period in order to ascertain the results fiscal policy had, in more or less distant (economic) past, on economic mechanisms of Romania, on one side, and on Romania s economic growth, on the other side. Economic growth is, in short, the recorded growth (i.e., algebraically, positive growth) of national income (e.g. GDP Gross Domestic Product) for a given state/economy (Schiller, 2003). For this goal to be attained, various economic policies can be and are used, most important being, in this respect, fiscal policy and monetary policy. Both policies are used and must be used, because economic growth is a state of economy in which rise, simultaneously, and exempli gratia in long term: (a) Aggregate demand; (b) Aggregate supply. The economic and mathematical background is that national income can be described, either as a sum of expenses in which case one refers to the aggregate demand side of the story, or as a sum of revenues in which case, the side is that of aggregate supply (Schiller, 2003). Whatever the case may be, in other words no matter in what manner one computes national income, this income is, either way, one and the same. Each policy, of those named above, has a part in this: fiscal policy is used to increase aggregate demand, through sending a fiscal impulse; this impulse can be emitted in three ways two of them, and most important, are included in the title of this paper, that is, either (Predescu, 2013): (a) by increasing government spending, or (b) by decreasing tax rates, or, respectively, (c) by increasing amount of transfer payments. An observation is required here: if fiscal impulse is emitted through decreasing tax rates, what is actually decreased is, more specifically, (total) tax pressure. In turn, monetary policy is applied in order to finally increase aggregate supply, and this through sending a monetary impulse that is, through decreasing the interest rate (Lipsey and Chrystal, 2004). Producers will be able, thereupon, to borrow money more easily, so that they will be able to increase output of goods and services in other words, aggregate supply will increase. Economic growth, therefore, is built on consumption, as far as consumers are concerned, and, respectively, on investment as regards producers. This mechanism, described above, can be properly rendered in brief graphically, as follows (where C stands for consumption, I for 94

95 investments, E for savings, CA denotes aggregate demand, OA denotes aggregate supply, V denotes income and d denotes interest rate) (Predescu, 2013): Figure no. 1 Source: Antoniu Predescu, Impozitarea veniturilor şi creşterea economică, Editura Universitară, Bucureşti, 2013, p. 75 Returning, however, to the issue of increasing aggregate demand, it is worth underlining the undeniable fact fiscal impulse needs a properly tuned economic environment, in order to function properly, or, in other words, to reach its goal(s). Firstly, inflation: a fiscal impulse is going to be useful if price level stays constant, or, eventually, only slightly increases; in other words, it is known that, along with economic growth, full employment can be achieved as an effect of an increased GDP in its turn, the main effect of a rise in aggregate demand. Secondly, one shouldn t forget a fiscal impulse has a two-tier system of working on the economy: in first phase, there is the initial fiscal stimulus, but there is also a second phase, that of induced boost of consumption, due to multiplier process. And here, there are two observations standing out: one is the fact this mentioned second phase happens at price level of first phase; the second observation is emitting a fiscal impulse through decreasing tax rates is hoping for more than one is about to receive. The reason is whilst consumers will possess larger (net) incomes than before the tax reduction, not all that money is going to be actually spent: a large share of net income will be spend, but by no means all; a sizeable proportion of incomes will be saved. Of course, if the fiscal impulse is to be efficient, policy makers must emit, in advance, a proper monetary impulse, as we have observed already: smaller interest rates will, undoubtedly, limit size of savings. In addition, it is useful to note both fiscal impulse and monetary impulse can and should built up, together, an economic environment favorable for investments: for this, higher net incomes (e.g. after a corporate tax cut) coupled with small(ler) interest rates seem to be the right mix. This mix is, by the by, starting point of a new multiplier effect that of additional investment entering the economic mechanism. This is as much as economic theory goes. Practice can be slightly different, as we will shortly see. That is, given reality is the very best testing ground of any theory, it is most useful to produce the following figure, from which the main points, as regards the effectiveness of fiscal policy in Romania, between years 2002 and 2013, can be identified and summed up in: 95

96 Figure no. 2 Source: authors own computations, using data from We should first note all indices in figure above (figure no. 2) are relative ones i.e., defined as % of GDP. One of the most important indices pictured in this figure is one describing (indirectly) effectiveness of fiscal policy in Romania Total general government revenue. As observed, its dynamics, in this interval , is rather erratic, a maximum being recorded in 2007 just before Romania s economy joined The Crisis Club of economies plunged in current economic and financial crisis and the minimum in Since then the situation should have recovered, but it is plainly visible in 2012 and 2013 things turned out badly again. General government revenue consists, for the most part, in Romania, at least, of fiscal revenues. Its evolution, in Romania, suggests, already already, given the fact it is a synoptic index, so to speak embodying dynamics of all the other fiscal indices analysed here, that fiscal impulses were emitted, in Romania economy, but were not exactly perfectly calibrated for economic reality here. Taxes on production and imports VAT, excises, etc. recorded a minimum in 2009, after a rather tortuous evolution, and dropped, again, in 2013, as of These taxes are taxes levied on consumption; thus, a fiscal impulse, if it is emitted at all, is emitted so as to boost consumption, and finally aggregate demand. In order to depict the situation completely, we must remind the fact VAT rate rose, rather sharply, from 19% to 24%, in 2010, decision which can hardly be regarded as implementing/emitting a fiscal impulse. In addition, it is worth glancing over the above figure (figure no. 2), for anyone can see there the level of indirect fiscal pressure (= computed as amount of tax paid to state fiscal system by taxpayers relative to size of GDP) is sensibly higher than level of direct fiscal pressure at least in the period Social benefits (e.g. second emission path of tax impulse) exhibit a maximum in 2009, and generally speaking an upward trend since 2009 which, at least in part, can be attributed to political crisis management ; anyway, this can be considered as being a genuine fiscal impulse. 96

97 Not least important, (current) taxes on income, wealth &c. prove to have maintained a more or less constant level between 2002 and In Romania, global income tax was introduced for the very first time in 2005, more or less in the role of universal medicine but, so far, without any wonder results. CONCLUSIONS In period Romania had, indeed, a fiscal policy, even a proper fiscal policy not a fiscal policy of sorts, but this is about all that can be said favorably about it. The reason for such a conclusion for our part is simple: fiscal policy, as well as any other similar (macro)economic policy enforced by government of any market economy, is used, even more, designed so as to help/boost the economy, not or not only general, or state, budget. Boosting the economy, in other words exempli gratia promoting and pursuing economic growth, this is definitely what fiscal policy and monetary policy, not in the least is, finally, all about. Fiscal policy in the role of helper of budgetary policy is compatible with any political man or party wanting to win (again) over its constituencies, but this is, in the end, hardly in favor of these very constituencies: conjectural (and) electoral bribery cannot help anyone in the long term. In Romania, in this period ( ), fiscal policy emitted indeed fiscal impulses, and powerful impulses at that, but with little strategic insight; this is, however, in part, at least, excusable, since the present economic and financial crisis, which started to affect deeply Romania since, let s say, 2008, hit hard whatever economic growth Romania s economy recorded, with or without help coming from fiscal policy. But, of course, this circumstance should have enforced fiscal policy as a really strategic tool, not otherwise. This is the point where main use, so to speak, of this paper becomes really visible: we can and do underline not only what imperfections characterized fiscal policy in Romania, between 2002 and 2013, but, much more important, what is to be done in the future, in order for fiscal policy to become what it should be. Romania has, all along since 1990, a strong preference for indirect taxation i.e., for taxes on production and imports, due to straightforward reasons: in this field, tax evasion is a remote possibility, and, even more important, taxes are collected just by using minimal resources (such as money, labor, etc.). The only problem associated with over-using consumption taxes is, whilst successfully promoting and in long term consumption (of goods and services) is literally the cornerstone of achieving, also in long time, economic growth, such a fiscal policy is, due to very obvious reasons, very unlikely to achieve such goals. Apparently, increasing size of transfer payments in Romania, social benefits should do the job fiscal policy is required to do; even more so, as, indeed, the regime of direct taxation, was, in this interval, relatively lax. Once again, one confronts with the same problem: Romanian government badly needs money, and, in order to obtain them, it insists on squeezing consumption of all financial funds it can conceivably shed. So, what they give with one hand, they take, as like as not, with the other hand. Summing all this up, we are of the opinion on one side, Romanian government, as well as any other government, knows only too well what is to be done, from a technical point of view, in order to achieve/consolidate economic growth, and also to build up a sound fiscal policy, sound enough even for obtaining economic growth. But, on the other side, there is an all too clear desire to avoid approaching difficult that is, important issues, in general long term targets. In part, however, the crux of all these problems lies, also, in the realm of deciding how you are going to deal with taxpayers; if the state itself is run badly, those who run that state will obviously need to obtain the money easy, fast and in large amount pretty much like any (other) thief or robber. Thus, the accent will strongly be put on indirect taxation, since no taxpayer can show too much frustration and anger, if any, anyway. 97

98 So, the remedy is easily reachable: simply put, a sound fiscal policy can exist, even in short term, only in a sound-run state, who knows what it wants and wants what is really useful for it, state running a market economy to match. BIBLIOGRAPHY 1. Lipsey, Richard G., Chrystal, K. A. (2004). Economics (10 th edition). Oxford University Press, U.S.A. 2. Antoniu Predescu (2013), Impozitarea veniturilor şi creşterea economică, Editura Universitară, Bucureşti, ISBN Antoniu Predescu (2013), Economie (microeconomie şi macroeconomie), Editura Sitech, Craiova, ISBN Schiller, Bradley R. (2003), The economy today (9 th edition). The McGraw-Hill Companies, Inc., New York 5. Schiller, Bradley R. (2008), The macro economy today, McGraw-lliII/lrwin, New York, ISBN

99 The USV Annals of Economics and Public Administration Volume 14, Issue 2(20), 2014 INFLUENCE OF RELATIONS WITH INTERNATIONAL FINANCIAL INSTITUTIONS ON INSTITUTIONAL TRANSFORMATIONS OF ECONOMY PhD Galyna POCHENCHUK Academy of Financial Management, Ukraine g pochenchuk@mail.ru Abstract: The article deals with the problem of the impact of transitional countries cooperation with international financial institutions on institutional changes which take place in emerging market economies, on the base of Ukraine. Research is carried out from the standpoint of institutional theory. The main reforms that took place in emerging market economy countries were based on the Washington Consensus strategy recommended by international financial institutions. The results of implementing this strategy are varied in different countries. In Ukraine strict adherence to requirements in the early stages of reforms without internal institutional conditions and characteristics led to a deep and protracted crisis of forming a "transformational stability." The general formal institutions of the market economy have been created according to the neoliberal concept which is provided by IFIs. However, experience of transitive economies including Ukraine, confirms the ineffectiveness of many established formal institutions borrowed from the developed countries. The author reviews the basic theory of institutional changes, argues that the terms of cooperation circulated by international financial institutions not only affect economic development strategy, but also determine the role of the national government in relations with markets. Under present conditions prevailing in Ukraine, it is impossible to manage without assistance of international financial institutions. But we need to pay more attention to technical and advisory cooperation in realization of institutional reforms, and credits to take as a required time for receiving the results of reforms. Key words: institutions; institutional changes; institutional structure; international financial institutions (IFIs); Washington Consensus. JEL classification: B52, F33, O19, P20 INTRODUCTION International financial institutions (IFIs) evidently have a positive impact on socio-economic development in today s globalized world. First, international financial institutions provide financing - usually loans but also, in some cases, a significant grant element - to help the country's authorities attain objectives agreed upon in consultation with the former. The financing may support specific investments - in, for example, infrastructure and capacity building - or it may be part of a sector-specific or economy-wide adjustment program. Second, international financial institutions support national authorities' efforts to design policies to achieve specific economic and social targets. This usually entails extensive consultations with both officials and private sector representatives, and between the headquarters and resident staffs of the international financial institutions to identify the bottlenecks and most important issues that the country faces. These are generally followed by preparation of a written report summarizing the findings and proposed policy recommendations of the international financial institutions' staffs. The policy packages agreed upon may include funds or other assistance specifically targeted on enhancing capacity in social or economic areas. Third, international financial institutions encourage the development, dissemination, and adoption of internationally accepted standards and codes of good practice in economic, financial, and business activities. The adoption and implementation of such standards and codes contribute to the development and improved functioning of domestic institutions, which, in turn, can help 99

100 countries better integrate themselves into the world economy and benefit from globalization in progress. Fourth, international financial institutions provide training on a multitude of topics. This training can take place within the framework of a specific project that a country implements with the support of an international financial institution for example, projects calling for reform of public enterprises, the civil service, tax administration, or the financial sector. It can also be provided in courses, workshops, and seminars offered by the training institutions of international financial institutions ( Nsouli Saleh, 2000) IFIs lend to the emerging market economies (EMEs) in the role that such lending can play in encouraging sound economic management, investment in institution building, and policies that reduce poverty and inequity. The institutions have mechanisms to link lending to these kinds of changes. The enforcement mechanism of future access to MDB loans is one of them. It requires that MDBs stop lending when governments fail to honor their commitments. A second is conditionality, which ties disbursements of loans to agreed-upon policy changes by governments. However, they can produce false impulses which lie within the prescribed requirements. Fostering development of the national economy of Ukraine requires analysis of prior miscalculations in the process of implementing market reforms and formation of institutional structure of the national economy on the basis of the reform program proposed by international agencies, which supported and financed the reforms and improvement of relations with international financial institutions. MARKET TRANSFORMAION, RECOMMENDATION OF IFIs AND INSTITUTION Systemic transformations that swept post-soviet countries were unprecedented in nature. However, some countries have achieved relatively fast results, for example, Poland, and found themselves on a fast track of development, while others, like Ukraine, are still in the making and need major reforms, primarily institutional ones. Transformational changes in post-soviet countries occurred according to the philosophy of Washington consensus with regard to reforming command-administrative economies and upgrading them to market economy principles on the basis of neoclassical theory of economic development. The project titled Washington consensus was elaborated by a team of leading economists headed by Professor J. Williamson (Harvard University) with the support from IMF in 1989 for the Latin America countries. After a number of modifications, this document was treated by the IMF and other international institutions as a benchmark program of western countries and a starting point for implementing reforms in the developing countries and the countries with transitional economy, i.e. the post-socialist countries. The key ideas of the project are as follows: support of fiscal discipline; special emphasis on healthcare, education and infrastructure in terms of state expenditures; decrease in marginal tax rates; liberalization of financial markets; free exchange rate of national currencies; liberalization of foreign trade; favourable direct foreign investment climate; privatization; deregulation of economy; protection of ownership. These principles were taken in consideration when elaborating the model of economic development of Ukraine. Normally, a set of recommendations for each debtor-country was fairly specific. However, their basic platform has always been clear-cut: tough budgetary and monetary policy; liberalization of foreign trade, financial markets, exchange rates; removal of restrictions on foreign investments; deregulation of economy, protection of ownership, privatization. Hence, the economic significance of IMF actions changed in the s: loans were given not under temporary disparities of balance of payments, but for implementation of a specific economic policy. 100

101 Practically, the principles of the Washington consensus proved inappropriate to be implemented in the developing countries, since they, essentially, minimize the role of the state in regulating the national economy, facilitate market openness and its operation under the laws of supply and demand, whereas this poses a substantial threat to the economic security of the countries appealing to the IMF for support as speculative capital becomes accessible. Besides, the Washington consensus practically objects to state support of the most vulnerable individuals in form of subsidies and state support caused by the increasing number of the individuals living at the poverty line. The economic policy based on the Washington consensus, which saw liberalization in line with formation of the new institutional environment, not only hindered solving the problems of the transitional period, but even exacerbated them. Secondary treatment of the role of institutions and institutional change in ensuring conditions for the formation of a national market economy model and the role of public participation in the process have led to negative growth of the Ukrainian economy during the 1990s. The awareness that institutions are key to understanding the relationships between all the agents of the economic system and institutional changes determine the direction of its development is a defining trend today. Methodology of institutionalism, firstly, considers the socio-economic system through holistic development. Secondly, individuals are characterized in the light of institutions that determine their behavior and interaction. Institutions, therefore, are primary, whereas individuals and their characteristics are secondary or derivative. The holistic approach to the research of the socio-economic system involves a multidisciplinary technique. Thirdly, institutional research program also calls upon the cumulative early development of society as a whole and its constituent parts. Fourth, institutional changes require not only quantitative but also qualitative methods of observation, where it is not the outcome (e.g. performance and growth indicators), but the direction, strategy and the process of evolution with the identification of causes, all stages and forms of transformation are analyzed. Therefore, it is the institution which determines and defines economic conditions which are considered the unit of analysis in the theory of institutionalism (Lemeshenko, 2005) Douglas North gave the following definition to the notion of institution: «Institutions are the rules of the game in a society or, more formally, are the humanly devised constraints that shape human interaction». Institutions are consciously and/or randomly formed rules of the game (Loginov, 2010). Thus, transition from command economy to market economy meant change in rules of the game suggested as an outer generalizing model. The choice of the pathway for development, which is collectively exercised by social groups and civilizations interacting with one another at the bifurcation point, can be defined as an institutional choice. Institutional choice is change in the formal and informal rules and procedures and the effectiveness of enforcement of rules and restrictions when the better option of several potentially possible ones is selected. The concept of "institutional choice" almost merges with the concept of institutional innovation, since it is unlikely that a socio-economic problem can be solved by a single method (Nureyev, Latov, 2009). Therefore, socio-economic development is directly dependent on the efficiency of a given set of institutions. INSTITUTIONAL SRUCTURE OF ECONOMY AND INSTITUTIONAL CHANGES In economic theory, research issues of institutional changes and shaping the institutional structure of the economy became relevant in the 1980s and the 1990s., when the processes in the global economy called upon reflection on the importance of institutions for economic development, especially in countries which experienced a transition from planned to market economy. O. Williamson gives the most general definition of the institutional structure these are major political, social and legal norms which are a foundation for production, exchange and consumption ( Williamson, 1993). 101

102 In the process of market transformation implemented are those institutional changes that lead to formation of a particular institutional structure. Institutional changes of market economy are characterized by changes in formal and informal business environment. This system includes primarily development and application of legislation appropriate for market conditions, changes in property relations (introduction of private sector), establishment of new organizations and institutions of market type (commercial banks, commodity and stock exchanges, investment funds, etc.) as well as introducing new system of economic management (by replacing administrative controls with the economic ones, especially with the fiscal and tax controls). However, the existence of some institutions inherent for spontaneous market order is not sufficient for the formation of the institutional structure of market. For example, creating the legal framework for private property does not mean that it can actually function in the economy as a market institution. Institutional structure stands for an ordered set of institutions that create matrices for economic behaviour, determine restrictions for economic entities and are formed within a certain system of economic activity coordination (Volchik, 2012) The institutional structure of the economy of any country is, above all, the result of past actions of the state and spontaneous evolutionary selection of the most effective institutions. Accordingly, institutional change relies upon the previous path dependence. Subjection to the previous path dependence is a phenomenon which explains why agents actual acts of choice may be subject to the former acts of choice. Today there is no unified theory of institutional change. It is formed by a number of different theories (Table 1). Table 1. Theories of institutional changes Theory Scope of theory Representatives Theory of institutional The state and political processes act as passive factors which Demsetz H. Umbeck change due to changes in mutely perceive all changes affecting growth of net public J. Field B. Feeny D. relative prices on benefit. Institutional changes are stipulated by demand on behalf Eggertsson T. economic resources of economy due to insufficient efficiency of resource utilization. Theory of institutional change by D. North Theory of induced institutional innovations Distributional theory of institutional change Theory of institutional change by J. Knight Formed and extended by the author basing on [7, 8]. Accounts for processes occurring on the political market and underscores positive (not equal to zero) value of transactional expenses on it (obstacles to performing political actions and exchanges). Takes into account both exogenous changes that cause the demand for new institutions as well as political and cultural constraints to the supply in response to institutional change. Argues that the attitude of individual economic agents to the proposed institutional innovations is determined by net benefits, which they received from conducting the latter. The conflict of interest that arises is solved in the process of conducting political negotiations and concluding relevant agreements (contracts): Emphasizes the fare dodger problem in the process of concluding political agreements on the implementation of socially effective institutional change. Argues that a rational economic agent will not participate in this contractual process, as in the case of its successful completion he will get his share of the common property at no cost. Knight coins the concept of asymmetric distribution of power in society as the primary explanation of institutional change. North D. Ruttan V.W., Hayami Y. Libecap G. Knight J. Based on the fundamental concepts of modern institutional change, we can conclude that institutional change primarily concern the evolution of the state and its functions. In this case, the state s options regarding actual transformation of the existing formal institutions are associated with two issues. 102

103 First is distribution of power in society and in the political arena (distribution of costs and benefits of proposed changes that may be incurred by certain special interest groups). Second is value of the cost (not just financial) to perform the required collective action, which may be too high for such action, despite its significant potential benefits (Tambovtsev, 1999). Of course, the initial availability of resources and knowledge are a basic conditions for development. And no matter the institutions, but the lack of appropriate competencies, technological knowledge and resources is unlikely to bring about a high standard of living. Moreover, the lack of these components will not even let create the necessary institutions, since institutional planning and improvement possibilities for institutions are also determined by the level of knowledge, technological development and availability of resources. Different factors within the system, so long as management and institutional changes are such factors, may change the direction of its development, the level of its diversity and, hence, influence going through life cycle stages (Sukharev, 2012) Institutional change may be endogenous as well as exogenous in nature (Brousseaua, Garrousteb, Raynaudc, 2011). Endogenous institutional change is associated with the evolution of behavioral stereotypes and values, development of organizations or interest groups in a broad sense. Exogenous institutional change, especially related to importing of institutions, can change the existing structure of incentives, which, due to destruction of conventional social ties, can lead to instability. In today's world, institutional changes are related to the impact of globalization and international organizations on the process of implementing global standard institutions (GSI) (Chang, 2011). Implementation of GSI is, on the one hand, a special case of institutional import, and, on the other hand, is a reflection of the standardization process of mechanisms of economic regulation. These processes can be evaluated ambiguously with respect to mixed economic efficiency, because they impede institutional diversity, which inevitably will affect the adaptive efficiency of institutions. The crisis has led to reinterpretation of neo-classical position, which was the dominant tradition of economic policy in the 1990s. Leading IFIs - the IMF and the World Bank followed the neo-liberal approach in creating conditions for cooperation with emerging market economies countries. In return for continued disbursements of IMF loans, countries must follow austere policy conditions designed to ensure debt repayment, stabilize the economy, and promote national prosperity. However, the approach used by IFIs is not only an economic growth doctrine, but is related to reconstruction of the state's role in the society. The requirements imposed by IFIs determine measures that affect both socio-economic and the socio-political processes, i.e. political strategies of the formation of national government in relations with markets. Thus, meeting the requirements of cooperation with IFIs acts as a decisive and important factor of influence on institutional change and shaping the institutional structure of emerging market economies countries. RELATIONS OF UKRAINE WITH IFIs AND INSTITUTIONAL CHANGES OF ECONOMY The choice of Ukraine in favor of neo-liberal model was not spontaneous. Having no reforms at first, the country had to resort to foreign practice. However, widely circulated and used in the 1990s within transformational changes, the liberal doctrine of orthodox nature, which was aimed at building a new society and a new economic system, failed to bring about the expected results and to be implemented fully. Centralized economy associated with dominance of public monopoly intermediation defined the logic of its forthcoming transformation in Ukraine. There are three logically related steps. The first one is the stage of destruction of the institutional system of centralized economy, due to the existence of an implicit financial pyramid. The second stage is desocial privatization of assets and property rights, changes in the old control system of the economy. It led to destructurization and 103

104 primitivisation of its institutional structure. The third stage is gradual formation of a new system of property rights and economic power of new institutions in the Ukrainian economy (Tkach A., 2012). Transformation processes in Ukraine were accompanied by a dire economic crisis. In this regard, the issue of resource support of economic development has sharpened, especially in terms of its financial components. Every reform is dependent on expenditure, therefore possibilities for introduction of intensive institutional changes are limited. Deregulation of the financial system, payment crisis, caused primarily by transition to world prices on energy, lack of domestic savings objectively resulted in the need for external resources to restore economic balance and sustainable economic growth. Among the external financial sources with the greatest potential for international financial institutions are the International Monetary Fund (IMF), the World Bank (WB) and European Bank for Reconstruction and Development (EBRD). It should be noted, however, that the strategy of cooperation with IFIs is not only to obtain loans to finance government programs and projects, but a certain set of complementary measures. The measures recommended by international financial institutions (1) rely on the monetarist-liberal model of development, (2) are standard, as they do not take into account the specific features of the national development of the recipient countries, (3) correspond primarily to the interests of the developed countries (according to the center periphery theory), (4) have different effects in different countries, which is why there has been increasing economic differentiation of countries. Ukraine has been member of the IMF, the World Bank and the EBRD since 1992, and it started cooperation with the European Investment Bank (EIB) in Cooperation between Ukraine and the World Bank was launched in 1992 to provide institutional and rehabilitation loans worth 527 million USD. These funds were used to finance external debt liabilities, fix the difficult economic situation in the country and finance critical imports (mainly energy sources thus, the major amount was transferred to repay the debt for gas to Turkmenistan). The initial phase of cooperation with the IMF included consultation and technical assistance for the creation of its own monetary system. Ukraine's cooperation with the IMF in terms of implementation of joint programs of economic development in Ukraine started in October It should be noted that the World Bank is an organization which deals with the problems of world countries development, while the IMF is a cooperation body whose activities are primarily aimed at improving the global monetary system. The European Bank for Reconstruction and Development (EBRD) is a relatively new organization established for supporting the development and cooperation between European countries. Obviously, the activities of these institutions are fundamentally different: each has its own objectives, fixed structure, different sources of financing, helps different categories of member countries. Some countries of Eastern and Central Europe have achieved significant economic results due to the support of their reforms by international creditors. All projects which have been implemented in Ukraine since 1991 can be attributed to one of the following groups: projects of macroeconomic stabilization and structural transformations of the economy in some sectors (systemic projects); investment projects; international technical assistance projects. IMF assistance to Ukraine is aimed at stabilization the monetary and credit system, while the funds of the World Bank are for financing critical import and budget support and financing various investment projects. European Bank for Reconstruction and Development, unlike other international financial institutions, lays down political conditions to their partners. A country must be a fan of multiparty democracy, pluralism and market economy. Herewith realizing external direct and joint financing of investment projects, it is focused primarily on crediting the private sector and major infrastructure objects. The results of Ukraine's cooperation with international financial institutions, in the first place with the IMF and the World Bank are estimated ambiguously. On the one hand, cooperation with International Financial Institution (IFIs) contributed to reforming the budget, tax and pension 104

105 systems; increasing the stability of the national currency by growth of foreign exchange reserves; ensured low prices on credits, implementation of a number of infrastructural projects; enhancement of investment image and trust in Ukraine internationally. In fact, the requirements act as a catalyst, which forced the government to speed up the reforming of budgetary, fiscal and pension systems, the structure of the economy, in particular the energy sector. Meeting the recommendations of the Washington Consensus under the protection of the IMF contributed to formation of basic market institutions. On the other hand, experience of transitive economies, including Ukraine, confirms the inefficiency of many established official institutions borrowed in the developed countries. Their functioning in many countries failed to ensure efficiency of institutions in the importing countries. On the contrary, if economic indices are analyzed: transaction costs are increasing, and the efficiency of the economy is increasing nominally, which has fallen sharply since the beginning of market reforming. Institutions do not operate in a vacuum, and the context in which the organizational structure is established, may lead to very different results in Mexico as opposed to a similar structure in Brazil, or China. This is because incentives matter, and the balance of power and influence of elites, including bureaucracies, may determine whether or not an organizational structure generates rents at the behest of vested interests, especially in societies that North terms limited access orders. Thus, attempts by international agencies to propagate best practices quite often fail. Ukraine's economy has been unreasonably in a state of transformation ("permanent shock therapy") for a long period of time. New destructive factor transformational stability has been created on the way of its development. If an economy has been in a state of uncertainty for a long period of time, individuals and business entities, guided by an instinct of self-preservation, aiming at their own life support, try to adjust to these conditions of uncertainty. Everybody occupies their own socio-economic niche, providing their own stability. These relatively stable microsystems that have been created in terms of systematic instability begin to resist to the changes that violate their stability, despite the fact that these changes are positive for the economic system as a whole and for themselves. The importance of institutional preconditions of implementation principles of the Washington consensus has been disregarded by Ukrainian reformers, which resulted in significant negative socio-economic outcomes and caused deep transformational crisis in particular. Human factor is one of the reasons in Ukraine, i.e the lack of willingness to accept the "shock therapy" by an ordinary citizen of Ukraine and mechanical implementation of principles of the Washington Consensus by the authorities without taking into account national peculiarities, historical heritage etc. Today, inadequacy of IFI requirements to Ukrainian realities under current crisis and military conflict as well as their improper implementation may result in the exacerbation of difficult economic and social situation in the country, prevent economic development in the medium- and long-term perspective and create a model of dependent development. CONCLUSION Any mechanical borrowings from the well-tested international institutions, norms of regulation or forms of organization will not always bring about a positive result in other environment. Their efficiency depends on the path dependence. Ukraine has its own national social environment with formal and informal institutions, its disregard exacerbates efficient activity of both new institutions and the advanced ones. Despite the twenty-year long reforming of Ukraine's economy, the results achieved remain fragmentary. Based on the experience of post-socialist countries of Eastern Europe and the transformation period of Ukraine s development, one can propose the following regularity: the more advanced institutional and legislative reforms are, the more efficient the state administration is and the higher credit the judiciary authorities have, which results in a stronger mutual trust between 105

106 business partners. In Ukraine, the norms of a law-governed state are weak, the legislation is insufficiently developed, on the contrary to impractical use of laws, insufficient reforming of the property relations and blurring ownership rights, distorted structure of economy, low contractual discipline, which yields additional transaction costs in protection of ownership rights and interests. In addition, through implementation of long-term institutional reforms, the dynamics of asynchronous mechanisms of regulation (and technologies) should be considered, on the one hand, and of institutions, on the other hand. Thus, the contradiction between spontaneous evolutionary processes and conscious transformation of institutions in the course of economic reforms can be considered in the framework of institutional cooperation (a set of rules based on the dominant values and mechanisms which ensure their implementation, thus forming subjects behavior) and mechanisms of regulation (a system of authorities links and relations arising in the result of ordering the economic processes within existing organizations) (Volchik, Kot 2013). It is the regulation mechanisms, because of informal authorities relations, low legislation efficiency regulating economic relations (laws do exist, however they are largely neglected in practice), subordination of the judiciary authorities to political interests, which have led to the establishment of government-to-business relations by the protector-client type, which contributed to the formation of clan-oligarchic system, exchange of economic rent for political loyalty and consolidation of the power-property institution. It should be emphasized that cooperation with international financial institutions (introduction of new credit programs, expert forecasts for economic development of countries) are order of time, because it is a chance to recover from the situation in Ukraine, at minimum cost. Economy and the state can be saved only by reforms, and IFI loans are just a chance to buy time for the reforms to be implemented. It is necessary to take into account previous cooperation practices, as the main reasons of the major problems related to the implementation of any projects in Ukraine are related to the institutional field these are unstable compliance with the plans and, more precisely, constant strategic changes, poor coordination of authorities, broken implementation mechanisms of formal rules and regulations. The state policy of cooperation with international financial institutions at the present stage should be focused not on minimization loans, but on the most efficient use of the advantages and opportunities offered by membership in these institutions or the agreed-upon arrangements. REFERENCES 1. Nsouli Saleh M. (2000) Capacity Building in Africa: The Role of International Financial Institutions, Finances & Développement, Volume 37, Number 4, 2. Lemeshenko P. Transitional period in the context of institutional and evolutionary theory, 3. Loginov T. (2010) Russia and Europe through the prism of institutional differences, Теrrа Economicus, Volume 4, Number 8, pp Nureyev R., Latov Y. (2009) Russia and Europe: the effect of the track (the experience of the institutional analysis of the history of economic development), Kaliningrad. 5. Williamson O. (1993) Private property and capital market, Economics and Organization of Industrial Production, 1993, 3, pp Volchik B. (2012) Institutional change: Towards a general theory, Journal of Institutional Studies, Volume 4, Number 4, pp Knight J. (1992) Institutions and Social Conflict, Cambridge. 8. Tambovtsev B. (1999) Institutional changes in the Russian economy, Social Sciences and Modernity, 4, pp Sukharev A. (2013) Institutional and technological change: the limits of analysis evolution theory, Journal of Institutional Studies, Volume 5, Number 2, pp

107 10. Brousseau E., Garrouste P., Raynaud E. (2011). Institutional changes: Alternative theories and consequences for institutional design, Journal of Economic Behavior & Organization, Vol. 79, Issue 1 2, pp Chang, Ha-Joon (2011). Institutions and economic development: theory, policy and history, Journal of Institutional Economics. Vol. 7, Issue Tkach A. (2012) Institutional change and modernization of Ukraine's economy, Volchik B., Kot V. (2013) Institutional changes in the peripheral regions: the role of civil society institutions, Теrrа Economicus, Volume 11, Number 4, pp

108 The USV Annals of Economics and Public Administration Volume 14, Issue 2(20), 2014 THE INFLUENCE OF THE ENTERPRISE SIZE ON THE EFFECT OF EU GRANTS PhD Student Andrei Alexandru MOROŞAN Faculty of Economic Sciences and Public Administration Ştefan cel Mare University of Suceava, Romania Abstract: In the European Union there are important differences between the GDP per capita of various regions. The biggest differences are found between regions in Western Europe and those in Central and Eastern Europe. To reduce these disparities, special funds were allocated to less developed countries, in order to finance various public and private investments. The funds allocated to Romania were included in the seven operational programs addressing various issues. This research examines the efficiency with which the funds addressed to business were used. Furthermore, this paper analyzes the influence that the size of the company has on the indicators of return on investments (referring to investments financed with EU funds). Following the analyzes, we found that at micro-level, the allocated EU funds generated effects, but their intensity is very low. Key words: Structural Funds, the European Union, Microeconomic Analysis, Comparative Analysis JEL classification: D200, F150, F360, F430, R INTRODUCTION In the European Union (EU) a wide gap exists between the GDP per capita of various regions, especially between those of the states that joined in 2004 and For proper functioning of EU mechanisms, particularly the single market, these disparities must be eliminated, therefore significant funds were allocated under the Regional Development Policy of the European Union. The financial resources are allocated from the Community budget and are provided in the form of grants, to simulate various types of investments in less developed regions. In the European literature grants are considered an effective way to stimulate economic activity and to counter the failures of the market (Ioannis and Reiner, 2001). On the efficiency with which financial grants are used, researchers are divided, some arguing in their favor (Lolos, 2009, Reiner, 1998 Puigcerver-Peñalver, 2004) while others believe that these funds do not generate noticeable effects, bringing into question the examples of Greece and East Germany, which received significant funding that did not led to increases in gross domestic product (Lammers, 2002 Alex and Tatomir, 2012). Personally I think that in Romania, the funds allocated under the Regional Development Policy of the European Union generate positive changes although they do not reach their full potential. This paper aims to analyze the effect that businesses experienced after received EU grants and whether firm size affects the impact of the projects. The analysis is performed only in the North-East Region of Romania. 2. METHODOLOGY In order to determine impacts of structural funds absorption in the business environment of the North-East of Romania, we have examined the financial statements of companies that benefited from this financial support (Şuşu, 2012). Beneficiary companies (group 1) were taken from the reports published by the managing authorities of operational programs (in Romania, in , 108

109 seven operational programs functioned, of which only two accorded direct grants to firms - Sectoral Operational Programme Increase of Economic Competitiveness and Regional Operational Programme). The financial statements have been taken from the database of the Ministry of Finance. In the analysis two main periods were considered: the period of project implementation (this was analyzed to see immediate changes arising from implementation of the project) and the operation period (this was analyzed to detect short term changes generated by the project). In defining the influence of others factors, we selected a sample of companies that have not received financial aid (group 2), which was used as a reference. The sample has the same structure as that of the group of companies that benefited from structural funds. Such an approach (comparison over time and comparisons between groups) is seen in the work of Edward Altman, "Financial ratios discriminant analysis and the prediction of corporate bankruptcy" published in "The Journal of Finance," September To increase the accuracy of the study, and to have a clearer picture of the situation and structure of the two groups analyzed comparatively, we proceeded to stratify the two collectivities by businesses size. 3. RESULTS The size of a company can greatly influence the efficiency indicators for example large investments are expected to belong to large enterprises and have a high investment return, at least in theory (due to economies of scale). Given these issues, we decided to stratify the two groups according to the size of the firms, they are divided into four layers, namely: micro, small, medium and large enterprises (Law 346/ on stimulating the creation and development of small and medium). Table 1 Structure after stratification of groups Enterprise Category Microenterprise Small business Medium business Large business Total Number of Entries Group Implementation period Operating period Group Group Total Group Group Total Group Group Total Group Group Total 5 4 Group Group Total Source: Calculations using SPSS version 20 There are important differences between the four groups (Table 1), the most numerous are micro and small enterprises. The situation is otherwise normal, at national level these types of firms hold the majority share. In the large enterprises category there is a problem because there are to few entries, so that the results of this group should be considered with attention, the is the risk that they may not be representative. The difference between the number of entries belonging to the group 1 and those of group 2 in each layer are not large. 109

110 Fixed Assets Analyzing the results in each category of business we found that the amount of investments is proportional to the size of enterprises (which was expected, smaller businesses do not have the financial strength to implement large projects). Businesses in group 1 had higher values in each layer than those in group 2, given the implementation of grants (EU funds). Debts Following the detailed presentation of the mean in each category of business we can appreciate that there is a difference between groups, namely, group 1 has a higher rate of debt during the implementation, but in the operating period the situation is no longer as clear. Micro and small enterprises from group 1 shows a decrease in debt, which means a repayment of loans engaged during project implementation, but this is not observed and the medium and large enterprises, for their debts recorded a growth during the operation period. Turnover Developments in each category of enterprises shows that during the implementation period, group 1 showed a higher increase than the control group, but during the operation period we can distinguish two types of developments: in the case of micro enterprise the difference between groups is very small (during operation), while in the case of small and medium enterprise, we see a relatively large difference. This would suggest that funds were used more effectively by small and medium enterprises. Microenterprises implemented small investments, that lead to an increase of turnover only during implementation period. Net result In the category of micro enterprises both groups recorded positive values, the difference between them being very small. During the operation period the net result recorded negative change, but the difference remains negligible. In the small enterprises there is an almost normal evolution: during the implementation period group 1 recorded a depreciation of net earnings, while group 2 a slight increase. During the operation period, the results are reversed, i.e. group 1 records growth, while group 2 record a decrease of net results. This evolution is natural because during the implementation of an investment the net result of an enterprise decreases due to investment expenses and later during operation when the investment generates maximum effect, the net result increases noticeable. The segment of medium enterprises recorded an interesting development, enterprises from 1 group recorded a decrease in net income both during the implementation period and the operation period, while firms from group 2 recorded a slight increases over the whole period. Number of employees In the general analysis we found that there is little difference between the two groups, we can now see that the variation is proportional to size. In all layers (less than of large enterprises, where the volume is too small) group 1 showed an increase in the number of employees, while group 2 decreases. An interesting aspect is that in the first year of operation the evolution of the number of employees, of the firms in group 1 has been positive. We appreciate that the Structural Funds have had a notable impact on unemployment (creating jobs). Worryingly however, is that firms in group 2 recorded a decrease in this indicator, if we try to correlate the evolution of the unemployment rate and the absorption rate probably we would not observe any correlation, but in reality, there exists a directly proportional relationship. Economic return As a derived indicator its evolution is influenced by the fluctuations of the two determinants (net income to turnover). Developments identified in the general community (general decrease) is partially validated by analysis of three representative types of businesses. In the case of the microenterprise, group 1 recorded values below group 2 during the implementation period (values are negative during implementation period). During the operating period group 1 recorded higher values then the control group (values are positive operating period). 110

111 Small businesses from the group of companies that have received grant funding, recorded higher values compared with the control group. During the implementation period both groups had negative values, while for the period of operation, only group 1 recorded positive values. Mediumsized enterprises from group 1 recorded negative values, lower than those of group 2, in all analyzed periods. Financial return Different types of businesses have recorded mixed results in terms of financial return. In the general community we found that in all analyzed periods, values of group 1 were lower than those corresponding to group 2 (all values were negative). In the case of microenterprises, during the implementation period, group 1 showed a positive value greater than that corresponding to group 2 (which was negative), but during the operating period values of group 1 are negative and lower than those recorded for group 2. In the case of small businesses during the implementation period, group 1 showed a higher decrease compare to group 2, while during operation, group 1 registered positive values, superior the control group. Medium-sized enterprises from group 1 recorded values lower than those from group 2 in all analyzed periods. Labour productivity Following the analysis of the general collectivity, we found that all analyzed companies registered a decrease of labor productivity, but those in group 1 decreased more than those in the control group (group 2). Analyzing the stratified collectivity, this conclusion is maintained. There are some categories of businesses that register a growth of labor productivity, but in all cases the values from group 1 are lower than those for group CONCLUSIONS Analysis of the two groups of companies revealed that structural funds have not generated a considerable impact on the economic environment of the North-Eastern Region of Romania. Most businesses that have benefited from grants, did not record a growth of profitability, which suggests that the implemented projects didn t had an appropriate quality level. A significant impact was observed in the number of employees, all categories of firms in group 1 (group of companies that have received grant funding) recorded growth higher than in group 2. Of the four categories of enterprises, the best results were obtained in small businesses. At this layer group 1 showed higher values in most cases the group 2 This does not imply that the funding should be restricted to this class. A limitation of this study is that it was done only in one region, in order to obtain results that can be generalized at national level, this research should be extended to other areas. ACKNOWLEDGMENT This paper has been financially supported within the project entitled SOCERT. Knowledge society, dynamism through research, contract number POSDRU/159/1.5/S/ This project is co-financed by European Social Fund through Sectoral Operational Programme for Human Resources Development Investing in people! 4. BIBLIOGRAPHY 1. Alexe Ileana, Tatomir Cristina Flavia (2012) Together or apart? Structural funds and real convergence in new member states, The Journal of the Faculty of Economics, University of Oradea, December 2012, pp ; 111

112 2. Becker Sascha, Egger Peter, Ehrlich Maximilian (2010) Going NUTS: The effect of EU Structural Funds on Regional Performence, Journal of Public Economics 94, pp ; 3. Chiriţă Lavinia Florentina (2010) The impact of structural funds implementation in Bihor county. Case study on the Regional Operational Programme , The Journal of the Faculty of Economics, University of Oradea, December 2010 pp ; 4. Cojocaru Constantin, Călin Geanina, Cojocea Aureliana Guoadelia (2013) Analiza economicofinanciara: manual complementar, Editura Economică, Bucureşti; 5. Craig, Paul; Grainne De Burca, P. P. Craig (2007) EU Law: Text, Cases and Materials (4th ed.). Oxford: Oxford University Press; 6. Edward Altman (1968) Financial ratios discriminant analysis and the prediction of corporate bankruptcy, The Journal of Finance Vol. XXIII, Nr. 4, septembrie 1968, paginile: Esposti Roberto (2007) Regional Growth and Policies in the European Union: does the Common Agricultural Policy have a counter-treatment Effect?, American Journal of Agricultural Economics, 89 (1), Februarie 2007, pp ; 8. Fayissa Bichaka, El-Kaissy Mohammed (1999) Foreign Aid and the Economic Growth of Developing Countries (LDCD): Further Evidence, Studies in Comparative International Development, Fall 1999; 9. Florio Massimo, Vignetti Silvia (1005) Cost-benefit Analysis of Infrastructure Projects in an Enlarged European Union: Returns and Incentives, Economic Change and Restructuring 38 pp ; 10. Gábor Hunya (2011) Problems of Romanian SMEs with tapping EU structural funds, Eastern Journal of European Studies, Volume 2, Issue 1, June 2011, p ; 11. Hapenciuc Cristian Valentin (2008) Economia Întreprinderii, Editura Sedcom Libris, Iaşi; 12. Höhenberger Nicole, Schmiedeberg Claudia (2010) Structural Convergence of European Countries, Structural Change and Economic Dynamics, 21, pp ; 13. Ioannis Ganoulis, Reiner Martin (2001) State aid control in the European Union - rationale, stylised facts and determining factors, Intereconomics, Noiembrie-Decembrie, pp ; 14. Kamps Christophe, Nadine Leiner-Killinger, Reiner Martin (2009) The Cyclical Impact of EU Cohesion Policy in Fast Growing EU Countries, Cohesion Policy, Intereconomics Ianuarie- Februarie 2009; 15. Lammers Konrad (2002) Can Eastern Europe catch up without Structural Funds?, Intereconomics, Septembrie-Octombrie 2002; 16. Lensink Robert (1993) Recipient Government Behavoir and the Effectiveness of Development Aid, The Economist, 141, Nr. 4, pp ; 17. Lolos Sarahtis (2009) The effect of EU structural funds on regional growth assessing the evidence of Greece, , Economic Change Restructuring 42, pp ; 18. Margulescu Dumitru (1994) Analiza economico-financiara a intreprinderii: Metode si tehnici, Editura Tribuna Economica, Bucureşti; 19. Mikesell Raymond Frech (2009) The Economics of Foregin Aid, Editura. Transaction Publishers, Rutgers, New Jersey; 20. Nagy Sándor Gyula (2008) EU Funds Efficiency and the Fisrt National Development Plan in Hungary, Transition Studies Review 49 Volume XV 2/2008, pp ; 21. Opritescu Elena Mădălina (2012) Evaluation of the structural funds absorption rate by means of the Hermin model, The Journal of the Faculty of Economics, University of Oradea, July 2012, pp ; 22. Păuţu Sorina Crina (2012) Structural funds absorbtion growth by improvin their management, The Journal of the Faculty of Economics, University of Oradea, December 2012; 23. Pinho Carlos, Varum Celeste, Antunes Micaela (2013) Structural Funds and regional growth: conditions for improving efficiency, Economics and Business Letters 2(4), pp Profiroiu Marius, Ionescu Victor-Romeo, Constantin Daniela-Luminiţa, Marchiş Gabriela (2009) Between Do s and Don ts in the catching-up process Lessons for Romania from the EU-15 cohesion countries, Transylvania Review of Administrativ Sciences, 26E, pp ; 112

113 25. Puigcerver-Peñalver Mari-Carmen (2004) The impact of structural funds policy on european regions growth. A theoretical and empirical approach, The European Journal of Comparative Economics, Vol. 4, no. 2, pp ; 26. Reimer Martin (1998) Financing EU Cohesion Policy in Central and Eastern Europe A budgetary timebomb?, Eastern Enlargement - Intereconomics, Mai-Iunie 1998, p. 111; 27. Richter Sándor (2007) Scenarios for the Financial Redistribution across Member States in the European Union in , WIIW Research Reports, Vienna, p Românu Ion, Vasilescu Ion (1993) Eficienţa economică a investiţiilor şi a capitalului fix, Editura Didactică şi Pedagogică, Bucureşti; 29. Staicu Florea, PÂRVU Dumitru, DUMITRIU Maria (1995) Eficienţa economică a investiţiilor, Editura Didactică şi Pedagogică, Bucureşti; 30. Şuşu Ştefăniţă (2012) Analiza performanţei şi riscului întreprinderii turistice: aspecte teoretice şi practice, Editura Sedcom Libris, Iaşi; 31. Ţarcă Mihai (1997) Tratat de Statistică Aplicată, Editura Didactică şi Pedagogică, Bucureşti; 32. Yeung Patrick (1971) Foreign Aid and Economic Welfare, Forum for Social Economics, Volume 1, Issue 1; 33. Cadrul de Referinţă Strategic Naţional al României - National Strategic Reference Framework ; 34. Autoritatea de Management pentru Programul Operaţional Regional Autoritatea de Management pentru Programul Operaţional Sectorial Creşterea Competitivităţii Economice Institutul Naţional de Statistică Ministerul Afacerilor Europene Ministerul Finanţelor Publice

114 The USV Annals of Economics and Public Administration Volume 14, Issue 2(20), 2014 SECTION 2 MANAGEMENT AND BUSINESS ADMINISTRATION 114

115 The USV Annals of Economics and Public Administration Volume 14, Issue 2(20), 2014 INSURANCE - A RISK COVERING STRATEGY FOR HOSPITALITY INDUSTRY IN ROMANIA Assoc.Prof. PhD Marius Dan GAVRILETEA Babeş Bolyai University, Faculty of Business, Romania dan.gavriletea@tbs.ubbcluj.ro Abstract: Insurance industry in Romania is facing for a few years a continuous decreasing in Gross Written Premium. The negative trend may be caused by the effects of financial crises for companies and also for individuals. In order to keep theirs market share, insurance companies must identify new opportunities to increase theirs GWP. Among these new market niches hospitality industry may represent an option to be followed. In this paper, we will analyze the types of insurance policies available for hospitality industry (except mandatory motors third party liability and motors own vehicle insurance). The conclusion represents solution both for insurance companies and for hotel as a part of theirs risk financing process. Key words: Insurance, Hospitality Industry, Risk, Property, Liability. JEL classification: G INTRODUCTION Hospitality industry in Romania is a very active sector in the last years. Among the development of regional or national hotels/guest houses /resorts, there are also international corporations in the market with many years of experience in this field. Beside this, new businesses (some of them just family owned) developed using EU financing programs or new international investors in hospitality industry, entered in this market. All these participants invested significant financial resources, so theirs business need to be protected by different types of risks. The most common techniq to protect a business is represented by insurance contracts. This easiest sollution may not be always the chapest one. Before choosing insurance as a solution of risk transfer towards a third party, risk managers from the hospitality industry need to established a professional risk managemnt plan. Risk management plas will be structured in two major parts: controlling the risks and financing the risk. For both cases, there is a need of statistical events for all type of losses that ocured for the hospitality company (in case there is a new company, they can not rely on these). Analyzing carefully the losses (type of losses and severity) risk managers need to decide what risks to be held inside the company and which to transfer to the insurance industry. Insurance industry in Romania offers different types of insurance policies in order to cover the risk exposures of hospitality industry. In the last years, Insurance industry in Romania recorded a continuous decreasing. Based on the official records of Romanian Financial Supervising Authority (A.S.F): - Insurance companies recorded at the end of the first quarter in 2014, a level of Gross Written Premius (GWP) of lei, this represents a decrease of 3,43% compared to the same period of 2013 ( lei) - In case of non-life insurance the decrease of GWP for the same compared period is of 2,09% - at the level of lei from the level of lei 115

116 As long as there are a lot of small, medium and large companies involved in hospitality industry, all of them are exposed to different types of risk. All these companies may be interested in different strategies in protecting theirs business. As mentioned a very important solution is offered by insurance companies as insurance contracts. Insurance companies must try to offer pertinent and fair solution to this industry, at a competitive price. By offering insurance policies to them, there may be recorded even an increasing in the insurance companies business and maybe even in the entire insurance market and also protection for hospitality industry. 2. METHODS In order to analyze the types of insurance contracts for hospitality industry we made a practical research in different insurance companies (subscribing methodology at insurance companies), or even using theirs websites. The research emphasis on the types of policies: - Property insurance - Third party liability (hospitality industry specific only) - Employees Also, the research followed the process of risk control techniques available for hospitality industry. These companies have different attitudes: - Some of them simply to have insurance for all / a part of risks - Some of them are not interested in insurance as risk control strategy - Some of the do not know that insurance may represent a way to protect theirs businesses in hospitality industry 3. RESULTS AND DISCUSSION Insurance contracts in Romania evolved a lot in the last years. This evolution is a result of developing the insurance industry (insurance companies updated their products to the ones that exist in most developed European countries). Another reason for this changings is the new risk exposures of the companies. Businesses became more complex and a specific attention must have been focused on the new risks. Hospitality industry evolved in the same ascending trend of facing new risks, so insurance contracts for this business are now more specific and with more risks that in the past (5 or 10 years ago) Property Insurance for Hospitality Industry In case of resorts, hotels, pensions, guesthouses the property insurance refers to the building itself and to content. Insurance for a building needs a high level of expertizes from the insurance agent and also from the manager of that business. A very important aspect refers to evaluation of the building this takes into account different types of prices per squared meter. This price can be obtained: - Using insurance companies evaluation prices these takes into account: type of structure, materials for resistance, quality of interior finishes, number of quality stars - Using an ANEVAR (Romanian National Association of Experts in Evaluation) report that will officially prove that price Some of the buildings in hospitality industry were built using European Funds. In this case, the normative from E.U. request a mandatory insurance for the building for a mentioned period (full insurance coverage for all risks related to the building). In this case the properties risks are transferred to the insurance company. The owners of that hospitality facility have no other option but to buy this mandatory contract. 116

117 Some resorts, new hotels and pensions were financed from the bank in order to build or to extend their properties. The same, in this case the bank will ask for a property insurance (that cover 100% of all risks). The owners must have this insurance contract signed and all the rights within it are ceded to the bank. This means that in case of a total loss, the bank will receive the insured sum in order to clear the entire credit. In case of a partial loss, insurance companies compensations will be used to repair the effects of incurred loss. In this last case the problems appear: usually the bank ask for an advance from the investor in the hospitality industry. When they analyze the business plan, the bank asks for a percent (for example of 20-30% from the entire project) from the investors money. The bank will not finance itself the entire project. So, if a bank gives a credit of 75% from the total business plan, they will ask for insurance that equals the level of credit. Following this principle, after building the facility, investors must insure it for the amount asked from the bank. Contrary, when they ask for insurance to an insurance company, they will find out that the value they must insure is the entire value of the building (not only the part requested from the bank). Insurance companies follow a proportional principle of compensation in case of a loss. I. S. C L. 100 RV.. Where: C. compensation in case of a loss L. - loss I.S. Insured Sum of the property R.V. Real Value of the property If we assume a hospitality entity that is about to start a new investment of 3 million Euro and they have an advance of 0.75 mil. Euro, they need a credit for the rest of 2.25 mil. Euro. So, the bank will ask for an insurance at that level. In case of insuring only the amount that equals the level of the credit, the owners of the new hospitality facility will be underinsured, in our case only 75%. Problems appear in case of a loss: each loss will be paid by insurance company in the same percent of 75. The remaining 25% will be covered by the owner. If a potential loss is about 200,000 Eur after a fire occurrence, the insurance company reimbursement will be: 2,250,000 C 200, , 000Eur 3,000,000 In fact this percent may not be very annoying in case of a minor partial loss, but in case of a total loss the bank receive all the money and the investor will have nothing from his own invested financial resources. There are three parts of discussion: - The problem is that some times, insurance agents do not explain clearly or at all how this principle works, this is why investors do not know about the benefits of insuring theirs properties at the real value (instead the amount requested by the bank). - Other way, in case insurance agents reflects these benefits, investors simply do not care about this (having a wrong judgment this is not going to happened to me ), more the insurance premium will be with 25% higher. - Third situation the normal one investors understand the importance of being insured to the real/entire value of the building, and they pay the insurance premium for full value 117

118 Beside this issue related to the insured sum of the building, a special attention must be given to other buildings contents. These particularities of insurance contracts may cause the most delicate problems. When comparing the prices from different offers, major differences in the insurance premiums appear from an offer to other. At a glance, all covered risks seem to be the same. But studying carefully all these risks, we ca notice that also there are significant differences between coverings. For example an insurance company covers a risk on the basis contract (having a higher insurance premium) and another is covering the same risk as additional on a special clause (in this last case, initial offer is a lower price one, but when adding the supplementary premium for that clause the total price will be different). In this case, the risk managers (or similar persona in medium or small hospitalities entities) need to analyze all risks that they need coverage against, and to pay only for the desired exposure. Among the risks that may cause damages and have a medium frequency of occurrence and make the object of special clauses (that usually are not included in the basic policy) we mention: - Risks related to the pipes (water pipes, heating system) this risks occurs very often and the losses are of a medium level in severity (need to replace the pipes, need to repair the building, the floor and all other damaged special features of the hotel/pension) - Risks related to breakable assets such as lobby mirrors, stained walls/windows, luxury chandeliers and all other similar decoration fixed assets - Risks related to cleaning costs in case of an insured event in case a risks occurs, the costs of cleaning the space may be quite impressive sometime because it is unexpected and cleaning ned to be done quickly and without major inconvenience for existing visitors - Risks related to business interruption in case of a medium severity loss, the hospitality entity may not offer its services to the clients (partial or total), so they will have a loss in revenues for the entire period of repairing the damages Once all risk exposure are analyzed by specialized managers, the hospitality entity will have a clear map of what they need insurance for, so they will be able to buy the insurance policy that suits better for theirs needs at an adequate insurance premium. Beside the insurance for the buildings companies involved into hospitality industry have the possibility to insure the fixed assets furniture (from the lobby area, from rooms), electronic equipment, elevators and so on. Risk managers will have theirs own decision about adding this insurance to the one for the building. The major risks that may occur are fire, explosions, pipes defection or earthquakes (in the specific areas only). In order to have these assets insured together with the building, insurance companies offers a low quotation (most of cases they will use the same quota as for the building). For these assets, insured sum is very simple established - it will be used the statements from the accounting. 3.2 Third party liability insurance - hospitality industry specific A very common insurance policy designed and implemented only for hospitality industry refers to the third party liability. Each activity developed by a hospitality company (resort, hotel, pension, restaurant etc.) generates an exposure towards third parties. Judging after the clients that have each hospitality facility, risk managers must adopt a very prudential attitude towards these exposures. The specific of this insurance is focused on: - Number of stars reflecting the quality offered by the hospitality entity - Number of rooms - Number of tables/chairs for restaurants as individual or as a facility inside a resort/hotel - Variety of facility: night clubs, gym, pools, sauna, outside sport activities 118

119 - Parking Beside the common risks (inside facility possible guilty) the above mentioned risks will substantially raise the insurance costs. Insurance managers must take into consideration these possible exposures, clients that may suffer injuries during usage of these facilities may ask for high compensation. A delicate problem related to this third party liability insurance refers to the insured sum of the contract. Insurance companies offers two choices: - A total insured some for the contract this sum has the advantage that in case of one or more insured events, its level it is decreasing once with compensations paid by the insurance company this is an expensive insurance contract because there is no mention about the events or about the group of risks that may lead to a compensation - There are more insured sum one for the entire contract and the others are the first one divided by different events (2 or three events during the contract) or by different groups o risks (injuries, restaurants, belongings of visitors) this is a cheaper insurance than the first one The disadvantages of the second choice may be that the insured sum may be not enough in case of a major event. The exceeding will be paid by the owner of hospitality facility. For example we have a total insured sum of 1 million Euro, divided in 2 events o 500,000 euro. More, each individual event has 2 limits of 250,000 one for injuries and other for rest of possible risks. In case a guest suffer an accident because a wet floor, and ask for a compensation of 300,000 Euro, insurance company will reimburse only 250,000 euro and the rest of 50,000 will remain on behalf of the company from the hospitality industry. In case if there would have been the first choice of insured sum, all the compensation it would have been on insurance company behalf. In order to decrease the level of this exposure, managers of these hospitality entities may have specialized employees that will coordinate it. Also, they can use a signed form by the client about the risk that may occur while having an extra activity (in this situation the they will be protected against complaints from the clients that suffered injuries during sport/gym or even from sauna/gym if they already had a bad health condition or they did not respected the recommendation of the supervisor/trainer). Beside this some resorts/luxury hotels have specialized doctors that make a simple investigation/questionnaire for the people that use the extra facility. Then doctors will allow or forbid some activities (sport/sauna/gym). Once this form is signed by the clients, the risks that may occur are on behalf of the clients. The conclusion about these very delicate risks is that hospitality entities need to take a special attention. Some of them can be transferred to insurance industry and others may be retained inside the company by having additional strategies influenced by the complexity of the business. 3.3 Insurance for employees For example, in USA each company before starting the business must provide a workers compensation insurance contract. Unfortunately, in Romania this type of insurance is much prohibited one for companies. Hospitality entities have at their choices: - Insurance for employees related to injuries during working hours (in this case insurance companies will offer a compensation that takes into account the injured part of the human body) and also for demise - Health insurance for employees this type of insurance is more common and more use than the first one in this case employees have included some basic analysis during the contract, and also supplementary investigation in case they need (in this cases, the costs of analyses are higher than usual and a deductible may be applied by insurance companies) 119

120 - Private pension for employees it is used by the management of hospitalities entities only for the employees involved in middle-upper management and/or for employees with a long activity inside the same company Anyway, these types of insurances reflect a supplementary cost in the business plan of the hospitality entities. Some of them are offered as reward for different individuals. They are mostly used by the international hospitality investors in Romania in order to offer a supplement in the annual pack of benefits, beside the salary. Once the hospitality industry will grow and the persons will be more specialized, the managers of these entities will try to keep them inside the company by offering these types of insurance. Beside this, insurance companies must take into account the fact that in this moment the hospitality business cannot afford to pay higher insurance premiums for these coverings. So, a lower insurance may represent both an incentive for those companies and also a premise for insurance companies to increase their revenues. 4. CONCLUSIONS Hospitality industry is a very active field in Romania. They are facing specific types of exposures, related to the specific of this business. In order to have their business protected, insurance represents an efficient measure to reach that purpose. Risk managers of these hospitality facilities must analyze all types of exposures and to choose insurance for the most pressing ones. In case they do not have sufficient expertize, they may choose for an insurance broker that besides presenting the offers, will choose also the best strategy for risk transfer. Hotels and the rest of hospitality entities that decide to buy insurance in order to protect their business may have chosen the correct way. They decided to pay for insurance having a supplementary cost, but in case of a loss occurrence they will be reimbursed without affecting their business. Anyway, the costs of insurance must be carefully followed in order not to increase overall costs of the company. The analysis must be continuous and permanently improved in order to include or to exclude different type of insurable risks statistic proved over a period of years. Insurance companies may accord a special attention to the hospitality industry. The ones that will offer competitive insurance prices efficient risk coverage may increase theirs revenues and also may increase their quota share. This attitude for hospitality industry may be a positive one, if we think of motors insurances (motors own insurance and motors third party liability) insurances that were not analyzed during this research if an hospitality entity choose to have the most expensive insurance to a certain insurance company, for sure the vehicles ones will go to the same insurance company. BIBLIOGRAPHY 1. C. Arthur Williams, Richard M. Heins (1985), Risk Management and Insurance, McGraw-Hill Book Company, Fifth Edition, [pag ] 2. Pauline Barrieu, Luca Albertini (2009),The Handbook of Insurance-Linked Securities, John Wiley & Sons [pag.39-52] 3. Bennett C. (2002), Dictionar de Asigurări, Ed. Trei Bucureşti 4. Bente Corneliu, A.B.F. Maria (2011), Valuation And Reserving Tehnique In The General Insurance, Contemporary Legal and Economic Issues III, [pag ] 120

121 5. Culp L. Christopher (2006) Structured Finance and Insurance, The Art of Managing Capital and Risk, Wiley Finance, USA [pag ] 6. Danuletiu Dan C., Danuletiu Adina E. (2010), Asigurari si reasigurari, Ed. Aeternitas, Alba Iulia, [pag ] 7. Dorfman S. Mark (2004), Introduction to Risk Management and Insurance, Pearson International Education, USA, [pag.15-19] 8. Mark S. Dorfman (2008), Introduction to Risk Management and Insurance, Pearson/Prentice Hall,, Ninth Edition, [pag.17-30] 9. Mark S. Dorfman David A. Cather (2013), Introduction to Risk Management and Insurance, Prentice Hall Series in Finance, Tenth Edition, [pag.28-38] 10. Marvin Rausand (2011), Risk Assessment: Theory, Methods and Applications, John Wiley & Sons, [pag ] 11. George E. Rejda (2003) Principles of Risk Management and Insurance,, Pearson Education, [pag ] 12. Emmett J. Vaughan, Therese M. Vaughan (2008) - Fundamentals of Risk and Insurance Hardcover, John Wiley & Sons, Tenth Edition, [pag ] (accessed on ) on ) (accessed on ) on ) on ) on ) on ) on ) 121

122 The USV Annals of Economics and Public Administration Volume 14, Issue 2(20), 2014 COMMUNICATION IN THE EMERGENCY SITUATIONS MANAGEMENT Lecturer PhD Ovidiu Aurel GHIUȚĂ Ştefan cel Mare University of Suceava, Romania Professor PhD Gabriela PRELIPCEAN Ştefan cel Mare University of Suceava, Romania Abstract: This paper is talking about communication use in emergency situations management from a marketing perspective. We have analyzed if this communication is different from the communication of a company with her publics; the legislation which provides the framework for this type of communication in Romania, when is applicable and who is in charge. As methodology we have utilized documentary research. We mention similarities and differences between this type of communication and Integrated Marketing Communication (IMC). Key words: communication, emergency situations, emergency situations management, emergency communication, integrated marketing communications JEL classification: M38, J28, K32, H84, H56 I. INTRODUCTION This paper addresses the need of a special communication in emergency situations, how this type of communication is created, how it is different from normal communication with audience, which are the categories of target audiences, which are the institutions responsible for this type of communication, if there are laws or regulations that treat this emergency situations communication in Romania, when this communication is made and who is the decision maker in emergency situations. In the following we present some definitions: The emergency situation is an exceptional event with a non-military nature, which through its intensity and scale threatens life and health of the population, environment, important cultural and material values and to restore the normal state it is necessary the adoption of measures and urgent actions, additional resources allocation and unitary management of forces and means involved. The disaster is the event caused by triggering certain types of risks, from natural causes or manmade, generating human and material losses or environmental changes and through its scale, intensity and consequences reaches or exceeds specific severity levels established by the regulations on the management emergencies developed and approved according to law. II. METHODOLOGY The present paper can be classified as a theoretical research article. As a research methodology we mention the direct documentary research using legislation in Romania and research articles and books in communication. The legislative side identifies the institutions and their responsibilities in the case of crisis situations in terms of communication. It has also been consulted the specialty literature of practitioners in communication and research articles of researches from the field. 122

123 III. LEGISLATION AND INSTITUTIONS IN COMMUNICATION FOR EMERGENCIES In Romania communication and public information for emergency situations is provided by the following institutions: A. permanent structures 1. General Inspectorate for Emergency Situations, through National Operational Centre; 2. Operational centers with permanent activity in ministries with support functions; 3. Inspectorate for Emergency Situations of Bucharest, through operational center; 4. County inspectorates for emergency situations, through operational centers. B. temporary activity structures 1. National Committee for Emergency Situations, under the direct leadership of the Minister of Interior and Administrative Reform and the coordination of the Prime Minister; 2. Ministerial committees for emergency situations, under the leadership of ministers, through operational centers with temporary activity; 3. Committee for Emergency Situations of Bucharest, under the direction of the prefect of Bucharest; 4. County Committees for Emergency Situations under the direction of the county prefect; 5. Local committees led by the mayor through operational centers. The importance of regulations regarding communication in emergency situations is highlighted also by its extensive presence in normative acts: a) Government Decision no. 548/2008 on the approval of the National Strategy for Communication and Public Information for emergency situations; b) Government Emergency Ordinance no. 21/2004 on the National System of Management of Emergency Situations, approved with amendments and completions by Law no. 15/2005; c) Law no. 481/2004 on Civil Protection, as amended and supplemented; d) Law no. 307/2006 regarding fire safety; e) Government Ordinance no. 88/2001 on the establishment, organizations and functioning of community public services for emergencies, approved with amendments and completions by Law no. 363/2002, as amended and supplemented; f) Government Decision no. 1489/2004 on the organization and functioning of the National Committee for Emergency Situations, as amended and supplemented; g) Government Decision no. 1490/2004 approving the Regulation on organization and functioning and the organizational structure of the General Inspectorate for Emergency Situations, as amended; h) Government Decision no. 1491/2004 approving the Framework Regulation on the organizational structure, attributions, functioning and endowment of committees and operational centers for emergency situations; i) Government Decision no. 1492/2004 concerning the principles of organizing, functioning, and duties of the professional emergency services. The communication procedures during emergency situations exist between organizations and structures of National Management System of Emergency Situations, on one hand, and population and media on the other hand. Also, Government Decision 548/2008 states that the communication and public information guide becomes operational when the convocation of committee for emergency situations takes place, regardless of its national, county or local level. It is created a communication and public information center which has the following structure: chairman for emergency situations, spokesman, communicators/spokespersons within institutions represented in the committee and the operational team, and public information officer. The same Government Decision considers also general target audiences, target audiences which are refined according to the type of emergency situation (as well messages transmitted differ 123

124 according the type of occurrence: fire, flood, earthquake, technological and hydro-technical accidents, epidemics or natural pandemics, extreme heat): a) victims and their relatives; b) residents in the area affected by the emergency; c) citizens of potential areas of risk; d) public opinion and local, national and international media; e) authorities involved in emergency situations management: institutions with support functions, government institutions, local and national agencies, hospitals; f) special categories of target audience: economic organizations, insurance companies, international humanitarian organizations, non-governmental organizations, church, educational institutions; g) members of management structures for emergency situations and members of the intervention teams. IV. FROM COMMUNICATION TO INTEGRATED MARKETING COMMUNICATION IN EMERGENCY MANAGEMENT Communication is the process of information transmission from a transmitter to a receiver. We can define mass communication as diffusion for a large audience. It is characterized by the fact that it is unidirectional, it uses media, and the transmitter rarely knows the target audience (Lehu, 2004). For Helfer and Orsoni (2005) communication exceeds simple informing. To communicate means to transmit information in order to obtain changes in the behavior or attitude of the recipient. Equally in emergency situations those who emit messages want to influence the behavior of the target audience and not only just to inform it. In these cases we have to deal with two types of communication: the continuous/permanent one which aims to inform, because Romania is a country permanently exposed to natural hazards and the communication during the natural hazard and after hazard. Regarding the communication type, this is an integrated one because the legislator states that the responsible should be only one person: the spokesman within the communication center. The fact that a unitary communication is absolutely necessary is imperatively indicated by this will not be contradicted in front of the press by anyone from those within the emergency committee or other institutions. This also deals with an integrated communication both externally with the public (citizens and media), and internally through communication with information officers from the institutions represented in the emergency situations committee or involved in any way in the emergency situation. The fact that the action of communicating in crisis situations is at a strategic level and not only at a tactical level is highlighted by the fact that the legislation states also a post-emergency communication due to the fact that a number of elements of the emergency communication are already prepared according to the emergency situation type that may occur but also to the fact that it is stated a continuous communication and information between authorized institutions and citizens (continuous communication/permanent). An essential element of the crisis is to avoid panic behavior among the population. To avoid public panic it is essential to build and maintain its sense of trust in the institutions that manage this communication and for that it requires a continuous communication. Boistel (2007) presents a principle for the entire communication: communication requires that the facts and speeches be consistent. Consistency between facts and communication is essential to convince targets of the speeches authenticity. Currently a topic of great interest is the integrated communication, namely choosing the best communication channels, the best media plan and conveying a clear and coherent message. In this paper we consider global communication part of integrated communication because for us global communication represents a clear and coherent communication for the entire organization, this aspect being found in the definition of integrated marketing communication. 124

125 Because integrated communication can be easily assimilated with integrated marketing communication we present in the following views of researchers and practitioners regarding this concept. Integrated marketing communication is a new discipline related with marketing which is still under the process of conceptualization. An increasingly higher number of researchers analyze integrated marketing communication from strategic perspectives: both in terms of communication and brand management (Tsai, 2005). For the marketing practitioner thereis a problem: the increasing of media and communication varieties. A large number of sources are actually bombarding the consumers. In commercial marketing we talk often (in recent years) about integrated marketing communication. Integrated marketing communication (IMC) consists of the development of a global communication strategy which aims to create strong relationships with customers, proving to them that the company and its products help them satisfy their needs. Initially, marketing communication had its purpose in advertising, sales promotion, public relations and direct marketing. Each of these areas has evolved to different levels and industries and the only way of communication is integrating every part of this mix (Schultz, Kichen, 2000). Don Schultz advocates for a broader view which takes into account all contact sources that a customer or a potential client of a product or service may have with a brand or a company (Schultz, 1993). Integrated marketing communication is a concept by which a company carefully integrates numerous communication channels so that it can diffuse a clear, coherent and attractive message about itself and its products (Armstrog, Kotler, 2007). American Association of Advertising Agencies (AAAA) elaborated one of the first definitions of IMC: A concept of marketing communication planning that recognizes the added value of a detailed plan which evaluates the strategic roles of a variety of communication disciplines, e.g. advertising, direct marketing, sales promotion and public relations, integrating all these disciplines in order to diffuse a clear, coherent and powerful message (Schultz, 1993). Tom Duncan and Sandra Moriarty state that IMC is an integrated part of the new generation of marketing approaches to which companies appeal in order to concentrate more their efforts for creating, developing and strengthening their links with customers and other stakeholders. The authors have developed a communication-based marketing model which highlights the importance of planning the ensemble of a company s or brand s communication because collectively these create, maintain, or weaken the company s relationship with the customer or the interlocutor, and last but not least, gives value to the brand (Duncan, Moriarty, 1998). Duncan (2002) believes that the integrated marketing communication is a process for managing customer relationships which gives value to the brand. More specifically, it is a crossfunctional process for creating and maintaining profitable relationships with customers and shareholders for the strategic control or for influencing all the messages which are sent to each group and encourages relevant dialogue based on information with these groups. A unitary organization which makes a coordinated effort for the promotion of brand concept by using multiple communication tools which speak in one voice represented Shimp s (2000) definition which brings integrated marketing communication very close to branding process and organization s brand. A more complex definitions is given by Pickton and Broderick (2005): Integrated marketing communication is a process which involves the management and organization of all agents in analyzing, planning, implementation and control of all marketing elements: contacts, media, messages and promotion tools, centered towards the selected target audiences in order to provide the highest growth and coherence to the effort of marketing communication in achieving pre-established objectives related to the product and to the organizational marketing communication which has as a main view point the communication synergy phenomenon. Lendrevie et al. (2004) also utilized the concept of efficiency in integrated communication: Integrated communication on multiple channels means selectively, commonly and complementary 125

126 using multiple communication channels so that they can speak with the same voice with maximum efficiency after which the author returns with a more ambitious definition (p.537): Integrated multichannel communication has as objective a better return on communication costs, applying a strategy based on a different channel architecture that works in synergy and conveys consistent messages. It is customer oriented and driven mainly by quantified data on customer perceptions and behavior. Its efficiency is based on the multidisciplinary skills of the officials who lead the communication through new organizations - advertising agencies, new relations and new forms of remuneration based on the distinction between council and executive functions. Duncan and Everett (1993) focus on the strategic role of integrated marketing communication and the use of multiple disciplines of communication: A concept of marketing communication planning which recognizes the added value of a comprehensive plan which evaluates the strategic role of a variety of communication disciplines, e.g. general advertising, direct response, sales and public relations promotion - and combines these disciplines to provide clarity, consistency, and maximum impact of communication. The common idea of all definitions is that the communication tools usually used independently are combined in a way that enables the achievement of a synergistic effect, resulting in a more homogeneous communication (de Pelsmacker et al., 2005). In the case of communication in emergency situations and public informing we can speak about an integrated marketing communication because we are dealing with a continuous communication with the society and with gaining a sense of trust from the citizens. Figure 1. The need for integrated communication in crisis situations management Figure 1 presents the reasons why integrated marketing communication is necessary in communication in crisis situations management. V. PARTICULARITIES OF INTEGRATED COMMUNICATION IN EMERGENCY MANAGEMENT Depending on the type of emergency situation there should exist protocols on whether or not information should be transmitted, if it requires the approval of a hierarchical superior person for the public announcement of danger. In general, the crisis is communicated to the media and public only if the information does not create panic among people, panic which could impede the proper conduct of operations to eradicate or limit the effects of the hazard. A special element is represented by the emergency situations which can be foreseen. We cannot know what is the probability of predicting such events and if the population should be 126

127 announced. The decision is discussed between the communication center in these emergencies and researchers who have predicted the phenomenon. Such research based on a simulation experiment of flooding in the United Kingdom shows that there must be a continuous and efficient communication between the researchers studying this phenomenon and the institutions responsible for the management of such natural hazard situation (McCarty, 2007). Governmental Decision 548/2008 does not present or speak of the situation of a likely natural hazard. It does not specify whether it can be created the center of management for emergency situations based only on forecasts. What could be done in case of possible hazards? For example in the case of volcanic eruptions, such as Vesuvius volcano in Italy, these are daily (active volcano), but of not significant intensity. A prediction of a strong eruption would not help because according to police statements of Naples (city under the mountain) they would not have sufficient time to evacuate the city. In these cases we can talk about the concept of risk accepted by the population. A study conducted in China (Lei et al., 2010) to calculate the accepted risk on types of risks takes in consideration several variables measured with a Likert scale with seven intervals: risk acceptability; knowledge about the risk; risk controllability; social effects associated with the risk; risk novelty; risk imminence; risk benefits; terror towards the risk; trust in institutions. As it can be noticed in the list of variables (especially those in bold) we find directly represented the communication of institutions with citizens, trust in these institutions, as well as indirectly, through informing citizens regarding the other variables. Integrated communication before the event has a preventive and preparatory purpose and is managed by specialized institutions. During the event, its management can pass under the subordination of a different temporary structure. Integrated communication during the event differs depending on the severity and impact of the event, therefore if it is managed by one of the devolved institutions (Inspectorate for Emergency Situations, Romanian Water Directorate, Anti-Terrorism) this coordinates also the communication. If its level requires the establishment of a temporary work structure, this is also takes care and is directly responsible for the communication before and after the event. For example, at the county level for a fire the Inspectorate for Emergency Situations is the coordinator, but for a fire that has a certain level of risk (human, material or strategic objectives), level of risk to be defined at the county level, the prefect is the direct coordinator by the establishment of the county committee for emergency situations. Therefore the responsibility for institutional communication passes from the level of the Inspectorate for Emergency Situations at the level of Prefecture. According to the legislation the responsible for communication during an emergency is the designated spokesman in an emergency. The key difference is manifested between the continuous communication and communication in crisis situation (per event) and its fundamental purpose changes from efficiency to effectiveness. 127

128 Table 1. Changing the view of integrated communication from efficiency to effectiveness in emergency situations Main objective Possible objectives Achieving objectives Integrated continuous communication Integrated communication in managing crisis situations Efficiency Effectiveness 90% of the population to hear about risk 70% of the population to know details about the risk 60% know how to control risk 40% know how to act in case of risk Notification and saving as many lives, resources and strategic points Minimal use of existing resources (human, financial, material) to meet the objectives With all available resources at all costs (plus volunteers, other funds, other equipment). There is no higher threshold for objectives achievement. Note: Efficiency and effectiveness are not antagonistic concepts. Even if the main purpose is one of them, the other one may also exist in the background. In communication in such cases there are also specific terms used: notification is the act of transmitting authorized information about the imminence of disaster occurrence and/or armed conflicts to the central public administration or local, as appropriate, in order to avoid surprise and implement protective measures; warning is bringing to the attention of people the necessary information about the imminence of occurrence or disaster occurrence and is performed by local public administrative authorities; early-warning is transmitting messages/warning signals to the authorities about the likelihood of disaster occurrence or an air attack; alarming occurs by transmitting messages/warning signals to the population about the imminence of disaster occurrence or an air attack and is performed by local public administrative authorities by means of alarming. VI. CONCLUSIONS AND RECOMMENDATIONS Extremely important is also the convocation or meeting the structures for temporary activity in emergency situations. Therefore we need protocols to establish when these structures shall be convened. There has to be at the county level, for example, specific severity levels for each possible hazard. Thus the county committees convened for emergency situations, which is under the leadership of the prefect would be made when at least one variable from a predetermined list would also achieve a certain pre-established level. For example, for a fire or a flood we can propose determinant variables in convening a county committee for emergency: area affected, number of people affected, affected objectives. The level where the emergency committee should be convened is required to be established by those skilled in combating the respective phenomenon. Simply put, it is necessary the existence of protocols not only for the risk level evaluation a priori, but also for the risk level evaluation priori and eventually the reevaluation and its adjustment during the intervention in order to see whether it is necessary to convene a structure with temporary activity which would manage the operational situation including the communication during and after intervention. 128

129 Figure 2. Essential elements of integrated marketing communication (continuous / permanent) and integrated communication in emergency management. Figure 2 shows a comparison of the essential elements of integrated marketing communication (continuous/permanent) and of integrated communication in emergency situations management. ACKNOWLEDGMENT This paper has been financially supported within the project entitled SOCERT. Knowledge society, dynamism through research, contract number POSDRU/159/1.5/S/ This project is co-financed by European Social Fund through Sectoral Operational Programme for Human Resources Development Investing in people! BIBLIOGRAPHY 1. Armstrong, Gary, Kotler, Philip, Le Nagard, Emmanuelle, Lardinoit, Thierry, Principles de marketing, Pearson Education France, Paris, 2007; 2. Boistel, Philippe, Gestion de la communicationd entreprise, Lavoisier, Paris, 2007; 3. De Pelsmacker, Patrick, Geuens, Maggie, Van den Bergh, Joeri, Foundations of Marketing Communications. A European Perspective, PrenticeHall, PersonEducation, England, 2005; 4. Duncan, T.R., Everett, S.E., Client Perceptions of Integrated Marketing Communication, in Journal of Marketing Research, mai/juin, USA, 1993; 5. Duncan, Tom, IMC: Using Advertising &PromotiontoBuildBrands, BurrRidge, IL, McGraw- Hill Irwin, 2002; 6. Duncan, Tom, Moriarty, Sandra, A Communication-Based Model for ManagingRelationships, Journal of Marketing 62, avril 1998, p. 1-13; 7. Gruen, Thomas W., Relationship Marketing: The Routeto Marketing EfficiencyandEffectiveness, Business Horizons, November-December 1997, pp.32-38; 8. Helfer, Jean-Pierre, Orsoni, Jacques, Marketing, 9 e édition, Vuibert, Paris, 2005; 9. Keh, HeanTat, Chu, Singfat, Xu, JiyeEfficiency, effectivenessandproductivity of marketing in services, European Journal of OperationalResearch, Volume 170, Issue 1, 1 April 2006, pp ; 10. Lehu, Jean-Marc, L encyclopédie du marketing, Editionsd Organisations, Paris, 2004; 11. Lei, Huang și alii, Analysis of DeterminingFactors of thepublic sriskacceptancelevel in China, HumanandEcologicalRiskAssessment, nr. 16, 2010, pp ; 129

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131 The USV Annals of Economics and Public Administration Volume 14, Issue 2(20), 2014 THE MISSION STATEMENT OF THE BUSINESS ORGANISATION BY REFERENCE TO THE ECONOMIC MARKET REQUIREMENTS Lecturer PhD Marius Costel EȘI Ștefan cel Mare University of Suceava, Romania Abstract: Acting as a systemic entity, the business organization, viewed as an aggregate, involves at the functional level, the assumption of an approach that relates to the idea of legitimacy within the current economic pragmatism. At the same time, dynamics of the economic reality highlight methodological explanations regarding the role and the functions of a manager at organizational level. However, the managerial functions within the business organization`s frame of reference can be corroborated with the formulated contents of the company's stated mission and vision. In other words, the existence of an implementation of managerial strategies process does nothing but reveal the way in which a specific managerial philosophy (epistemology) proves itself useful in the of economics operational field. We note that an analysis of the way in which the business organization`s mission is formulated can be materialized in the conditions in which it is reported to the actual requirements of economic markets. Consequently, our attention focuses on the conceptual - theoretical, but also on the practical valences of the two dimensions encountered in the enunciation and definition of the business organization`s mission: the strategies and the objectives set by (managerial) decision makers. In addition, the substantiation of this scientific research aims, in this context, to an epistemological analysis of the understanding and explicitation process concerning the idea of mission within a business organization`s system. We consider that this methodological substantiation finds its full justification to the extent that this evaluation of a business mission idea implies a reference to the managerial authorities` skills, but also to the need of economic education, focused on economic aspects of financial nature. An important role in the ininitiated approach is held by the idea of economic reassessment of the "need", "requirement" and "demand" concepts. Therefore, the methodological issue under discussion reveals an explanatory endeavour that legitimizes the suppositions pertaining to the acceptance of an economic pragmatism within a knowledge society. Key words: mission, need, demand, requirement, business organization JEL classification: M14, M16, M19, M21 INTRODUCTION Through the targeting function of the assumed goals, but also through supporting the values and the reasonings that underlie the business organization, the mission acquires a declarative character. Allowing an identification of the main products and services, of the technologies used, the target groups of customers and their needs, the range of products and services that the organization provides or intends to produce, defining the mission can be considered an informativeanalytical process, through which the business mission acquires a specific significance (Campbell; Yeung, 1991, pp.10-20). Another particular feature of the mission`s text is represented by the concise format designed to concentrate the main operating concepts. Moreover, drafting the company`s mission involves a series of connected conditions meant to ensure a realistic, motivational, specific and global carácter. THE REFERENCE CONDITIONALITY DEFINING FOR BUSINESS MISSION An analysis of the conceptual and methodological connections as well as the practical wirings of the economic scheme, but also the consideration of a theory of business (Drucker, 1994, pp ) residing in the business organizations` mission statement by reference to the requirements of economic markets, entails taking into account new models of understanding the economic reality in which an important role is played by argumentations of scientific nature, in relation with the "cultura concept (Whetstone, 2005, pp ). Under these conditions, 131

132 situations that are self explanatory from the perspective of rigorous managerial reasoning are significant. The graph of economic utility (in the direction of the customer satisfaction by providing the optimal goods and services) is conducted on a three-dimensional structure of economic realities, forming a conclusive blueprint of the organization`s well-functioning in desirable operational factors. ECONOMIC OPERATORS WITHIN BUSINESS MARKET DYNAMICS The coordinate of the requirements manifested by potential customers represents the imperative for action of developers regarding the customer orientation strategy and the clarification of a philosophy in business organization (Byars; Neil, 1987, pp ). More than a dimension of analysis for the marketing plan, the category of requirements notified on a consumer market represents the basis for the elaboration of organizational objectives. The mission itself is, therefore, defined - in the broad sense -by the parameters of the needs expressed in economic terms. Moreover, the very requirements are forms of conceptualizing what empirically we define as reported needs and necessities. The assumption that we have in mind is the one through which the methodological approach on the idea of organizational mission (mission statement) exploit information specific to the economic market (Rarick; Vitton, 1995, pp ), market-oriented, moreover, to the supplydemand ratio.this situation involves taking properly action strategies in the organizational management, based on requirements and needs that can be found at the social level. In this manner, the conceptual and practical peculiarities which defining and stating the organizational mission reveals, send to the assumption and fulfillment of fundamental objectives that economically acquire a significant importance. The formulation and the economic inclusion of the needs and necessities of the reference population in a "possible economic model" (Akerlof, 2009) designates registers for specific requirements to certain areas of economic events (goods, works, services). For example, the existence of a need / necessity at the level of an individual or a group does not fall under the principle of sufficiency. In other words, are fundamental both awareness and reporting, but also the presentation of possible methods of response in relation with the social and economical opportunities of the moment. We primarily distinguish between the differences in acception of the notions of request and demand. Although both are reporting factors for the business mission enunciation, the demand exposes a need that is claimed to be covered, while, at the pragmatic level, some requirements designate means/proceedings to provide composed offers. Moreover, in this context, we believe it can be stated that the expression of a request that folds over standards (quality, ethical, economic, etc.) issued by the consumers and, where applicable, by competition, constitutes a market requirement. Starting from the customized requirements, we find that we can reach a global requests registry. In other words, we consider that the need determines the requirements and the requirements formulate the demand, by specifying that the expression the requirements advance the demand can be illustrated by the fact that, at some point, it will be chosen a product type that meets/check customers` formulated private requirements. (Figure 1). Requirements Needs Demand Figure 1. Needs-requirements-demand conditioning Source: Author's elaboration 132

133 We exemplify through a situation that requires choosing an specific mark of automobiles: (1) (Need) - Which is the need/ necessity? Re: The need for rapid private transport; (2) (Requirement) - Which are my requirements in a given context? Re: a fast, safe, spacious, reduced consumption-based car; (3) (Demand) - The request Answer: A car trademark X. On this basis, we can qualify the requirements as forms of conceptualizing what empirically we define as needs and necessities reported/formulated, while a demand empirically represents a standardized form of the requirement that can be focused on aspecific brand( which may formulate a proper offer on the consumers market). Moreover, in this sense, depending on the degree of interconnectedness of the elements of the offer demand formal implication (if demand exists, then supply exists) can be considered as representative for the economic function following three phases (Figure 2): the increase/ decrease of the index of needs involves, necessarily, the increase/ decrease of the formulated requirements; a dynamic requirements conditions the formulation of the offer of products/services; the needs, respectively the requirements, are enhanced by the existence of prior products and services. Figure 2. Interconditionality of factors: need - requirement offer/supply within the economic development Source: Author's elaboration This form of conditioning constitutes a simplified model of representation through the management of the fluctuating proportionality of economic evolution by comparing the operators with the dynamics on the consumer market`s background. Into logical-mathematical transcription, to this type of interaction corresponds the following formula: {[(x z) & (y z)] & (x y) & [(z x) & (z y)]} q, whose validity is supported by the quality of necessary and sufficient condition of the needs and requirements dynamics, with regard to the adjustment of supply within an economic unit. Business misión, as "strategy implementation" (Gupta; Govindarajan, 1984, pp.25-41) constitutes therefore the resultant of the economic assessment index, a vector of orientation for the company`s internal and external processes. MISSION STATEMENT AND ECONOMIC STRUCTURAL COORDINATES A common designated point of these coordinates indicates economic development associated to a production stage of the organization in relation with its determinants. Therefore, the projection of this approach intended for assigning a value to the implications generated by the practical interconditioning needs- requirements- offers refers to the representation of an economic evaluation index. Depending on this, we believe that both, the quality of the economic process of 133

134 production and placement on the consumer market and the viability of an organizational mission can be analyzed. Based on Figure 2 (Interconditionality of factors: need - requirement offer/supply within the economic) in conjunction with the elements of the demand offer formal implication (if there is demand, then there is supply), we can express and illustrate three representative aspects of the actual economic function: Referring to the first aspect (the increase/ decrease on the needs index involves, necessarily, an increase/ decrease of the formulated requirements), we bring the following example: The need for fast and effective communication determines, on the virtual field, a number of requirements related to the continuous development of this type of networking: social networks as Facebook, LinkedIn, Twitter social networks described as "the SMS of the Internet (D'Monte, 2009) Referring to the second aspect (dynamics in requirements condition the formulation of product/ services offerings) we can bring the following example: The specific requirements of the current mobile telephony market, related to the exigencies of the reference population, impose the development of features and applications adjacent to them and also the revaluation of design, resistance issues etc. It is one aspect that determines the functionality and the economic market development, while representing a catalyst for the progress of the existing offers in the field. Referring to the third aspect (needs, respectively the requirements are enhanced by the existence of prior products and services) we can bring the following example: Offer-requirements/ needs replication can be considered a centreline of the economic market development graph, supporting a continuous improvement of products and services. Therefore, developing an HD operating option on smartphones has created a new need among users: HD transmission of messages (eg Libon application that facilitates the transmission of video messages of high-definied quality), but also some new requirements: optimal format memory card to facilitate the access and certain operation in HD applications, simplifying and decreasing the time for HD message archiving and transfer, enhancing camera`s quality etc. These forms of interconditioning materialize a coherent set of objectives deriving - necessarily - from the functions of the active economic entities. Also, synthesizing and formalizing this type of determinants (needs, requirements, respectively the ideal offer presentation) it is achieved an "exoskeleton" of the organizational mission contents. Practically, this "exoskeleton" represents, as a support structure for conventions and legitimized directives of the organizational mission contents, a formula for drafting a median for every economic activity within a business organization. Therefore, the text of a business mission can be considered the point of incidence between economic operator's intentions and the possibilities, respectively the economic potential (technological, material, ethical) of the specific activity field (Figure 3). Necessities and needs Requests Material and economic potential (for the validation of demand and the concretisation of supply) BINOMIAL DEMAND- SUPPLY Business Mission Structure Business Mission Content Business Mission Character Figure 3. Correspondence between the business mission`s text and the structural coordinates of the economic market Source: Author's elaboration 134

135 REQUESTS AND EXIGENCIES WITHIN ECONOMIC REASSESSMENT The reassessment of the economic reality requires a judicious scientific interpretation which refers to a conceptual relativism. The identity of a scientific knowledge highlights the reintegration of the understanding process, framing a new- assumed paradigm. Enunciation of the business mission can be considered, therefore, a result deduced within a project focused on the analysis of a specific economic sector, but also on its correlations with domains characterized by a potential expansion. In fact, the set of general objectives of the business organization can also be considered an indicator of variation concerning the demand for products, proceedings and services. Furthermore, it is mandatory to take into account the psychosocial impact of the offer in order to diagnose the demand`s dynamics in general, as well as the customized applications. A current example on the economic market is represented by the Facebook phenomenon, initially developed as a closed-circuit social network for students. In the Privacy and Disclosure on Facebook: Youth and Adults' Information Disclosure and Perceptions of Privacy Risk paper (Christofides; Muise; Desmarais, 2010), the adherence of this type of product is justified through the appropriate quantum of communication provided. In other words, the distortion of the traditional community through massive population transfer, by disconnecting and isolating individuals, encourages the recourse to alternative forms of socialization. Furthermore, Facebook mission was established in a defining formula for the proposed objectives, but also for the needs and requirements of the targeted consumer (Facebook's mission is to give people the power to share and make the world more open and connected). In relation to this kind of reality, it is claimed a real conditioning of the business mision, by reference to the launching environment of the offer and the affirmation field of the reference population`s essential features. The economic operator (ie, any of the products suppliers, service providers or contractors) represents, in turn, an active player in the printing process of the specific requirements identified within the structure of every economic approaches undertaken by an organization. Together with the consumer`s exigencies, these requirements outline a subsequent framework of the mission business`s asserting, in the sense that the overall objectives of the organization are focused precisely on these common requests. The preference of any offer to the detriment of ertain competitive products and services is conditioned by the opportunity argument brought into the policy of promoting a specific business organization. It is targeted for this purpose the company's response to the requirements of the market and consumers. An example in this regard is represented by the relationship between default rates and the business cycle (Pederzoli; Torricelli, 2005, pp ). However, the standardization of requirements involves also the compliance with the context issuing these requests and exigencies. Although, currently, a policy of standardization is applied on all economic market segments and the organizational economic globalization structures and adapts the requirements to an appreciable common substance, the competitiveness make it necessary to focus on the contextual specific of expectations and express requests. Managers` relating to the business organizations` mission provides the value orientation for the undertaken strategies. Stages of the activities undertaken demonstrate the very entrepreneurial capacities of the manager. Linking the mission to the assumed strategies legitimates the economic and social nature of reality. It is clear, in this context, that the methodological issue under discussion expresses a scientific correlation between a social and an economic perspective. Nevertheless, such a correspondence underlines the problematizations that need to be solved only through reporting theory on practice. 135

136 ENTREPRENEURSHIP, ECONOMIC EDUCATION PERSPECTIVES AND MANAGERIAL STRATEGIES The customization and individualization of the business organization reflect the vision of managers/leaders about purpose and objectives taken within a certain time period. Therefore, we consider justifiable the idea that, through a clear and concise defining, the organizational mission can be correlated with the functions of the organization (marketing and innovation policy). In addition, we believe that some of the features that highlight a certain convergence between performance and new technological changes, point to a reassessment of the concept of organizational mission and, implicitly, of its own definition. The declarative character of the organization s mission is given by the very function of orientation in the proposed goals. Also, an important role in this context have both, values and judgments of a business organization. It is obvious, in this context, that the foundation of action strategies at the level of business organization represents a functional reality that must take into account, on the one hand, the Social Economic System and on the other hand, the size of Economic Education. Pragmatic interpretations as regards the legitimacy of a social-economic potential generates a permissive education through which the scientific paradigm reflects new forms of organization. In this manner, the instructional process focuses a number of strategies by means of which the idea of socio-educational system can be revalued./reappraised. Moreover, we believe that an expression of the validity of economic education should be linked to the idea of legitimacy of social and economic alternatives. In these circumstances, we consider that a systematic modality of approaching the idea of entrepreneurship education, related to the mission statement is compulsory. Therefore, as a dynamic structure, the economic reality reveals a specific typology according to which the assumed management strategies are concretised. In these circumstances, a reconsideration of a social pragmatism based on the approach of managerial strategies allows also to assume behaviors of entrepreneurship nature. On a purely conceptual vision, are visible managerial strategies designed to provide legitimacy for business activities, activities related to the demand and supply binomial. Furthermore, entrepreneurial innovation highlights differences regarding the stated mission of business organizations. The pragmatic image resulting from the implementation of managerial strategies relates to the idea of the functionality of an entrepreneurial education by reference to the relations between need and requirement, combined with the culture-value ratio (Schein, 2004, p. 7). THE MISSION OF BUSINESS ORGANIZATIONS AND THE SOCIAL EXPERIENCE Social Experience shows that the society in general is gradually transformed. In other words, social values transcend the socialization process, as it manifests itself completely different within the contemporary society. In this context, we believe that the economic reality reassessment requires a judicious scientific interpretation, that points to a conceptual relativism. Thus the identity of scientific knowledge highlights a reintegration of the understanding process in the new assumed paradigm. A well-defined economic dimension and its exploitation on a social level indicate the manner in which a scientific paradigm self-establishes. It is a reality in which the organizing of competences within a value system plays an important role for the fulfillment of initiated and conducted activities. In this sense, these particularities of the supporting activities send to pertinent and justificative considerations, designed to ensure, in fact, an (pragmatic) economic perspective, when taking into account the business mission statement. The dynamics of such a process highlight a methodological approach of the knowable contents. The first argument we bring is the fact that, under the new knowledge society, the economic reality requires a stringent need of reorganization. This state of affairs acquires scientific legitimacy to the extent that the economic reality is related to the objectives valences characteristic to valuational principles. Also, the theoretical share of scientific contents does nothing but express the need for methodological openings, relating to the insertion of a decision making cycle. 136

137 Another argument coming to justify the need to reassess the knowable contents on decisional level is that according to which the innovation success depends on the quality of innovator, on the labor which he performs and how the market is behaving under this equation (Drucker, 2010, p.238). We envisage, in particular, the mision`s performance and its axiological reorganization for business organizations. This perspective is reintegrated into a socio-economic dimensión, within which are evident functional structures build according to certain marks of value. We are also considering, in this case, the concept of anticipatory economic education by means of which scientific knowledge is related to the optimal operating strategy. Therefore, the necessity issue focused on the economic education reassessment within a specific field sends to the analysis of aspects that manifest themselves in individual forms into society. This situation is materialized depending on the area of significations arising from scientific research performed. Also, in the light of the new scientific developments, the knowledge problem requires (re)formulations and hypotheses intended to provide legitimacy to the entered theories. CONCLUDING REMARKS Comprehension of typologies and the establishment of managerial strategies duly substantiated in the economic environment represent the basis of assessment, analysis and administration of the mission of a business organization. For instance, define and state the organizational mission in different arrangements is closely linked to the evolution and diversification of the company's object of activity carried out within the economic system. It is about an analysis of the way in which it is defined and enunciated an organizational mission (mission statement), by reference to the market dynamics, dynamicc given by the supply and demand ratio. Such pragmatic criteria send to axiological meanings through which social actors' involvement highlights the need to reassess any form of educational models developed by science. Meanwhile, the scientific dimension of economic education also provides a reality built on creativity-quality relationship, and this fact is a starting point for the pragmatic approach of economic strategies. It results, moreover, the economic performance of business organization. FIGURES [1] Figure 1: Needs-requirements-demand conditioning [2] Figure 2: Interconditionality of factors: need - requirement offer/supply within the economic [3] Figure 3: Correspondence between the business mission`s text and the structural coordinates of the economic market REFERENCES [1] Akerlof, George A., (2009), An Economic Theorist s Book of Tales: Essays That Entertain the Consequences of New Assumptions in Economic Theory, Cambridge University Press, 1984, (romanian edition Cartea de poveşti a unui economist: eseuri despre consecinţele noilor ipoteze în teoria economică, Bucharest: Publica Publishing House, 2009, p. 17). [2] Byars, Lloyd L.; Neil, Thomas C., (1987), Organizational philosophy and mission statements, in Strategy & Leadership, Volume 15, Issue 4, pp [3] Campbell, Andrew; Yeung, Sally, (1991), Creating a sense of mission, in Long Range Planning, Volume 24, Issue 4, August, pp [4] Christofides, Emily; Muise, Amy; Desmarais, Serge, (2010), Privacy and Disclosure on Facebook: Youth and Adults Information Disclosure and Perceptions of Privacy Risks, University of Guelph, Canada, Facebook_Privacy.pdf [accesed to ]. 137

138 [5] D'Monte, Leslie, (2011), "Swine Flu's Tweet Tweet Causes Online Flutter", Business Standard. Retrieved February 4, "Also known as the 'SMS of the internet', Twitter is a free social networking and micro-blogging service" (April 29, 2009), standard.com/article/technology/swine-flu-s-tweet-tweet-causes-online-flutter _1.html [accesed to ]. [6] Drucker, Peter F., (2010), The Essential Drucker, Meteor Press: Bucureşti, p [7] Drucker, Peter F., (1994), The Theory of Business, in Harvard Business Review, septemberoctober, pp [8] Gupta, Anil K.; Govindarajan, V., (1984), Business Unit Strategy, Managerial characteristics, and Business Unit Effectiveness at Strategy Implementation, in ACAD MANAGE, March 1, 27: 1, pp [9] Pederzoli, Chiara; Torricelli, Costanza, (2005), Capital requirements and business cycle regimes: Forward-looking modelling of default probabilities, in Journal of Banking & Finance, Volume 29, Issue 12, December, pp [10] Rarick, Charles A.; Vitton, John, (1995), Corporate Strategy: Mission Statements Make Cents, in Journal of Business Strategy, Volume 16, Issue 1, pp [11] Schein, E., (2004), Organizational Culture and Leadership, 3rd edition, Jossey-Bass Business & Management Series, San Francisco, p. 7. [12] Whetstone, Thomas J., (2005), A framework for organizational virtue: the interrelationship of mission, culture and leadership, in Business Ethics: A European Review, Volume 14, Issue 4, pp

139 The USV Annals of Economics and Public Administration Volume 14, Issue 2(20), 2014 SECTION 3 ACCOUNTING - FINANCES 139

140 The USV Annals of Economics and Public Administration Volume 14, Issue 2(20), 2014 COMPARATIVE STUDY REGARDING THE MAIN DIFFERENCES BETWEEN US GAAP AND IFRS Professor PhD Elena HLACIUC Ştefan cel Mare University of Suceava, Romania Associate Professor PhD Veronica GROSU Ştefan cel Mare University of Suceava, Romania Lecturer PhD Marian SOCOLIUC Ştefan cel Mare University of Suceava, Romania PhD Student Geanina MACIUCA Ştefan cel Mare University of Suceava, Romania Abstract: Internationally, there are two organizations which play a significant role in the field of financial reporting regulatory bodies. These are the Financial Standard Accounting Board (FASB) and the International Accounting Standards Board (IASB). These bodies have admitted that, in order for international capital markets to function properly, a single set of high quality international accounting standards is necessary. This phenomenon involves the spread of IFRS in the world, on the one hand, and the convergence of FASB-IASB. Yet there are differences. SEC, the American standardization body, is in no hurry to achieve convergence. Moreover, as stated by some authors, we witness the existence of a paradoxical situation: that in which IFRS and the conceptual framework are influenced by American standards. The scientific approach of this research paper consists of two parts: the first part we presented the main differences in the recognition and measurement of the items in the financial statements and while in the second part we present the main differences in the presentation of financial statements. Regarding the research methodology, the methodological, theoretical and scientific base is represented by the universal research methods: the dialectical method of acquiring knowledge (analysis, synthesis, deduction) as well as the rational methods of acquiring knowledge (observation, reasoning, selection, comparison). As research tools for the theme of the current paper are as follows: online research (use of the FASB, IASB, IFAC databases), the electronic databases available through the library, books, journals, legislation. Key words: convergence, US GAAP, IFRS JEL classification: M41 INTRODUCTION The convergence of the accounting standards is an advantage for the companies listed on the stock exchange from two points of view: firstly, they do not need to prepare several sets of financial statements, saving significant amounts of money, and secondly, the comparability of financial data is ensured. In this respect, under the 2002 Norwalk agreement, FASB and IASB decide to bring closer the American standards to the international ones (Baker, Burlaud, 2014). However, it seems that many years are required to ensure the convergence of the two referential. The main difference between IFRS and U.S. GAAP is that the American standards are based on rules and IFRS is built on basic principles. A rule-based standard does not mean that the standardisation bodies have not used principles to establish them but that rules play a major role in implementing the standard. Regarding this controversy, of the principle-based standards versus the rule-based ones, there is considerable debate. The rule-based standards, the dominant approach of FASB, try to anticipate all or most of the problems and find solutions, while the principle-based 140

141 standards, the dominant approach of IASB, are less prescriptive and are based on the objectives and the principles which need to be followed. As a result, U.S. GAAP is comprised of approximately 17,000 pages, while IFRS contains about 2500 pages (Belverd, Needles, Marian, 2011). The American approach, based on detailed rules, proves to be a source of increased complexity (Couleau-Dupont, 2010). Instead, according to the approach based on principles, the standards are based on general principles and conventions which are included in the conceptual frameworks. The general principles correspond to the hypotheses which form the basis for the development of financial statements, of the financial information objectives regarding its usefulness for users, and of the definition of the elements contained within the financial statements. The conventions are intended to guide the preparation of the accounts for the evaluation and presentation of the elements included in the financial statements (Hoarau, 2008). Shamrock Steven (2012) provides a visual representation describing US GAAP as a large brick wall, in which there is a brick which best suits the transaction and which places it in this place while IFRS is more like a shelf with ordered jars, which are taken out as necessary and the content of which is combined to create the best mixture. A classification of the main types of differences was performed by the FASB and is as follows (Doupnik, Perera, 2007): differences in definition, differences in recognition, differences in assessment, alternatives, lack of requirements or recommendations, differences in presentation. The two committees, in the development of new standards or in their review process, guide themselves according to the conceptual framework (IASB for IFRS, U.S. GAAP for FASB). As a result, the differences between them can contribute to the appearance of differences between the standards. In 2004, due to the convergence process between the two referential (IFRS and U.S. GAAP), FASB and IASB have begun to work together to develop a common and improved conceptual framework which will provide the basis for developing common standards. The project has eight steps and the two bodies are currently working on the first four (Gorgan, 2013): qualitative objectives and characteristics, item definition, recognition and derecognition, evaluation, the concept of reporting entity, the limits of financial reporting - disclosure and information requirements, purpose and status of the conceptual framework, use of the he conceptual framework for non-profit entities and other issues. The first phase was completed and resulted in the issuance of a conceptual framework which includes the objective of financial reporting and the qualitative characteristics of useful information (SFAC 8). To complete the other phases, however, there is no schedule. However, although the two councils have reached some temporary conclusions regarding the definition of elements, recognition and derecognition, the measurement of the elements in the financial statements as well as the concept of reporting entity, it seems that the harmonisation of IFRS and U.S. GAAP is always a work in progress. THE MAIN DIFFERENCES IN THE RECOGNITION AND EVALUATION OF THE ELEMENTS OF THE FINANCIAL STATEMENTS The foundation of financial accounting consists of a set of hypotheses, conventions and standards known as generally accepted accounting principles (GAAP). Depending on the authority which establishes the principles, different sets of GAAP can be identified, such as the European GAAP(at European level),national GAAP, U.S.GAAP and IFRS GAAP. Although the different sets of GAAP have many principles in common, there are still significant degrees of freedom (Aerts, Walton, 2013). IAS 2, Inventories, is an example of an international accounting standard which provides a more extensive guidance than U.S. GAAP. Most differences are found among the allowed assessment methods, the calculation of depreciation, the recognition of impairment reversals, the accounting of the inventories resulting from agricultural activities. According to IAS 2, inventories are assessed at the lowest value between cost and net realizable value. Unlike IFRS, U.S. GAAP requires inventories to be assessed at the lowest value between cost and market, where the market is 141

142 defined as replacement cost which is no higher than the net realizable value (called ceiling) and no less than the net realizable value without the normal profit margin (called floor). While the net realizable value, in IFRS s perspective, is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale, in US GAAP s perspective, it represents the estimated selling price in the ordinary course of business less the reasonably predictable costs of completion and disposal (Shamrock, 2012). Example no. 1 Historical cost 50 USD Replacement cost (market) 34 USD Estimated selling price 45 USD Estimated cost of completion and sale 5 USD Net realizable value (NRV) 40 USD Normal profit margin 10% 4 USD Net realizable value less the normal profit margin 36 USD Example processed according Shamrock S., (2012), IFRS and US GAAP-An comprehensive Comparison, John Wiley&Sons, 2012, p.21 In the example above, under IFRS, the realizable value ($ 40) is less than the historical cost ($ 50), with the result that the stocks are valued at $ 40, resulting in a loss of value of $ 10. Under U.S. GAAP, the stocks are valued at the lowest cost ($ 50) and market ($ 34) but the market must be less than net realizable value ($ 40) and greater than the realizable value less the normal profit margin ($ 36). In this case, stocks are valued at $ 36, resulting in a loss of value of $14. We notice that the loss under IFRS is lower than the loss calculated under U.S. GAAP. Example no. 2 Historical cost 125 USD Replacement cost (market) 120 USD Estimated selling price 123 USD Estimated cost of completion and sale 8 USD Net realizable value (NRV) 115 USD Normal profit margin 20% 23 USD Net realizable value less the normal profit margin 92 USD Example processed according Shamrock S., (2012), IFRS and US GAAP-An comprehensive Comparison, John Wiley&Sons, 2012, p.21 In example no. 2, under IFRS, the net realizable value ($ 115) is less than the historical cost ($ 125), with the result that stocks are valued at $ 115, resulting in a loss of 10 dollars and under U.S. GAAP, stocks are valued at the lowest cost ($ 125) and market ($ 120) but the market must be less than the net realizable value ($ 115) and higher than net realizable value less normal profit margin ($ 92). In this case, stocks are valued at $ 115, resulting in a loss of value of 10 dollars. This time, the costs are the same. Example no. 3 Historical cost 80 USD Replacement cost (market) 65 USD Estimated selling price 70 USD Estimated cost of completion and sale 5 USD Net realizable value (VRN) 75 USD Normal profit margin 25% USD Net realizable value less the normal profit margin USD Example processed according Shamrock S., (2012), IFRS and US GAAP-An comprehensive Comparison, John Wiley&Sons, 2012, p

143 In example no. 3, under IFRS, the net realizable value ($ 75) is less than the historical cost ($ 80), with the result that stocks are valued at $ 75, resulting in a loss of value of $ 5. Under US GAAP: Stocks are valued at the lowest cost ($ 80) and market ($ 65) but the market must be less than the net realizable value ($ 75) and greater than the net realizable value less the normal profit margin ($ 56.25). In this case, the stocks are valued at $ 65, resulting in a loss of value of 15 dollars. Under IFRS, the cost of the stocks should be determined using the first-in, first-out method (FIFO) or the weighted average cost formula. U.S. GAAP requires the use of both FIFO and the weighted average cost and LIFO is a method of cost calculation allowed by American standards (ASC ). If IFRS requires that an entity must use the same formula to determine the cost for all inventories having similar nature and use for the entity, U.S. GAPP provides that the same cost formula should not be applied to all stocks of similar nature and use (ASC through 30-14). As with IFRS, U.S. GAAP requires that when stocks are sold, the carrying amount of those stocks must be admitted as an expense in the period the related revenue is recognized. However, differences exist when the value of any reduction in the carrying amount of stocks to the net realizable value and all losses of stock must be recognized as expenses in the period in which the reduction in value or loss took place. IFRS allows these provisions, unlike U.S. GAAP, because the reversal of any reduction in market value is not allowed. IFRS states that the pre-harvest stocks of agricultural producers (crop and livestock production) must be measured at fair value less the selling cost. Instead, U.S. GAAP requires these stocks to be valued according to cost, except for the cases when certain criteria are met. The model based on revaluation requires an item of tangible asset to be recorded at fair value at the revaluation date less any subsequent accumulated depreciation and any accumulated impairment losses. On the other hand, U.S. GAAP does not allow revaluation (except in the case of depreciation) or any reversals of impairment (ASC , ASC , and ASC ). Regarding amortization, if IFRS requires each part of an item of tangible asset with a significantly higher cost compared to the total cost of the item to be amortized separately, unlike IFRS, in U.S. GAAP s case, depreciation is not required but is allowed. The depreciation method must be systematic and rational (ASC ). One of the most well-known differences between U.S.GAAP and IFRS are the ones related to research and development concerns. The American Standards consider that all the costs of this type should be recognized as an expense, while IAS 38 requires that these research costs be considered expenses while the development costs should be capitalized (Walton, 2011). There are several research papers on financial accounting that describe the conceptual differences which are fundamental for revenue recognition between them. Thus, the areas of revenue recognition for the two standards involve different criteria for recognizing revenue, deferred payments, long-term contracted revenue recognition (Babington, 2013). Under U.S. GAAP, in order to be recognized, revenues must be realized or realizable and must be won. Revenue is realized or realizable and earned when the following criteria are met: persuasive evidence of an agreement exists, collectability is reasonably assured, delivery has occurred or services rendered and price is fixed or determinable (Grant Thornton, 2014). IAS 18 requires that goods should be recognized when all of the following criteria have been satisfied: the seller has transferred to the buyer the significant risks and rewards of ownership, the seller retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold, the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to the seller and the costs incurred or to be incurred in respect of the transaction can be measured reliably. 143

144 THE PRESENTATION OF FINANCIAL STATEMENTS FROM THE PERSPECTIVE OF U.S. GAAP AND IFRS For the preparation and presentation of general purpose financial statements, an entity applies IAS 1. Under IAS 1, a complete set of financial statements includes (IFRS, 2013): a statement of financial position at the end of the period, a statement of profit or loss and other comprehensive income for the period, a statement of changes in equity for the period, a statement of cash flows for the period, notes comprising a summary of significant accounting policies and other explanatory notes, comparative information prescribed by the standard, the statement of financial position at the at the beginning of the previous period in which the entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements, or when it reclassifies items in its financial statements. The entities which apply U.S. GAAP prepare financial statements according to the FASB coding (ASC 205 to 280). Moreover, according to the SEC recommendations, entities are required to follow SEC Regulations, respectively Regulation SX and SK. Thus, the American norms provide the following contents for financial statements (Grant Thornton, 2014): statement of financial position/balance sheet, income statement, a statement presenting the total comprehensive income, either in a single continuous statement or in two separate but consecutive statements (ASC ), statement of changes in equity; presentation of changes in segregated accounts which contain equity (in addition to the retained earnings) could be done in the notes to the financial statements (ASC ), statement of cash flows, notes to the financial statements. Unlike IAS 1, U.S. GAAP does not specify any requirement for comparative information but it is desirable to do so(asc ). Instead, Regulation SX, rule 3-01 (a) and article 3-02 (a), requires the balance sheets for the last two fiscal years and the statements of income and cash flows for three years. If IAS 1 requires the presentation an explicit and unreserved statement of compliance with IFRS in the notes, U.S. GAAP does not require it. CONCLUSIONS It is easy to see that in spite of the convergence reports submitted periodically by FASB- IASB, differences between the two referential still exist. Furthermore, IASB launches towards debate, separate from FASB, project DP/2013/1, A Review of the Conceptual Framework for Financial Reporting, on the one hand, and on the other hand, in February 2014, SEC released a strategic plan which applies for the years through which the reinforcement of FASB s independence is intended, without mentioning anything about the international financial reporting standards. These two events make us suspect that the convergence process is longer than we expected. The fact that the two referential are built on different business cultures as well as on rules versus principles, we believe that they are the main obstacles in achieving convergence. ACKNOWLEDGMENT This paper has been financially supported within the project entitled SOCERT. Knowledge society, dynamism through research, contract number POSDRU/159/1.5/S/ This project is co-financed by European Social Fund through Sectoral Operational Programme for Human Resources Development Investing in people! BIBLIOGRAPHY 1. Aerts W., Walton P. (2013), Global Financial Accounting and Reporting: Principles and Analysis, Cengage Learning 2. Babington, J. T. (2013), U.S. GAAP Versus IFRS: Reconciling Revenue Recognition Principles in the Software Industry. Honors Theses 144

145 3. Belverd E., Needles Jr., Marian P. (2011), International Financial Reporting Standards: An introduction, South Western 4. Choi F., Meek, G. (2011), International accounting, Prentice Hall 5. Couleau-Dupont A. (2010), Le Processus D appropriation du Referentiel Ias/Ifrs au sein des Organisations, teză de doctorat Universite De Nice-Sophia Antipolis 6. Doupnik T., Perrera H. (2007), Contabilidad internacional, McGraw-Hill Interamericana 7. Gorgan C. (2013), Convergența contabilă internațională.implicații asupra raportării financiare, Editura ASE, București 8. Grant Thornton (2014), Comparison between U.S. GAAP and International Financial Reporting Standards 9. Hoarau C. (2008), La Gestion Des Résultats Comptables: Ifrs Vs Us Gaap, R.F.C. 406, Janvier 10. Nobes C., Parker R., (2008), Comparative International Accounting, Prentice Hall 11. Roberts C., Weetman P., Gordon P. (2005), International Financial Accounting. A Comparative Approach, Prentice Hall 12. Shamrock S. (2012), IFRS and US GAAP-An comprehensive Comparison, John Wiley&Sons 13. Walton P. (2011), An Executive Guide To Ifrs, John Wiley & Sons,

146 The USV Annals of Economics and Public Administration Volume 14, Issue 2(20), 2014 SECTION 4 STATISTICS, ECONOMIC INFORMATICS AND MATHEMATICS 146

147 The USV Annals of Economics and Public Administration Volume 14, Issue 2(20), 2014 TOURISM AVL SYSTEM - TOURISTIC SUPPORT GUIDENCE ON THE MOBILITY CONDITIONS Lecturer PhD Pavel STANCIU Stefan cel Mare University of Suceava, Romania pavels@seap.usv.ro Professor PhD Valeriu LUPU Stefan cel Mare University of Suceava, Romania lupu_2001@yahoo.com Abstract: The globalization of tourism markets and technological development, unprecedented in the last decade, require repositioning of stakeholders that are directly interested in the development of tourism and travel industry. The focus is more stringent on the information services - communication and orientation targeting with addressability to the tourists. This becomes as imperative to strengthen common standards for basic tourist information and exchange format using a hardware-software platform independent with GPS and GIS operating systems embedded. Applications such as AVL integrate web components with geographic data embedded into GIS system and tourist information stored in databases managed by tour operators. Based on this concept, Tourism AVL platform develops a series of applications that collect and analyse spatial data and also offers tourist-oriented services that focus touristic attractions recommended by the system based on explicit queries and trip options made by tourists. Key words: AVL, Tourism AVL platform, GPS, GIS map, Tourism supply. JEL classification: L86, R41, L83. INTRODUCTION Information and guidance services for tourists involve the interference of three socioeconomic elements: direct benefits, related or auxiliary services and technological vectors. The design of direct services is tour operators` attribute - travel agents, hoteliers, entertainment, transport operators and integrated tourism companies - and requires tourists` post-factum active participation, following an extensive joint effort "to synthetize" attractiveness (resources, potential) and facilities (services) offered (Minciu, 2005, p.218). The contribution and the usefulness of complementary services highlight the visual impact generated by the background consisting of detail elements of the tourism product and it has an obvious qualitative impact. From a technological perspective, designing services for tourists obliges stakeholders to implement viable solutions that have an explicit level of accessibility, usability and marketing for the media, the vacant time being filled with recreation or cultural-informative activities. Moreover, tourist information services must fulfil the function of mediation (tourist counsellor) in tourism option (Minciu, 2005, p.231) from the hospitality industry. Counselling, directing and guiding tourism, entertainment and feed-back are important landmarks of tourist consumption. These services do not confine to the written publications (posters, leaflets, brochures, and catalogues) or to online publication (portals, web pages presenting tourism and other tourist information websites) but also involve the use of modern systems (applications, specialized software, location portable devices, internet-connected mobile phones and other gadgets). In the last decade, tourism applications and specialized software used to package with a series of gadgets - GPS, smartphone, tablet, camera - highly appreciated by tourists and industry professionals alike are gaining more ground. The widespread use of modern technology in tourism has become an element of competitive difference and strategic positioning among economic operators and a vector of orientation and online diffusion of tourist satisfaction. 147

148 Gadgets are a component of "tourist" essential individual travel plans, while applying new technologies for strengthening, promotion, marketing of standard tourist voyages and tourist consumption are vital for the survival and growth (Spencer, 2014, p.152). In this case, the performance is more commonly associated with the relationship between the services provided and their consequences - efficiency, impact, and satisfaction - and the resources needed to achieve expected results (tourist offer). A special place in the new global equation has the access to information, availability, instant location of landmarks and the key element of communication tourist feedback. In terms of socioeconomic opportunity, accessibility is often associated with proximity or the facility of spatial interaction (Gutierrez, 2009), virtual mobility - e-tourism (Buhalis, 2003; Buhalis, Deimos, 2004, p.2; Sebastia Garcia et al., 2009, p.717). In terms of tourism diffusion in the territory, the availability consists of communication infrastructure, transport and / or opportunities associated with basic services that facilitate the ability to reach a particular location using a certain GPS transport system type (Gutierrez, 2009; Françoso, Costa et al., 2013 pp ). Applications and services tourism related to travel industry such as SML NSA (National Scenic Area) with the integration of Infrastructure of VD (Vehicle Detector), CMS or VMS (Changeable (or Variable) Message Sign), CCTV (Closed Circuit Television), AVI (Automatic Vehicle Identification), Automatic Vehicle Localization (AVL), AR (Augmented Reality) etc. are presented as innovative accessories, smart and interesting for visitors as intermediate professional planning of tourism trips (Tenqchen, Chen et al, 2013, pp ). The instructions specific for Information and Communications Technology (ICT) require the identification of a set of activities necessary to draw predictive tasks that describe each activity in a predefined contextual framework. For space-time framing of a vehicle and later predicting the arrival / departure to a previously established position, the automatic vehicle location (AVL) requires highlighting three main components: a detector, a filter and a control panel (predictor) (Cathey, Dailey, 2003, p. 241). TOURISM AVL PLATFORM Basically the AVL (Automated Vehicle Location) platform consists of the following modules: GPS receiver, board computer, radio mode, controller card for transferring data from GPS receiver to onboard computer (Figure 1). In terms of hardware, these modules can be separate or merged into a compact structure, depending on the optimal design adopted (Tsai, 2003). Figure 1 AVL Platform The AVL platform must meet several important functions, namely (Tsai, 2003): - Reception of signals from GPS satellites; - Calculation of the mobile position (usually a vehicle), and its longitude and latitude; 148

149 - The transfer of the positioning data of the mobile to the board computer via controller board); - Transmission of the positioning of the mobile to the central server of the application; central server runs an application that marks the position of the mobile on GIS map; - Viewing the positions of the vehicles, upon request, on a GIS map at the level of the central server; - Possibility of accessing the Internet, to view on the screen the WEB page of the main application of Tourism AVL; - A Mobile Internet browser installed; - Transmission via Mobile Internet browser to the central server, the demand for information related to the position of the mobile at some point, in real time: BMP files, amenities available in the area: hotels, lodges, trails, sights etc.; - Reception and display of BMP files on the screen of the platform, containing GIS information from the area where the mobile is positioned at some point; the displaying is done through C-HTML, HTML or WML pages; - The radio channel used for AVL platform communication with the central server is GSM, GPRS or ZAPP; - And optionally, displaying the mobile positioning data on the screen of the onboard computer. Considering the capacity of the GSM network, the radio channel can provide 868 GSM or GPRS connections simultaneously. Due to CDMA technology, the Zapp radio channel can provide a virtually unlimited number of radio links. Clearly, the central application server that runs the database must have a connection to the Internet. Restrictions may occur at the level of the central application due to the time required by query / answer session for access to the central server. The duration of a work session client-server, queryresponse depends on the length of transmitted data files from uploads and downloads and the speed of GPRS connection. The estimated time is about 1s. The tracking accuracy of AVL platform is within the error range 0-5 m. The GPS Module, a component of the AVL platform has the following structure: - Controller or processor; - GPS active antenna; - A serial interface; - RAM, EEPROM memories. The onboard computer performs the user interface and provides communication between the central server of the application and the GPS receiver. All stages of a work session are available in real time to the user, via the display and keyboards. It may be a PDA or it may be made around a PC 104 board. In this case, in addition to the PC 104 central unit, the construction of the onboard computer might need the following components: - EPROM program memories; - EEPROM memories; - RAM data memory; - Data/address decoders(latch); - Serial interface circuit: MAX 232; - Counters for frequency division; - Serial interface controller; - Power invertors; - Logic gates; - DC/DC convertors. The radio unit, a component of the AVL platform will be a GSM, GPRS or Zapp mobile terminal. The AVL platform version incorporated into a board computer can be a compact module, or it might be carried out around a PC 104 (Figure 2). 149

150 GPS GSM GPS Receiver Controller R S R S 2 3 2(1) Onboard Computer R S 2 3 2(2) I GSM/GPRS n Mobile t e r f a c Figure 2 - AVL platform with a compact onboard computer or carried out around a PC 104 board The sequence of commands for using the AVL - type platform is: - P1: From the keyboard of the onboard computer, using a Mobile Internet browser, it is typed the request for services offered by the tour operator in the area. - P2: The onboard computer sends this request to the controller, through RS 232 interface. - P3: The controller sends to the GPS receiver a request for positioning information. Up to this point, the GPS receiver is in standby mode. - P4: The GPS receiver calculates the position of the mobile, based on the received signal from the GPS satellites. - P5: The GPS receiver sends the entire positioning message to the controller, which also contains information about the current time and date, the movement speed of the mobile, the number of the visible satellites etc. The GPS message usually has a length of 100 characters. - P6: The controller extracts from the GPS message the information of interest and wraps it up in a suitable form to the RS 232 interface protocol to be transmitted to the onboard computer. - P7: The onboard computer receives the positioning message and attaches it to a request, resulting in a short message transmitted via GSM channel to the central application server. - P8: The GSM mobile receives from the central application server the answer on tourist services available in the area where the mobile is at some point; the information is then transmitted to the onboard computer. - P9: The information, consisting mainly of BMP or GIF files is presented to the user on the display of the onboard computer. In the case of a AVL platform with PDA, which acts like an onboard computer, the connection between PDA and GPS receiver plate is achieved by interface "cradle" and the connection with GSM mobile terminal is performed by Bluetooth radio channel (Figure 3). 150

151 GPS GSM GPS Receive r Controlle r R S 2 3 I n t e r f a c PDA Bluetoot Connectio GSM/GP RS Mobile Figure 3 AVL Platform with PDA and Bluetooth connection with GSM terminal An AVL platform with PDA including the function of a GSM mobile phone, GPRS, having also installed the GPS positioning application is synthetically represented in Figure 4. GPS GSM GPS Receive r Controller Figure 4 - AVL platform with PDA including GSM/GPRS terminal and Internet browser If to the interface "cradle" of the PDA is attached a GPS card, then the platform AVL becomes more compact (Figure 5). In this case, the PDA is simultaneously a mobile phone and an Internet browser. For this solution it is likely to need a cable to connect the PDA to the GPS card because it is good for the GPS antenna to be placed on the car. R S 2 3 I n C t e a r d r PDA and GSM/GPRS GPS GSM PDA + GSM/GPRS + PC-GSM Application Figure 5 - AVL compact platform, PDA including all modules An AVL platform using a ZAPP mobile terminal will have a speed of communication with the central application server that can reach about 150 kbps. It also will be able to operate more 151

152 easily with HTML web pages. In this case (Figure 6), the controller (CPU) on GPS receiver performs the communication protocol with GPS receiver, with ZAPP terminal and onboard computer. Simplifying the structure through ZAPP terminal taking the board computer functions enables easy access to the Internet via CDMA channel. ZAPP Antenna TCP/IP Wireless GPS ZAPP Terminal I n t e r f a c e GPS Receive r Controller RS232 interface or Ethernet Onboard calculator or PDA Figure 6 - AVL platform with ZAPP-CDMA terminal In Figure 7 is shown the AVL platform within Tourism AVL application. To collect and analyse spatial data in tourism, we must consider a specific travel application and directions for use the data. These are summarized below as queries: - What geographic data layers or themes are needed for the application; - Hat scale is required; usually spatial data derives from existing maps or spatial photographs. The scale of the maps determines the scale of the data. For example, the scale of a regional map is not appropriate for studying a neighbourhood. - What is the optimal/maximum size of imported files; - How precise should be the data used; - What data format and conversion tools are necessary; - What supply support is agreed; - What is the cost of obtaining data; - If we need static or dynamic maps, having detail or scroll map facilities (zoom/ panning). From this point of view, the geographic data might be divided into 2 categories: - Geographical data base; - Application specific data, also called thematic data. In the case of an application which will provide tourist orientation, thematic data will focus on points of tourist interest (hotels, restaurants, museums, police stations, health care, etc.). In most cases, this information is uneven inventoried or is presented in various formats. For this reason it is desirable to require the use of a common standard for basic tourist information and an exchange format independent of the hardware-software platform. In addition to clear and incontestable advantages offered by GPS systems, there are also a number of inconveniences caused mainly by the proprietary format, high market value of software and the high level of expertise / training required for their use in the field. Alternatively, the current GIS Internet technologies combine Internet and GIS facilities available for common user, and information can be updated whenever necessary. The AVL applications (Automatic Vehicle Location) are very well integrated in applications based on services in Web environment. Location technologies integrated into GIS applications allow for integrated solutions, particularly strong. For the design of GIS subsystem of Tourism AVL system will be implemented the following functionalities: - Determining (macro) geographical themes forms of relief, natural resources (forests lakes, climate) and non-geographic themes ( tourist attractions); - Digitizing the maps and their conversion from raster format to vector format; 152

153 - Geocoding of points of touristic interest; - Connecting vector files with tourist information databases; - Editing thematic data; - Generating dynamically, depending on the tourist geographical location, scalable tourist and interoperable maps; - The displayed maps will be interactive (enabling the user to detail (zoom), scroll maps (panning); - Navigation through hot-link maps; - Sight searching; - Route planning; - Calculation of distances. wireless Wireless GPS Antenn GSM/ZAP P At Internet GSM/ZAP P Antenna AVL Platform Portal Internet and Gateway Communications operator Internet TCP/IP Central Application Server Figure 7 AVL platform within Tourism AVL application The architecture of Tourism AVL system enables the integration of logical geographic information stored in GIS with tourist information stored in databases. The data on points of interests are obtained by digitizing reference maps. The geometrical accuracy of the coordinates generated depends on the accuracy (quality, resolution) of the reference maps. The GIS system allows you to create vector maps dynamically generated, which will be enriched with layers of tourist information to meet the various requirements of the users. The results of the integration of GIS data and tourist information will allow to create tourist maps with varying degrees of detail (Figure 8), including information about the location and distance, data on tourist attractions in the area and how / when they can be visited, and other nearby targets. 153

154 Clients Buildin Streets Figure 8 Thematic maps To those mentioned above should be added service packages customized according to the area where the tourist is located and his/her profile. Interactive maps allow zooming and panning functions. The vector format allows representation of a highly diverse range of information. The XML technology (Extended Markup Language) will be the basis for designing an interactive GIS subsystem, whose results are not dependent on hardware-software platform for data visualization. From the technological point of view, while they are traveling, the tourists can enjoy operating systems offered by the onboard computer of newer cars or use automatic vehicle location system (AVLS). They are increasingly used both by transport operators and other stakeholders with activities related to travel and hospitality industry (transport companies, car rental firms, etc.) to manage travel times (when traveling) and estimate arrival and departure data (Scott, 2013, p ). CONCLUSIONS Reality The Tourism AVL electronic equipment with GIS embedded, intended for location, helps to identify the best route to travel, furnishes expert assistance to reach the desired destination, provides information in real time about parking availability, recommends avoiding crowded streets, highlights locations where there have been accidents or traffic jams. Through Tourism AVL system, activities such as sight searches, tourist documentation (information) and interrelation of these physical elements into spontaneous tours become integrated operations, extremely simple to achieve. The most important aspect, however, is the fact that such guidance systems will be used by tourists, salesmen and locals alike. Similar applications comparable to a certain extent with those of a trip computer are also developed by mobile telephony operators. According to Barrero, Toral et al. (2010), the future ITS (Intelligent Transportation System) - Tourism AVL will provide mobile phones with Internet, where each vehicle will have its own IP which will allow it to create a customized digital environment inside the vehicle and also will allow vehicle-to-vehicle online communication in traffic and will encourage strong links between transport vehicles and specific infrastructure. Finally, integrated systems such as Tourism AVL have default ecological effects because they promote directly reducing fuel consumption and prevent traffic jam and help reducing car accidents. All these have consequences on the quality of tourism services and, undoubtedly, on the image of the tourist destination / organizing company / tour operator. 154

155 REFERENCES 1. Barrero, F., Toral, S., Vargas, M., Cortes, F., Milla, J.M. (2010) Internet in the development of future road-traffic control systems, Internet Research, 20 (2) pp Buhalis, D., Deimez, O. (2004) etourism Developments in Greece: Information Communication Technologies adoption for the strategic management of the Greek Tourism Industry, accessed July 18, Buhalis, D. (2003) etourism, Information Technology for Strategic Tourism Management, Prentice Hall, London. 4. Cathey, F.W., Dailey, D.J. (2003) A prescription for transit arrival/departure prediction using automatic vehicle location data, Transportation Research - Part C, vol. 11, pp , Françoso, M.T., Costa, D.C., Valin, M.M., Amarante, R.R. (2013) Use of Open Source Software for the Development of Web GIS for Accessibility to Tourist Attractions, Journal of Civil Engineering and Architecture, Volume 7, No. 4 (Serial No. 65), pp Minciu, R. (2005) Economia turismului, ediția a III-a revizuită și adăugată, Editura Uranus, pp Mousavi, A., Rajabi, M.A., Akbari, M. (2009) Design and Implementation of a GSM Based Automatic Vehicle Location System, Computational Science and Its Applications ICCSA 2009, Lecture Notes in Computer Science Volume 5592, pp Nedelea, A.M. (2008) Tourism Marketing, Derc Publishing House, Tewksbury, Massachusetts, pp Scott, M.M. (2013) The Role of Information and Communications Technology in Supporting Sustainable Tourism: In-trip Tourists Perspectives, Vol.1, Ph.D. Thesis at Queen Margaret University. 10. Scutariu A.L. (2009) Tourism economic growth factor and essential element in regional development in Romania, Analele Ştiinţifice ale Universităţii Alexandru Ioan Cuza din Iaşi. Ştiinţe Economice, Tomul LVI, 2009, pp Sebastia, L., Garcia, I., Onaindia, E., Guzman, C. (2009) E-tourism: a tourist recommendation and planning application, International Journal on Artificial Intelligence, Vol. 18 No. 5, pp Spencer, A.J. (2014) Tourism and technology in the global economy: challenges for small island states, Worldwide Hospitality and Tourism Themes, Vol. 6 Iss: 2, pp Tsai, J. (2003) Global Positioning System (GPS), Automated Vehicle Location (AVL),Geographic Information System (GIS) and Routing/Scheduling System, STN Conference EXPO Reno, Nevada, AVL.pdf, accessed May 15, Tenqchen, S., Chen, S.S., Wang M.C. (2013) Design of a Rotary Ring APP Information Capturer for Sightseeing Place-Specialized Tourism Services for Sun-Moon Lake, Journal of Communication and Computer no. 10, David Publishing, pp Velaga N.R., Beecroft, M., Nelson, J.D., Corsar, D. (2012) Transport poverty meets the digital divide: accessibility and connectivity in rural communities, Journal of Transport Geography, no. 21, pp Xiao, Li-ying; Cai, Xiao-fei; An, Shuang-shuang; Cheng, Cui (2014) The Research About Information Acquisition Method of Bus Travel OD, Science & Technology Information, China. 155

156 The USV Annals of Economics and Public Administration Volume 14, Issue 2(20), 2014 DEVELOPMENT OF OPTIMAL FILTERS OBTAINED THROUGH CONVOLUTION METHODS, USED FOR FINGERPRINT IMAGE ENHANCEMENT AND RESTORATION Cătălin LUPU "Ştefan cel Mare" University of Suceava, Romania Abstract: This article presents the development of optimal filters through covolution methods, necessary for restoring, correcting and improving fingerprints acquired from a sensor, able to provide the most ideal image in the output. After the image was binarized and equalized, Canny filter is applied in order to: eliminate the noise (filtering the image with a Gaussian filter), non-maxima suppression, module gradient adaptive binarization and extension edge points edges by hysteresis. The resulting image after applying Canny filter is not ideal. It is possible that the result will be an image with very fragmented edges and many pores in ridge. For the resulting image, a bank of convolution filters are applied one after another (Kirsch, Laplace, Roberts, Prewitt, Sobel, Frei-Chen, averaging convolution filter, circular convolution filter, lapacian convolution filter, gaussian convolution filter, LoG convolution filter, DoG, inverted filters, Wiener, the filter of equalization of the power spectrum (intermediary filter between the Wiener filter and the inverted filter), the geometrical average filter, etc.) with different features. Key words: fingerprints; biometrics; Canny operator; filtering; edges detector; image processing JEL classification: C63, C69 1. INTRODUCTION A fundamental phase for the segmentation, for obtaining the characteristics of the elements and for the matching phase is the preprocessing phase. The preprocessing of the images consists of: the images enhancement; the images restoration; the highlighting of the features: edges and corners. Image enhancement means increasing the image quality to a level that attenuates its interpretation or overdoing the existent characteristics of the image. The typical operations of the image enhancement: correcting the grey level (increasing the contrast); histogram equalizing; colors conversion; the noise smoothing; the features highlighting. The image restoration means the retracing a degraded image by the faults from the acquisition system, knowing the nature of the faults. The degradation causes may be: faults of the lens of the eye or fingerprint over-taking sensor; nonlinearity of the sensor (which transforms the optic signal into electric signal); relative movement between the camera and the person; wrong focalization. Image enhancement is basically improving the interpretability or perception of information in images for human viewers and providing `better' input for other automated image processing techniques. The principal objective of image enhancement is to modify attributes of an image to make it more suitable for a given task and a specific observer. During this process, one or more attributes of the image are modified. The choice of attributes and the way they are modified are specific to a given task. Moreover, observer-specific factors, such as the human visual system and the observer's experience, will introduce a great deal of subjectivity into the choice of image enhancement methods. There exist many techniques that can enhance a digital image without spoiling it. The enhancement methods can broadly be divided in to the following two categories: (i) Spatial Domain Methods and (ii) Frequency Domain Methods. Digital image enhancement is one of the most important image processing technology which is necessary to improve the visual appearance of the image or to provide a better transform representation for future automated image processing such as image analysis, detection, 156

157 segmentation and recognition. Many images have very low dynamic range of the intensity values due to insufficient illumination and therefore need to be processed before being displayed. 2. SPATIAL DOMAIN METHODS Large number of techniques have focused on the enhancement of gray level images in the spatial domain. These methods include histogram equalization, gamma correction, high pass filtering, low pass filtering, homomorphic filtering, etc. In spatial domain techniques [14], we directly deal with the image pixels. In spatial domain for getting desired output the pixel vales are manipulated. Basically in spatial domain the value of pixel intensity are manipulated directly as equation (1): G(x, y) =T [f(x, y)] (1) Where f (x,y) is input image, G(x, y) is output image and T is an operator on f, defined over some neighborhood of f(x,y). Understanding frequency domain concept is important, and leads to enhancement techniques that might not have been thought of by restricting attention to the spatial. Y.-T. Kim [1] developed a method for contrast enhancement using brightness preserving bihistogram equalization. Similar method for image contrast enhancement is developed by Y. W. Qian [2]. A block overlapped histogram equalization system for enhancing contrast of image is developed by T. K. Kim [3]. Other histogram based methods [4]-[6] etc. are also developed. V. Buzuloiu et al. [7] proposed an image adaptive neighborhood histogram equalization method, and S. K. Nike et al. [8] developed a hue preserving color image enhancement method without having gamut problem. Li Tao and V. K. Asari [9] presented an integrated neighborhood dependent approach for nonlinear enhancement (AINDANE) of color images. They applied the enhancement to the gray component of the original color image and obtained the output enhanced color image by linear color restoration process. In spatial domain techniques [16], we directly deal with the image pixels. The pixel values are manipulated to achieve desired enhancement. 3. FREQUENCY DOMAIN METHODS In frequency domain methods, the image is first transferred in to frequency domain. It means that, the Fourier Transform of the image is computed first. All the enhancement operations are performed on the Fourier transform of the image and then the Inverse Fourier transform is performed to get the resultant image. In the frequency domain the image enhancement can be done as shown in equation (2): G(u,v)=H(u,v)F(u,v) (2) Where G (u, v) is enhanced image, F (u, v) is input image and H (u, v) is transfer function. 1. Compute F (u, v), the DFT of input image. 2. Multiply F (u, v) by a filter function H (u, v) as G (u, v) = H (u. v) F (u, v). 3. Compute inverse DFT of the result by applying inverse Fourier transform. 4. Obtain real part of inverse DFT. These enhancement operations are performed in order to modify the image brightness, contrast or the distribution of the grey levels. As a consequence the pixel value (intensities) of the output image will be modified according to the transformation function applied on the input values. A fundamental phase for the segmentation, for obtaining the characteristics of the elements and for the matching phase is the processing phase. The preprocessing of the images consists of: the images enhancement; the images restoration; the highlighting of the features: edges and corners. In the following lines, we will emphasize the histogram equalizing and the noise elimination by building an optimal filter which, starting with the distorted image, will provide in the output an image, the closest possible to the ideal image [14]. 157

158 3.1. HISTOGRAM EQUALIZATION (HE) HE techniques are widely used in our daily life, such that in the field of consumer electronics, biometrics (fingerprint, eye, face, etc.), medical image processing, image matching and searching, speech recognition and texture synthesis because it has high efficiency and simplicity [10],[11],[12],[13]. The main idea of HE-based methods is to re-assign the intensity values of pixels to make the intensity distribution uniform to utmost extent. To enhance an image, a brightness preserving Bi-HE (BBHE) method was proposed in [1]. The BBHE method decomposes the original image into two sub-images, by using the image mean gray level, and then applies the HE method on each of the sub images independently. At some extent BBHE preserves brightness of image. Dualistic sub-image histogram equalization (DSIHE) [2] is similar to BBHE but DSIHE uses median value as separation intensity to divide the histogram into two sub-histogram. Minimum Mean Brightness Error Bi-HE (MMBEBHE) [4] is an extension of the BBHE method. In MMBEBHE the separation intensity is minimum mean brightness error between input image and output image. Recursive mean separate HE (RMSHE) [4] is an iterative technique of BBHE, instead of decomposing the image only once, the RMSHE method proposes for performing image decomposition recursively, up to a scalar r, generating 2 r sub-image. In RMSE, when r increases the brightness increase, but number of decomposed sub histogram is a power of two. Multihistogram equalization (MHE) [10] overcomes the drawback of bi-he, it decomposed the input image into several sub-image and then applying the classical HE process to each one. Histogram equalization [14] has as a goal the image enhancement by eliminating the noise determinated by distortins provoqued by the fingerprint catching sensors or by the improper luminosity, obtaining an image of a superior quality. In order to compare some images for different illuminations, to discover some differences between them, we apply the histogram modification, bringing them to a standard value or we modify one of the histogram until it gets closer to the other one. In order to enhance the image quality, by correcting some distortings or emphasizing some shapes, features, etc., we use some specific techniques, by theirown or in combination. The histogram equalizing algorithm used into practice is: Step1. The image s histogram is calculated (where L=256 for an image with the dimension MxN) For i = 1,, L executes h[i]=0 for I = 1,,M for j = 1,,N level=image[i,j] h[level] = h[level] + 1 Step2. The cumulative histogram of the image is calculated: hc[1] = h[1] for I = 2,,L executes hc[1] = hc[i-1] + hc[i] Step 3. The new values of grey from the image are calculated, under the type of a transformation y = T(x) given by the formula: hc[ x] hc[1] y T ( x) ( L 1) 0. 5 (3) NM hc[1] For i = 1,,M executes old_levei = image [i,j] new_level = T (old_level) Image[i,j] = New_level 158

159 The test image is the fingerprint 101_1.tif of the database FVC 2004 and 001_1_1.tif ([15] [16]) of the database CASIA. The images obtained after equalizing, with the afferent histograms are presented in figure 1. Figure 1. a) Test image fingerprint (101_1.tif) b). The image of the digital fingerprint after equalizing; c). The initial image histogram affected by the gaussian noise; d). The equalized histogram after cumulative sum;e). The normalized cumulative histogram Source: a), b) CASIA Database [15],[16]; c)-e) Own elaboration using MatLab 3.2. THE RESTORATION OF DEGRADATED IMAGES WITH DISTORTING FUNCTIONS INVARIABLE TO THE TRANSLATION, BY CONVOLUTION METHODS Although very useful in several applications, they fail in some situations. One method of filtering an image is to apply a convolution operation to the image to achieve: blurring, sharpenning, edge extraction or noise removal. The restauration techniques of the images aims to build an optimal filter with a n n kernel which by convolution with the initial image, affected by noise, can provide in the output an image the closest possible to the ideal one. To obtain this, it is used the linear filtering of the images in the frequency domain, which is based on the convolution between the image that is to be processed and a filtering kernel (Kirsch, Laplace, Roberts, Prewitt, Sobel, Frei-Chen, of mediation, circular (disk), lapacian, gaussian, LoG (Laplacian of Gaussian), DoG (Derivative of Gaussian), Wiener, the method of the inverted filter, etc.). There are more types of image transformations that produce representations in which appear unavailable properties in the image space. Thus, the Fourier transformation of an image is a representation in the frequency domain. More processings of the images suppose the elimination from the image of the components of a certain frequency, for instance those of low level or those of high level. These operations are easy to realise with the Fourier transformation of the images. The theory of the unitary transformations, show that such an operation (of convolution) is equivalent to a produce between the Fourier space of the image and the Fourier spectrum of the filtering nucleus; this is the convolution theorem. 4. METHODS TO DETECT THE EDGES BASED ON FILTERING FOLLOWED BY THE APPLICATION OF THE DIFFERENTIAL OPERATORS FOR THE DIGITAL FINGERPRINT By detecting the edges we understand a technique that tries to identify the places with fast variations of the intesities. Each technique is characterized by a set of operators also called edges detectors. The correct detecting of the edges is a very important problem in any biometrical system. The edges processing system serves to simplify the images analysis by reducing considerably the data volume by restoring the structural useful information concerning the the images contours taken from the digital fingerprints. Most of the component modules of the biometrical systems depend directly or indirectly on the performances of the edges detector that is used. According to the principle used for the detection of edges, they classify into: Methods based on applying the differential operators; Methods based on foltering followed by the application of the differential operators (Marr & Hildrith, Canny, etc.) ; 159

160 Methods based on approximation on onedimensional surface having a profile similar to the edge; The residues method; Methods that work with discreet surfaces, using the direct approximation of the differential operators by finite differences; Methods that work with approximated surfaces by a continual function and which use the analytical form of the differential operators. The detecting techniques of the edges have two different steps: Marking all the points characterized by fast variations of the intensities Selecting the edge points THE CANNY OPERATOR The Canny operator ([22], [23]) enhances the images from the following points of view: The detecting itself of the edge (reducing the error rate the detector does not lose the frontier points and it does not respond to the points that are not frontier points); The localisation accuracy (the frontier points are well located the distance between the frontier points found by the detector and the real ones must be minimum); The answer uniqueness (the detector provides only one answer to only one frontier point). The Canny algorithm consists in the following steps: Step 1: It is applied the Gaussian filter. The bigger the width of the mask is, the smaller the detector sensitivity to the noise is. Step 2: The Sobel operator is applied to the image resulted from the step1, obtaining the matrix of the gradient amplitudes. D(x,y) = Dx + Dy (the gradient is approximated by the image convolution with the following masks: Dx Dy Figure 2. Convolution masks for Sobel operator Source: Canny Edge Detection Tutorial, [24] Step 3: It is calculated the gradient direction in each point, obtaining the directions matrix: θ (x,y) = arctg (Dy / Dx) Step 4: It is adjusted θ to one of the directions from the discreet space of the images, more precisely the one which is the closest to the θ. Step 5 (non-maxima suppression): The Sobel detector, like all the detectors based on convolution masks, produces more front points for the same frontier point (more masks can contain one frontier point). That s why, the amplitudes matrix can contain wide areas around the frontier. In this step are eliminated the pixels which do not have the maximum amplitude locally (in the environs of a pixel). Frontier points are declared those points whose amplitude is maximum locally on the gradient direction. The other points are eliminated (set at zero). 160

161 For each C pixel Considering A and B the pixels from C environs on the C gradient direction If D(A) > D(C) or D(B) > D(C) then D(C) = 0 The effect of this step is thinning the frontier without interrupting it. We will note with 15 the amplitudes matrix rsulted from this step. Step 6 (hysteresis thresholding): In this step the false frontier pixels (the noise) are eliminated without interrupting the frontier (contour). For this, we use the histerezis operation, which consists of applying two thresholds: the low threshold, TI and the up threshold, T2 (T1 approximately equal to 2*T1). These threshols are applied separately to the image resulted from the previouos step, I5 resulting 2 binary images, T1 and T2. In T1 they have a value of 1 pixel with the amplitude >T1 and in T2 they have the amplitude >T2. The image from T2 has interruptions in the frontier but contains less false points. The points from T2 are connected in the contours The tracing of a frontier begins with a point from T2. Points from T2 are connected until it is reached a pixel p which cannot be connected with another point from T2 (it does not have neighbors in T2 on no one of the 2 4 directions). In this moment, within T1, in the environs of 8 pixels of the pixel p, is searched a pixel that can be connected to the contour. It is connected to the frontier points from T1 until we reach to a pixel with a value different from zero in T2 (or we reach to the end of the contour). In this way, we fill in the frontier interruptions from T2 with pixels from T1. The images obtained after applying the Canny filters, image after smooting and image thinning are presented in figure 3. a) b) c) Figure 3. a) The image obtained after applying the Canny filters; b) image after smooting (filling gaps); c) image after thinning Source: Own work using MatLab software 4.2. CONVOLUTION FILTERS The image enhancement techniques are used to refine a given image, in such a way that certain particularities of the image would become more visible or could be detected by the systems of automatic analysis of the images. By enhancing the image, we can notice details that weren t easily noticeable in the initial image (for instance the initial image has too much noise or an deficient contrast). Very often, it is possible that after applying the algorithms of image enhancement to appear undesirable effects, too. The important information that apperade in the initial image can be lost or the enhanced image can turn out to be weaker qualitatively than the initial image. More than that, it is obvious that the enhancement algorithms cannot produce information that don t appear in the input image. We will present a method of image enhancement, more precisely: the noise reduction The noise from teh digital images can be produced by a multitude of sources. The acquisition process of the digital images, that transforms an optical image into a continual electrical signal is a primary process that generates noise. In each step from the acquisition process there are fluctuations caused by natural phenomena and these ones add an aleatory value to the extraction of each value of the luminosity for a given pixel. 161

162 There are two types of pixels: Independent of the image content; Dependent of the image content. An image with a noise independent of the image content can be shaped by: g(x,y) = f(x,y) + n(x,y), where f(x,y) is the input image for the image formation device (real image) and n(x,y) represents the noise independent of the image content, also called additiv noise. If the noise depends on the image content (for instance, monochromatic radiations produced by a surface, that produce wave interferences), the noise can be represented by an unlinear model. Because these mathematical models are more complicated, the noise is considered, if possible, as being independent of the dates (the image content). The mathematical shaping of the noise is useful not only for their reduction but also for the synthesis of some images with typical noise, with the aim to analyse the algorithms of noise filtering. There is a series of modalities to eliminate the noise: By average filter: the average filtering can be obtained by applying a convolution mask with the dimensions (2K+1 X 2L+1), each coefficient having an equal value with the opposite of the total number of coefficients from the kernel. The noise reduction is more significant, the bigger the kernel dimension is [17],[19]; By median filter: this type of filtering does not use convolution masks to obtain filtered images. For each pixel form the input image (m, n) the filtering window is centered and it is calculated the average of the pixels value found within the window, this value becoming the pixel (m, n) from the resulted image. This filter reduces the variation of the intensities from the image, producing regions of constant intensity or almost constant [17],[18]; By the images average: using this type of noise reduction starts from three basic assumptions: That relatively a big number of input images are available; That each input image was affected by the same additive noise; That the additive noise appears aleatory, it has the 0 average and it is independent of the image [17] - [19]. By Gaussian filter: it uses nucleus that represent approximations of the Gauss surface. The operator consists of combining the derivate of two bidimensional images and the filtering to reduce the noise using a Gaussian filter goes down. Advantages of Gaussian filtering [17], [19], [20]: rotationally symmetric (for large filters) ; filter weights decrease monotonically from central peak, giving most weight to central pixels; Simple and intuitive relationship between size of σ and the smoothing; The Gaussian is separable. Advantage of seperability: First convolve the image with a one dimensional horizontal filter; Then convolve the result of the first convolution with a one dimensional vertical filter; For a k k Gaussian filter, 2D convolution requires k 2 operations per pixel; But by using the separable filters, we reduce this to 2k operations per pixel; Convolution of a Gaussian with itself is another Gaussian, so we can first smooth an image with a small Gaussian. Then, we convolve that smoothed image with another small Gaussian and the result is equivalent to smoothing the original image with a larger Gaussian. If we smooth an image with a Gaussian having so σ twice, then we get the same result as smoothing the image with a Gaussian having standard deviation (2σ). For the Sobel filter are realised two convolutions with nucleus form the relation (6). The result of the Sobel operator represents the sum or the maximum of the two convolutions. The first nucleus is used for the horizontal edges, and the second one for the vertical ones. Each nucleus 162

163 corresponds to a derivation on a perpendicular direction on the edge direction. In the same time the Sobel filter has also an effect of noise reduction (in a certain measure) [18], [20] CONVOLUTION OPERATORS The intensity modifications and dicontinuities (amplitude) of an image (digital fingerprint or eye) constitue fundamental features that can indicate objects in the image. These discontinuities are called contours. The application of the convolution operators [21], with their masks, is useful for the processing phase of the images (improvement and restauration of the images). For all the operators below, the intensities are replaced with the sums obtained by the images convolution [21] with the appropriate masks. a) Kirsch operator: 1 H 1, H 2 1 1, H (4) 1 Where H 1 is used to detect the horizontal contours while the masks H 2 and H 3 are used for the vertical contours of the image. H H H H (5) G= max { sum ( H 1 ), sum ( H 2 ), sum ( H 3 ), sum( H 4 )} (6) Advantages: used to detect the edges by calcuating the magnitude of the gradients that have high grades, using eight compass masks on the directions N, NV, V, SV, S, SE, E and NE. Disavantages: It needs more time to calculate the magnitude using the eight masks and it does not respond better than the Sobel and Prewitt operators. b) Laplace operator: H , H (7) where H 2 is the Laplace operator proposed by Prewitt. Advantages: It aproximates the derivatives of the function of the image by differences, calculating the edges magnitudes, using one convolution mask; It is invariable to the rotation, having the same properties in all directions; Disadvantages: it can respond in a double way to certain contours in the image. c) Roberts operator: R=K 1 0 P (8) sum( P) sum( Q) for instance k=7 (9) Advantages: the main advantage of this detector is the simplicity of the calculations: addition and deduction operations with values of only 4 pixels. 163

164 Disadvantages: because it uses a very small nucleus, it is very sensitive to noise. Also, its response to the real frontiers is weak if these do not have a very high intensity. d) Prewitt operator: P 0 0 0, Q 1 0 1, R (10) Prewitt operator resembles to the Sobel operator described below. e) Sobel operator [11]: P 0 0 0, Q (11) R 2 2 sum( P) sum( Q) (12) Advantages: Sobel operator solicitates more calculations than Roberts operator, but its mask of convolution being bigger, it flattens more the image and for this reason it is less sensitive to noise. Examples of Sobel convolution filters applied to the digital fingerprint(after the x direction, after the y direction and after xy direction) are presented in figure 4. a) b) c) Figure 3. Application of the Sobel operator on x direction, on y direction and on xy direction for the test image in figure 1 Source: Own work using MatLab software After the convolution between the nucleus and the given image is realised, we obtain a new improved image CORRELATION BETWEEN TWO SIGNALS It is realised the correlation between the new and the old image. The correlation coefficient is a metric that expresses the similitude (the matching level) between two signals, that s why, it is very often used to search template matchings. The correlation coefficient r of the pair (x, y) is calculated using the following formula: 164

165 r xy n i 1 x 2 i y n n i 1 xi yi xi n i 1 i 1 n i 1 x n i 2 n i 1 n y 2 i i n i 1 y n i 2 (13) The automatic correlation of the images [8] is realised by establishing a geometrical relation between the two images. The optimal method of automatic correlation of the images is chosen depending on type of the parameters of the convolution filters, on the informative content and on the rapport signal/noise. The correlation methods are: The method of sequential detecting of the similarity ; The method of bidimensional correlation; The method of one dimension correlation; The VLL method; The method of the images correlation by identifying the features (it involves reducing the initial dimension of the images by creating image pyramids and then identifying the corresponding points at the highest level of the pyramids). The coefficient between two image segments is determined with the formula: c m n Aij A B ij B i 1 j 1 2 i 1 j 1 i 1 j 1 where: c = the correlation coefficient between the two segments; m= the line number; n= the column number; A, ij m n m n Aij A Bij B B = the value of grey of the point placed on the i line, column j, from segment A, ij respectively B A, B = the average of the grey values from the segment A, respectively B. 5. CONCLUSIONS 2 (14) All the methods presented in this paper refer to the restoration of the degradated images with invariable distorting functions during the translation, using convolution methods. The optimal filter was obtained by applying the convolution filters with different features that, going from the initial image and applying to it different convolution filters, can provide in the output an image the closest possible to the ideal one. The authors have used MatLab software in order to simulate the preseted methods. This software is suitable for image processing tasks, also providing specific functions for image processing and restoration. The main contribution is that the authors have used different filters and operators in order to enhance and restoration of degraded fingerprint images taken from a sensor. 165

166 ACKNOWLEDGMENT This paper was supported by the project "Sustainable performance in doctoral and postdoctoral research - PERFORM - Contract no. POSDRU/159/1.5/S/138963", project co-funded from European Social Fund through Sectorial Operational Program Human Resources REFERENCES [1] Kim, Y.-T., Contrast enhancement using brightness preserving bi histogram equalization, IEEE Trans. Consumer Electronics, vol. 43, no. ac1, pp. 1-8, Feb [2] Wang, Yu, Chen, Q., Zhang, B., Image enhancement based on equal area dualistic sub-image histogram equalization method, IEEE Trans. Consumer Electronics, vol. 45, no. 1, pp , Feb [3] Kim, T.K., Paik, J.K., Kang, B.S., Contrast enhancement system using spatially adaptive histogram equalization with temporal filtering, IEEE Trans. Consumer Electronics, vol. 44, no. 1, pp , Feb [4] Chen, S.D., Ramli, A.R., Contrast enhancement using recursive mean-separate histogram equalization for scalable brightness preservation, IEEE Trans. Consumer Electronics, vol. 49, no. 4, pp , Nov [5] Wang, Q., Ward, R. K., Fast image/video contrast enhancement based on weighted threshold histogram equalization, IEEE Trans. Consumer Electronics, vol. 53, no. 2, pp , May [6] Yoon, H., Han, Y., Hahn, H., Image contrast enhancement based sub histogram equalization technique without over-equalized noise, International conference on control, automation and system engineering, pp , [7] Buzuloiu, V., Ciuc, M., Rangayyan, R. M., Vertan, C., Adaptive neighborhood histogram equalization of color images, Journal of Electron Imaging, vol. 10, no. 2, pp , [8] Naik, S.K., Murthy, C.A., Hue-preserving color image enhancement without gamut problem, IEEE Trans. on image processing, vol. 12, no. 12, pp , Dec [9] Tao, L., Asari, V.K., Adaptive and integrated neighborhood dependent approach for nonlinear enhancement of color images, Journal of Electron Imaging, vol. 14, no. 4, pp , Dec [10] Menotti, D., Najman, L., Facon, J., de A. Araújo, A., Multi-Histogram Equalization Methods for Contrast Enhancement and Brightness Preserving, IEEE Transactions on Consumer Electronics, Vol. 53, pp , August [11] Russ, J.C., Image Processing Handbook, CRC Press, Boca Raton, FL., [12] Umbaugh, S.E., Computer Vision & Image Processing, Prentice Hall PTR, [13] Lucchese, L., Mitra, S.K., Mukhrjee, J., A new algorithm based on saturation and desaturation in the xychromaticity diagram for enhancement and re-rendition of color images, 8th IEEE conference on imageprocessing, pp , Oct [14] Pratt, W.K., Digital Iamge Processing, John Wiley &Sons, 1994 [15] FVC 2004: the Second International Fingerprint Verification Competition, [16] CASIA 2004, [17] Elgammal, A., Digital Imaging and Multimedia, Dept. of Computer Science, Rutgers University, 2013 [18] Gonzales, R.C., Woods, R.E., Digital Image Processing, Prentice Hall, 2008 [19] Larsen, M., Image analysis, session 2, Filtering and noise reduction, 2010, University of Copenhagen [20] Kim, S., Applications of Convolution in Image Processing with Matlab, University of Whashington, August 20, 2013 [21] Moldoveanu, F., Tehnici de imbunatatire si restaurare a imaginilor, Bucuresti 2013 [22] Canny, J., A computational approach to edge detection, IEEE Transactions on Pattern Analysis and Machine Intelligence, PAMI-8(6): , Nov

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168 The USV Annals of Economics and Public Administration Volume 14, Issue 2(20), 2014 PARALLEL HYBRID METHODS USED IN OPTIMIZATION PROBLEMS SOLVING Lecturer PhD Ionut BALAN Ştefan cel Mare University of Suceava, Romania Faculty of Economic Sciences and Public Administration Abstract: This paper presents different models of hybrid algorithms that can be run on parallel architectures being used in optimization problems solving. In these models we used several techniques: genetic algorithms, ant colony and tabu search. Optimization problems can achieve a high degree of complexity, which is the main reason for the necessity of using of these methods in such incursions. With their cooperation, we tried to obtain satisfactory results in much better running time than the sequential versions. These models have been run using various parallel configurations on a cluster cores, which belong to Stefan cel Mare University. The results obtained for these models were compared with each other and with the results obtained for models described in other personal papers. The paper highlights the advantages of the parallel hybrid cooperation in solving of complex optimization problems. This paper is structured in four chapters: Introduction, Cooperative heterogeneous model, Cooperative hybrid models and Conclusions. Key words: parallel, optimization, hybrid, tabu search, genetic algorithm,ant colony JEL classification: C61, C63 INTRODUCTION The optimization theory is the mathematical study of a given problem, within we seek a maximum or minimum value for an objective-based function in a given area. This involves the process of searching a possible solution to the problem studied properties and aspects of the algorithm aimed to be solved. The importance of studying the theory of optimization has grown with time. This was due, in particular, to many areas in which it operates, including applied mathematics, computer science, engineering, economics, etc. Among several methods used in optimization, the population-based methods provide the greatest degree of competition, thus a high number of evaluations of the objective-based function can be achieved in parallel in order to obtain desired solutions after going through a number of generations (LEWIS,2004). The emergence of these methods has been imposed by computational limitations that were impossible to solve optimization problems in the real world using conventional methods. The population-based methods involve a large number of evaluations of the objective-based function, providing solutions in every generation. A particular set of these methods is the one related to evolutional computation, which aims to use natural processes insight in solving certain computational problems. The evolutional algorithms are divided into three major classes (LEWIS,2004): genetic algorithms, evolutional strategies and evolutional programming. The genetic algorithms are commonly used in solving engineering problems, but not only (they can solve economic problems, etc). They can be easily parallelized, with a high probability of convergence. Within the genetic algorithms (ZAHARIE,2004), population is represented by states from the problem space, states which representing potential solutions of the problem. Normally, population elements are binary coded. The main operator is the crossover operator, the mutation having a secondary role. Genetic algorithms were introduced by Holland (1960), initially as models for evolution of natural systems, or their adaptation to the environment. It was later proved to be effective models of computation, especially in solving combinatorial optimization problems. 168

169 With regard to the parallel implementations of these methods, there has been a lot of research in the field, in order to obtain satisfactory results. However, we cannot consider this area a closed chapter. Using evolutionary algorithms for solving optimization problems derives from using of population on these methods, concept useful in obtaining sets of solutions to the problem to be optimized. We can obtain a hybrid algorithm by combining of the deterministic techniques, heuristics, or a these two techniques between them. In this way we can solve optimization problems achieving superior results compared with other techniques. Usability of such algorithms has increased in recent years, primarily, because it has proven to be an accessible technique that gave superior results for a wide range of optimization problems. (TANTAR, 2007 and LIEFOOGHE, 2010) This paper is divided into the following parts: Introduction, Cooperative heterogeneous model, Cooperative hybrid model, Conclusions and References. In this paper there are treated three techniques very popular in recent years: genetic algorithms, ant colony and tabu search. After Introduction, where we present the necessity of this methods usage for optimization problems, in next chapters, there are taken results for this methods, runed in different configurations, on different architectures. Results obtained had the same input data (DD_SDST50_ta058) (SYSTEMAS, 2011). The input data are related to flow-shop scheduling problems, where are made the scheduling of 50 processes on 20 resources. All the results were obtained by running the algorithms in the configurations described, on nodes being part of the IBM RoadRunner architecture from Stefan cel Mare University. This architecture use IBM PowerXCell 8i procesors having a real computing power of 6.45 TFlops in double precision and a total storage capacity of 6936 TB ALGORITHM PARALLELIZATION The model used for the parallelization of the evolutionary algorithm is the island model (LIEFOOGHE, 2010), where the population is divided into several subpopulations which are distributed to several processors. Each processor is responsible for the evolution of each subpopulation, performing all the steps of the metaheuristic. After a predetermined number of steps (in a synchronous communication), or when it is reached a certain threshold (asynchronous communication) it is activated the migration process. As a result of this process, the received individuals are integrated into local populations, helping the populations from the next generations to improve the solution (BALAN, 2012). The methods described in this paper were run, several times, respecting multiple configuration. Thus, there were run, several times, sequentially and respecting the island model for two and four nodes. Number of runs for each studied variant was 5, among the results that have some degree of significance were the maximum and minimum values obtained, the mean and the median. Each of them, taken separately, have a degree of importance for the studied problem. The number of runs higher than 1 is recommended due to the random behaviour met in those two methods, which lead to different results, obtained after each new run, so the mean and/or the median of the obtained results can be considered references in the caracterization of the solutions. Being solved the same problem, but using different techniques (genetic algorithms and ant colony), to establish certain parameters, we took into acount the ability of these methods to work with populations, that are actually points in the search space, populations that can evolve over a number of generations. In this case, the number of generations for each trial was predetermined, being equal to 200. For those two methods, which are working with populations, the number of individuals involved in evolution from each population is 25, this thing, besides the one related to the number of generations, making it possible to explore spaces of solutions identical in size. This was set to start from a common point for the methods that solve the considered problem (BALAN, 2012). The number of mutations and cross-overs for the genetic algorithm depends on the number of individuals from the population. In all variants studied these two numbers are identical, for 25 individuals we have three cross-over (number calculated as integer value of (1+nrindividuals/10)) 169

170 and the number of mutations will be 7 (integer value for (1+nrindividuals/4)). Regarding to the individuals selection method (individuals on which genetic operators will be apllied), for sequential and island variants on two and four nodes, are used the best 50% of the chromosomes, depending by the fitness function. In the integration of the new chromosomes in the population, for the crossover operator, if the resulted chromosome is superior to the weakest solution from the population, the second one will be replaced, if not, nothing will happen. Similar behaviour occurs for the mutation operator. For the parallel versions we are dealing with specific issues, so to enable the information exchange, we considered that it is preferable the migration of only one chromosome, represented by the best solution from the population in terms of objective value, which is currently transferred by each node at defined intervals, for five times during the application execution. Weakest individuals from the current population are replaced by these new arrivals. As stated in (BALAN, 2012), for the ant colony, certain characteristics must be specified. Thus, an important issue is to select the routes for this type of algorithm. The first location of each route of ant colony is generated randomly. For the next points of the route, from the pheromone matrix are selected top five values and their corresponding points. The next step is the calculation of the pheromone intensity from each of these five points to the points that are already in the route. Finally, it is selected the point which has the maximum level of intesity. They also use calculations to find the point which should be in the route, before the existing points (LI, 2011). Regarding the update process for the pheromone matrix, any of those generated individuals leads to a increasing of the intensity for that route, while the influence of the elite is higher (a five times multiplication for the route). Also, at every generation there is a pheromone evaporation (in our case it is halved). With regard to the communications between nodes, for ant colony, the elite migrate, the number of tranfers being identical to that found in the genetic algorithm described above. Using this techniques, and a deterministic method, in the next chapters I present five models, with some differences between them and reasons for their results. COOPERATIVE HETEROGENEOUS MODEL A first suggested model is presented in figure no. 1. In this model we can see that the second algorithm (GA), being faster, has lower runtime than the first algorithm (ANT). This is due to the number of iterations equal met in the case of both algorithms. 0 0 AG AG T2,n ANT ANT Comunications T1,n T1>T2 T1-runtime for ant colony(ant) T2-runtime for genetic algorithm (GA) n-number of generations for ANT and AG Figure 1. Heterogeneous parallel model with a fixed number of iterations without Idle state on nodes 170

171 Returning to communications, we can see some differences in comparison with the models described in (BALAN,2012) and (BALAN,2013): The processes corresponding to slow algorithm communicate with each other at predetermined intervals (in this case after a number of iterations); The processes corresponding to fast algorithm communicates as well at predetermined intervals. The number of iterations is taken as communication reference, and this algorithm is faster than the previous one, we can conclude that the timing of communication in this class of algorithms do not coincide with moments of communication found in the first case; The communication between nodes running different algorithms is one-way communication, the information is transmitted only in one direction: from fast algorithm to slow algorithm. Say that in this case, even if the information is sent by the fast process at a time that would coincide with the initialization of the slow process due to the use of non-blocking messages, they can reach their destination at certain time intervals, without damaging undesirably the running of a participant process to obtain the final results. Basically, in the above mentioned model the genetic algorithms cooperate between them, without being influenced by the ant colony. However, the ant colony even if it has a cooperative connection with some other processes that solve the same algorithm, it can receive influences from genetic algorithms, within well-established time intervals. In contrast to the above quoted models, in this case the total flow of information transfer is low and can be calculated with the expression no.1. N com size ( size 1) size ( size 1) size size [1] ANT ANT The entire time (cost) of data processing on all nodes will be: C size T size T [2] Total ANT 1 AG 2 AG The results obtained using this configuration are lower than the models presented in (BALAN,2012) and (BALAN,2013). The causes for these results are: In the model from figure no. 1. we only have communication from AG to ANT, and these items passed from AG to ANT are obtained only from a strong collaboration between AG's, unlike the cases found in the quoted sources, where we have ANT influences; In the figure no. 1. we may note that the number of generations is sharply lower than the asyncron model of (BALAN,2013), and thus resulting a much weaker trend. Another suggested model is presented in figure no. 2. Between this model and the one presented above there are some similarities, among which we might include the running time for each algorithm on the corresponding node and the direction of communication. The difference between the two models is given by moments of the data sending from the AG to the ANT. These take place without delay, so that the slow algorithm will have influences from AG at the beginning of the evolution. This behavior will lead to achieving poorer results than previous cases presented. AG ANT AG 171

172 0 AG 0 AG T2,n ANT ANT T1,n T1>T2 T1-runtime for ant colony(ant) T2-runtime for AG n-number of generations Figure 2. Heterogeneous model with blocking communication from fast algorithm COOPERATIVE HYBRID MODEL One of the most common features in the above described models is the interruption of the fast process while other processes run all kind of operations. This could be considered a problem in some cases. Using models like those from figures 3. and 4. I m trying to remove this possible problem. In the case of the hybrid model based on cooperation and diffusion, with a non-blocking communication from the AG, we are dealing with the same type of communication as that encountered in the model from figure no. 1. This distinction is given by the process that dealt with solving the algorithm with less effort. Thus, this process will inform the slow process that it is approaching its last calculations; therefore the slow process will try dividing its task into two main activities. Due to its random nature it is impossible to share the task of a process between two processes. In this case, after running the algorithm AG, the ANT process shall send the pheromone matrix in each generation towards the uneven node. It is observed that data diffusion takes place between nodes, two by two, so we recommend using an even number of processes. After data transfer, both the master and the slave process will try to work with an equal number of items. Both processes will follow the specific steps of the algorithm, so that, towards the end of the generation, to make possible the transfer of pheromone matrix in reverse, from the AG to the ANT (from slave to master). All these operations will be performed until the exhaustion of the generations. During its evolution, even if the fast process finished long before the transfer to the slow operations, the data is set so as to arrive at certain pre-set generation. The results in this case are comparable to those of the model from Figure no. 1. Regarding the entire number of streams of transferred data, this model is superior to all other models, because in this case, in addition to transfers representing the best item of a certain generation, obtained by using an algorithm; it has also transfers of pheromone matrix. The number of transfers of the matrix in a single direction may be even equal to the number of generations within the slow algorithm. The total cost of data processing on all nodes can be expressed by expression 4. (Ideally, the slow process tasks are divided equally between the master and slave process): size ( T T ) / 2 size T size T size ( T T ) / 2 [3] CTotal ANT 1 2 ANT 2 AG 2 AG

173 C Total T / 2 T / 2) ( size size ) [4] ( 1 2 ANT AG In the case of architecture with only two processes we shall have: C Total T T ) [5] ( 1 2 ANT 0 0 Comunications AG ANT Pheromones T2,n ANT AG T1,n T1>T2 T1-runtime for ant colony(ant) T2-runtime for AG n -number of generations Figure 3. Cooperative diffuse hybrid model, with non-blocking communication from AG A similar model to that of figure no. 3. is presented in figure no. 4. The starting point for this model was the heterogeneous model with blocking communication from fast algorithm shown in figure no. 2. In this case the process is similar to the behavior of the hybrid model based on cooperative and diffusion with non-blocking communication from fast algorithm. In comparison to this, we have blocking communications, which are made at the beginning of the slow process, trying to avoid blocking the standby state. The results in this case are comparable to those of the model from figure no. 2, and in terms of the total number of streams of data transfer, it is equal to that of the hybrid model shown in figure no. 3. The entire cost of data processing on all nodes can be expressed, in this case, in the expression no. 4. ANT 0 Comunications 0 AG T2,n ANT Pheromones ANT AG T1,n T1>T2 T1-runtime for ant colony(ant) T2-runtime for AG n -number of generations Figure 4. Cooperative diffuse hybrid model, with blocking communication from AG Figure no. 5. illustrates the total costs for the last four models discussed. Gain is observed for the hybrid method based on cooperation and diffusion. And in terms of execution time we can observe that the last two methods are executed in a short time. 173

174 Runtime (sec) Fig1 Fig2 Fig3 Fig4 AG ANT Figure 5. Costs of execution of different cooperative models The heterogeneous model with blocking communications from fast algorithm has the same cost and the same number of streams transmitted as in the case of the model from figure no. 1. The only gains made by these two models are included in Runtime, and this can be a starting step in approaching other models. Another method that leads to satisfactory results, even quite good results in reducing the standby time corresponding state on the node running the fast algorithm, would be the hybridization of this algorithm by introducing local search techniques. Such type of a technique is represented by Tabu Search (TS) (PARARACH,2011). The model obtained in this way has been illustrated in Figure no Idle Comunications AG ANT TS Idle T1,n T1=T2 T1-runtime for ant colony(ant) T2-runtime for AG and TS n-number of generations T2,n Figure 6. Hybrid cooperative model ANT-AG-TS for flow-shop scheduling problem The model presented here is characterized by the presence of blocking transmissions of data between processes, which determines a reduction of time wasted by the processes in standby, especially because the newly introduced technique does not cover the whole time. The introduction of local search techniques can improve results for a specific problem. In our case, this improvement took place, and in figure no. 7., I present these results, making a comparison with those obtained in synchronous and asynchronous version of (BALAN,2013). These comparisons were made for the following reasons: 174

175 in the case of the synchronous variant - we are dealing with similar architectural model and the distinction constitutes the presence of TS before transfers of data; in the case of the asynchronous variant - fast processes are dealing with many more operations than synchronous fct1 (sec) ANT-AG-TS ANT-AG synchronous ANT-AG asynchronous Median Maximum Minimum Average Figure 7. Results obtained for flow-shop scheduling problem in hybrid version ANT-AG- Tabu Search CONCLUSIONS Two different techniques can cooperate with each other in order to determine an optimal solution within a given problem. To strengthen this claim we tried to use in this paper two different algorithms (ANT and AG). In addition, a simple method of cooperation could be obtained by using an island model, a model that enables collaboration between all processes that are executed. A first problem that may be encountered in such cooperation process is the standby times, specific to fast execution processes. This leads to a cost (total time) big enough for all the processes that contribute to the final result. A solution that leads to a significant reduction of standby times consists of a continuous execution of the fast process, stopping during data transfers and slow process interruption. In this case it comes to delivering better results superior to simple island models, to the entire exclusion of the standby times specific to fast processes, but instead, the cost of processing remains quite high. In order to reduce costs, there were suggested two parallel models to communications only from fast algorithm to slow algorithm. In these cases, because the faster algorithm should not expect information from slow algorithm, the algorithm can terminate the corresponding first predetermined time (a fixed number of generations). Thus, apart from reducing costs it can be excluded the standby time, but the results obtained are not as good as in the previous cases. In order to reduce the total cost related to a problem by keeping the size of the search space specific to each algorithm, it may direct the tasks associated to slow algorithm towards a much faster algorithm. In this way they will get better results in a short time and the costs can be considered satisfactory. Similarly, as in the case of algorithms using message cooperation blockers, it may use the techniques for reducing standby times specific to fast processes. The suggested solution in this case includes a local search technique (Tabu Search), the results are superior to other methods, but the final cost is higher than those of other models. 175

176 Thus, by using heterogeneous cooperative parallel models, it can be achieved satisfactory results in a fairly small period of time, for any problem whose solution requires large computing power. REFERENCES [1] Balan, I., A Parallel Hybrid Cooperative Model for Optimization Problems Solving, International Journal of Academic Research, Baku, Azerbaijan, iulie 2012, ISSN , p [2] Balan, I., ş.a., - Parallel cooperative models for optimization problems, Journal of Applied Computer Science & Mathematics, nr.14, 2013 [3] Lewis, A., - Parallel Optimisation Algorithms for Continuous Non-Linear Numerical Simulations, School of Computing and Information Technology, Grifftih University, Nathan Campus, Brisbane, Australia, thesis, 2004 [4] Li, B., ş.a., - Communication latency tolerant parallel algorithm for particle swarm optimization, Parallel Computing, Vol. 37, nr.1, p.1-10, 2011 [5] Liefooghe, A., ş.a., - A software framework based on a conceptual unified model for evolutionary multiobjective optimization: ParadisEO-MOEO, European Journal of Operational Research, Elsevier, 2010 [6] Pararach, S., - A tabu search approach for makespan minimization in a permutation flow shop sheduling problems, Proceedings of the 2011 International Conference on Industrial Engineering and Operations Management, Kuala Lumpur, Malaezia, p , 2011 [7] Sistemas de Optimizacion Aplicada, September 2011 [8] Tantar, A.A., ş.a., - A parallel hybrid genetic algorithm for protein structure prediction on the computational grid, Future Generation Computers Systems, vol.23, nr.3, p , 2007 [9] Zaharie, D., - Calcul neural şi calcul evolutiv, Universitatea de Vest Timişoara,

177 The USV Annals of Economics and Public Administration Volume 14, Issue 2(20), 2014 SECTION 5 LAW AND PUBLIC ADMINISTRATION 177

178 The USV Annals of Economics and Public Administration Volume 14, Issue 2(20), 2014 REFORMING THE CIVIL STATUS OF A PERSON IN THE ROMANIAN CIVIL LAW Professor PhD Elena IFTIME Ştefan cel Mare University of Suceava, Romania elenai@seap.usv.ro Abstract: I tackle in the pages of this paper, a theme that is essential for the legal life, because it refers to the human dimension of these and is at the essence of the law to prescribe human behavior. We insist upon the legal condition of a person, as it has evolved in time reflected in the legal rules, with roots which go down to the Roman law. Of course, after a retrospective look at the institution of a person, seen individually or as participant to a collective matter of law, we will anchor at the shore of the current legal Romanian realities which are marked by the recent regulations of civil law or of civil procedure. I answer thus, to the actual acute need of careful and meticulous analysis of the new regulations compared with the old one, in order to discern the dimensions of the private civil law, for persons in particular. In the light of the monistic conception upon the regulations of relations in the sphere of the private life, we try to identify the innovations which give shape and precision to the reform of this field, meant to face the internal challenges or the international ones. We bring into discussion the two dimensions of the legal status of a person: the internal dimension, supported y the national standards and the international dimension drawn by regulations which is addressed to the relations with foreign elements. Key words: civil status, person, legal capacity JEL classification: K 10 I. THE PERSON IN THE ROMANIAN CIVIL LAW A. Conceptual explanations The entry into force of the new legal regulations, especially in the sphere of the civil right (substantive and procedural), introduced us in the ambience of a genuine reform by recoding, particularly in what concerns the overall conception upon the unitary regulation of the private law relations [8-9]. For reasons of post modernization and globalization, taking into account the significant changes which took place in the legal rules of the social dynamism, has been imposed a reassessment and resize of the traditional legal institutions on which are constituted the theory and practice of the civil law and continuing with family life, business, labor reports and those with foreign elements. B. Outlining the legal condition of a person This reality calls to a comparative analysis of the new provisions with the old ones, to discern the area of the civil law in the sphere of privacy. It is interesting though, to identify the inclination of the current legislature toward conservatism or novation, in other words, if overall the regulations of the private life represent a breakthrough offering a chance to reform the field so as to face the challenges of internal order or international circumstances. In the light of the proposed objectives, the current study focuses on the legal condition of a person, as it evolved in time, reflected by the regulations with roots down to the Roman law. The most important specific prior regulations are those provided by the Civil Code and his special regulations which completed, modified and updated it. Therefore in order to provide a precise, correct and complete contour of the legal person s condition, are necessary some explanations regarding the concepts with which we work: the person in the civil law, the monistic conception, the common core of the civil right regulations belonging to the other areas of privacy. 178

179 The concept of person comes from the Latin persona and meant in the old days, a mask wore by the ancient actor on the stage. Put in the theory and practice of the law, this word suggest the participation of the man as an actor on the stage of the social and legal realities, either individually or as a participant to a collective subject of law. The person is an ubiquitous entity in the entire legal system, although took a more pronounced contours in the civil law. There is no area of the legal life and branch of public or private law, in which the legal or natural person to not represent the human support (individually or collective), of the multiple and various legal relationships. Of course, each of the reminded branches, subjects of law, embodied by persons bear the specific imprint upon the relations of law, civil law, providing the mutual fund in regulating this institution. From here appears the need of a careful, thorough analysis of the new regulations concerning the person, strongly marked by the monistic conception on the regulation concerning the private life. Looking back firstly at the provisions of the old Civil Code with an impact on the legal status of a person, we note that that this provided a fragmentary and incomplete regulation of the person s institution. In its original version, the old Civil Code contained some depositions concerning more the natural person, in the Book I About People. The legal person had some summary and sporadic regulations such as those on the social contract. One explanation would come from the fact that the French Civil Code of 1804 which served as a primary source of inspiration for the Romanian Civil Code, the legal person was neglected. Therefore, was necessary a legislation which to detail the aspects which shape the legal status of a person, analyzed individually or as a collective subject of law [1-5]. This explains the abundance of regulation from the year 1954 concerning the natural and legal persons. Among them are particularly relevant the normative acts which developed the problems outlined in the Book I of the Civil Code of It is about the systematization in a Family Code, of the legal norms which regulated the relations from the sphere of family life. In addition to other issues aiming the legal and natural person, was adopted the Decree no.32/1954 on natural and legal persons. Both laws were enacted by the Decree 32/1954. Valorizing the previous regulations, and the positive or negative doctrinaire opinions concerning the subjects of Civil law, the new Civil Code accorded the two law subjects a common fund of regulations in a special title (Title I, Book I About people ). For the first time, the two subjects of civil law receive legal definitions taken from the specialized literature. The natural person is defined as the man seen individual, as a holder of rights and civil obligations (art.25. al.1), and the concept of legal person is any other form of organization, which meeting the conditions required by law, is a holder of civil rights and obligations. (art. 25. al. 2). Likewise, the new Civil Code, through Book II (art ), abandons the regulatory solution in a new Code in the sphere of family life (as in the old regulation). In this way, it comes back to the previous law of year 1954 of regulating the vast majority of the matters concerning the family in the new Civil Code. As for the old institutions, related to the relations concerning the person and family relations, restructured in a revised logic, were added inexistent institutions in the old Code of the family or in the special regulations aiming the person, such as: family home institution, the engagement institution, matrimonial choice, divorce by mutual consent, etc. The features which define the new Civil Code addressed to this area are: the coherence, simplicity and logic with which are based the main institutions regarding the status of a person and family life. The restructuring and relocation of the matter was made by capitalizing the regulations, of the doctrine and previous practice through some loans from certain foreign regulations which served as sourced of inspiration and by updating some traditional Romanian institutions, harmonized with the international rules of the analyzed field. 179

180 To those outlined above, it can be concluded that the monistic theory which attempts to assure a unitary character of the private law, does not have such a massive impact in what concerns the legal relations concerning the persons and family life, which were separate once and are now reintegrated in the new Civil Code, redesigned, restored on the foundations deeply rooted in the realities of the present. By comparison, the monistic conception is more visible where apparently or even succeeded to mark an end of the dualism between the commercial and civil law, in the evolution of the Romanian legal system [3]. What should be noticed about restoring to source of the regulations concerning the persons and the family relations is a different situation of these regulations towards the norms of commercial law. These later regulations were subjected to a separate treatment, while the persons and family relationships became subject to some norms from a common core with the civil law. Moreover, during the communist regime, the norms of the Commercial Code and in general, in the legislation of this kind, have resisted those provisions which have not contradicted the existing political order. The norms concerning the persons and the family relationships were fundamentally reconsidered, Book I of the old Civil Code being replaced with the legislation of the year 1954 to which we referred above. We cannot conclude this summary, regarding the impact of the monistic theory upon the persons and family relationships, without noticing that for the persons and family relationships the new Civil Code provides fewer aspects for the natural person and more for the legal person, such as: the companies, the insurance companies, the credit institutions, the national companies, the corporate companies, etc. C. Human personality and civil legal capacity As I said above, subjects of the reports of civil relations can only be the people as individuals or as a community. But the people can t become subjects of law unless the state recognizes this quality by proper legal regulations. Through the norms enacted in this regard, the state recognizes to the persons a general and abstract ability to acquire rights and to assume obligations through the legal reports to which are subjected. It is shaped, the legal personality whether we consider the individual human or the collective subject of law. After a principle universally accepted, the legal personality is recognized to every human being on the planet, at least from the modern times, since this principle was correlated with the proclaiming of the judicial equality of all individuals, often contradicted by the social realities of life and even some regulations. In relation to the generality of legal personality, it should be added that this is independent by the level of bio-psychical development, by the degree of maturity or acquiring a life experience (especially legal). Therefore, certain categories of persons, although don t have the capacity to exercise their rights are related to legal personality. It highlights thus, the correlation between the legal personality and the legal capacity of a person. If the legal person states (admits) a general ability to participate to the legal relationships in this area, the capacity specifies for everyone the conditions of this [4]. From those outlined above, can be identified several principles that we name, because these will be treated in a separate study. It is about the principles which govern the legal personality of the man and his legal capacity, namely: the principle of judicial civil legality, the generality principle of civil legal capacity, the principle of inalienable civil capacity; the principle of civil inviolability; the principle of equal civil capacity; the universality civil capacity principle. D. The condition of the person in civil relations with foreign elements. We cannot end this process on the legal status of a person without offering some explanations related to the condition of the person in private international law, based on the specific of this branch. 180

181 In essence, the private international law is a branch of the Romanian legal system, which regulates the relations of civil law, which include a foreign element. As shown, what can be removed from the old regulation and also from the content of the new Civil Code with foreign elements, the international private law contains rules governing the not only the civil law relationships but also relations from other branches of law belonging to this, and which are coming back to the new Civil Code greatly improved (quantitative and especially qualitative). We consider: family law, commercial law to some extent labor law, the regulations concerning the persons. In connection with the return to the source the question arose, whether incorporation of the regulations of international private law in the new Civil Code, marks the loss of independence gained once or by this was realized a reform or just an update of the existent private international law. The life and the judicial practice will offer in time a clear answer. In what concerns us, we choose the option of review on behalf of modernization of the existing international law. In the context in which we took into account the reports of civil law, broadly, these have in common the foreign element of whose presence removes those legal reports from the incidence of the internal law, in order to obey them so some principles of private international law. I made these preliminary details because the status of a person in the private international law bears the mark of this branch of law that covers relations of civil right with foreign elements. These elements clearly separate the intern law (traditional or broadly seen) by the civil right with foreign elements. While under civil law are only the internal relations with patrimonial or nonpatrimonial, in which the subjects are on equal foot, under the incidence of the private international law are general relations of civil law, marked by the presence of the foreign element. The siege of the regulation for a person in the private international law is currently in the Book VII of the new Civil Code entitled Provisions of Private International Law. Title II of this book is suggestively entitled Conflicts of Law and contains a chapter dedicated to persons. As in the internal law, also in the private international law the concept as such covers both the human being as an individual subject of law and also the legal person which falls within the broader area of the notion of collective law [7]. The proofs in this way are the provisions art (concerning the natural person) and the art (regarding the legal person). Both categories of persons are subjected in the same way to the subjects of internal civil law, to an essential condition, the presence of the civil legal capacity through which also in the private international law, to the persons is recognized by law the status of subject with rights and obligations. What differs from the solutions offered by the national regulations is the specific manners to designate the applicable law, which cannot be indicated by the material or conflicting, law of a state to which the legal relationship is connected. Because the presence of a foreign element or elements puts the legal relation in connection with different systems, this thing which can generate a conflict between laws. Each of the regulations in connection with this report can express its current vocation to regulate that report, so including the condition of person-subject expressed by the private international law. The solving of such law conflicts can be made by juridical norms adopted by each state separately. These can be norms of material law, which provide specific solutions, direct, to the problems taken into question or can be conflicting norms which don t provide any solutions but only send to another law system which can be identified as solutions. Regarding the legal status of a person, the new Civil Code as in the previous regulations, contains both material and conflicting norms. The need of a comparative presentation of the new regulations with the old ones sends us to the old Civil Code which in the matter under discussion included fewer regulations. A single item the art. 2 served as a source of regulation of the relations of private international law. We are interested in the legal status of a person, especially the paragraph 2 of this article which stated that the relative laws for the status and capacity of persons are pursuing the Romanians, even if they have the residence abroad. The evolution of these regulations concerning the person in the private international law demonstrates that in this matter the legislative background was generally poorer than in other branches of law. The solving of such conflicts of laws had as armor the legal doctrine and the judicial practice which sustained strongly 181

182 the development of some new Romanian special regulations [2]. The efforts of the Romanian legislator materialized by adopting the law no. 105/1992 concerning the relations of the private international law, the person s condition being one of this regulation. But the mentioned law had another meaning that of the proclamation of independence of this law branch. Currently, following the monistic conception on the regulation of monistic conception of private life, the norms of the private international law are returning to the new Civil Code, revised, and reformed in report with the new Romanian realities. [3-6] As for the person, the new Civil Code contains both material and conflicting regulations. For example we mention the art which concerns the status and capacity of the natural person and states as applicable the national law, whether through special provisions is not stated otherwise. The national is applicable in the organic status of a legal person. In what concerns the natural person, the field of application of the national law is defined by express regulations concerning: the beginning and end of personality (art.2573); judicial declaration of death (art. 2574); acquiring the coming of age (art.2575); the name (art. 2576); inherent human rights (art.2577); the protection of the adult (art. 2578); protecting others (art. 2579). Similarly, the field of application of the national law, in the case of the organic status of a legal person is indicated by the art which states: the ability of a legal person; the acquiring mode and loss of the associate status; the rights and obligations which are for the status of associate; the election; the competences and the functioning of the governing bodies of the legal person; its representation through their own authorities; the liability of a legal person and her bodies towards a third party; the modification of the constitutive acts; the dissolution of a legal person. As for the recognition of a foreign legal person, the new Civil Code distinguishes between those people who have a profit or non-profit purpose. The foreign legal person with lucrative purpose is recognized in Romania without any formalities. The imposed condition is that in the country of origin to have been legally established. However, the recognition of the non-profit legal entities is made by court order, with the approval of the Government. In addition to this must be met the following requirements: the persons to be valid constituted, according to the national laws, their purpose is to not contravene to the social and economical order of Romania; under the condition of reciprocity, the State whose nationality has the legal person to recognize in the same conditions the legal persons of Romanian nationality without non profit purpose. Of course, must be respected the conditions of publicity of the judgment decision and namely the publication in the Official Gazette of Romania, and in a newspaper of wide circulation, with the possibility of exercising the appeal. II. CONCLUSIONS The limited space of this article made us to just outline the legal status of a person, as it is outlined in the light of the recent regulations of civil and international law (including the European Community law). I could see the print of a genuine reform by recoding, particularly on the overall conception of the unitary regulation of the relations of private international law. In this overall effort has been enrolled the reassessment and resizing of the person institution in the Romanian civil law analyzed as an individual subject or as a collective subject of civil law. We took into account the fact that the person, as it has been presented above, represents the human support of the all law branches in which appear, are modifying, are transmitted or shut down legal reports. However, it must be noted a legal regime of the person, more clearly pronounced in the civil law. Therefore, the person theory from the civil right is constituted in a common source for the law theories, which bear the print of the social relations of regulation of the intern or international law. That is why anytime an aspect or another is related to the status of law, in a certain branch it is deprived by the legal support or the regulation is incomplete or obscure, the civil right will provide the solution. Regardless the branch of law to which we relate the discussion and regardless of the person type the condition which is imposed for the participation to the legal life, is the presence of the legal 182

183 ability as an expression of the legal personality. Under this aspect, the civil right presents some specific notes, in particular for the principle civil legal capacity, which should be interpreted separately as they apply to the legal or natural person. Also the civil legal capacity as an attribute of the human being cannot form an object of some papers of alienation or waiver from its owner. It can be restricted just in the cases prescribed by law. Speaking of the person as the subject of civil law, I considered necessary to point out the most important features conferred by the presence of the extraneous elements in relation to which this arise. Of course, in these situations the subjects of law will be embodied by the legal and natural persons. But the regulations which govern the state are identified based on some principles of private international law which took shape in the practice of the international life and then appeared in the internal laws of the states, special regulations or in the Civil Code ( such as Romania). Whatever the core for regulating status of a person, in the right of the private international law, the legal condition is that this is subjected to a dualism of legal sources: rules of material law and norms of conflicting law. ENDNOTES (1) The fundamental source of the material civil law is the new Civil Code, has entered into force on first October (2) The civil procedural law was reformed by adopting the new Civil Code of Procedure, which entered into force on 15 February (3) For details on the status of the person in the Roman law, see M. V. Jakotă,,edit. Fundaţiei Chemarea, Iaşi 1993, p.72 şi urm. (4) Please note that currently, the French law regulates a wide range of persons called I the French terminology moral persons. (5) For the newer regulations of the legal status of a person see, G. Boroi, Drept civil. Partea generală, Edit. Hamangiu, Bucureşti, 2010, p.346 (6) If we refer to the Civil Code of 1864 we can t notice that on one side it proclaims the equality of humans before the law and on the other side it consecrates an inferior status of the woman to a man, of the worker to the employer or of the child to a parent. In time these inequities have been corrected so that now, the principle of equality in front of this civil law has a full legislative support and application in practice. For details see, G. Boroi, Drept civil. Partea generală. Persoanele, ed. a 4-a revizuită şi adăigită, Edit. Hamangiu, Bucureşti, 2010, p.400 (7) Elena Iftime, Teoria generală a dreptului, Edit. didactică și pedagogică, Buc P, 240.In the same context, must be distinguished the legal personality from the legal person. If the legal personality expresses vocation to be a subject of law, recognized by the legal persons and by the natural ones, the concept of legal person designates one of the species of persons, respectively the collective subject of law which has a certain form of organization and meets the conditions required by law, in order to have the rights and civil obligations. G. Boroi, op cit., Bucureşti, 2010, p.398. (8) The concept of legal person does not covers the whole collective participation to the legal life. For more details see G. Vrabie, S. Popescu, Teoria generală a dreptului, Edit. Şt. Procopiu, Iaşi, 1993, p.36. BIBLIOGRAPHY [1] G. Boroi, Drept civil. Partea generală, Edit. Hamangiu, Bucureşti, 2010, [2] I. P. Filipescu, A.I.Filipescu, Tratat de drept internaţional privat, Edit. Universul Juridic, Bucureşti, 2005 [3] Elena Iftime, Actul juridic civil, Edit. Institutului European, Iaşi, 2014 [4] Elena Iftime, Teoria generală a dreptului, Edit. didactică și pedagogică, Buc [5]Poenaru, Drept civil. Teoria generală. Persoanele, edit. Dacia Europa Nova, Lugoj, 2001 [6] F. G. Păncescu, Dreptul internaţional privat. Tradiţie. Reformă. Tendinţe, în M. Uliescu, coordonator, Noul Cod civil. Comentarii, Edit. Universul juridic, Bucureşti, 2011 [7] G. Vrabie, S. Popescu, Teoria generală a dreptului, Edit. Şt. Procopiu, Iaşi, 1993 [8] New Civil Code of Procedure [9] The new Civil Code 183

184 The USV Annals of Economics and Public Administration Volume 14, Issue 2(20), 2014 A REFLECTION ON THE WAVE OF AMALGAMATIONS IN THE ROMANIAN HEALTH SECTOR PhD Student Ina MITU Babes Bolyai University, Cluj Napoca, Romania, Faculty of Economics and Business Administration inamitu@yahoo.com PhD Professor Adriana TIRON TUDOR Babes Bolyai University, Cluj Napoca, Romania, Faculty of Economics and Business Administration adriana.tiron.tudor@gmail.com Abstract: In the context of New Public Management (NPM) and good governance, in the last decade the Romanian public health system has undergone a reform process. One of its consequences is the wave of public hospitals amalgamations that have occurred especially since the adoption of the new health law. Thus, in 2011 the Ministry of Health has made public a list of proposed amalgamations of hospitals (around 25% from total hospitals with beds that existed in that period). The aim of this research is to examine the wave of hospital mergers that occurred in Romania between 2011 and In particular, the study focuses on the drivers, social impact, typology and purpose of the analysed amalgamations. The study uses primary resources documents and it is based on a content analysis of 25 Government Decisions and Substantiation Notes from 2011 to An important generalization of the paper is that all the amalgamations from the analysed period are involuntary and are selected on territorial criteria and depending on the distance, the specific health services for the purpose of efficient use of human and material resources in order to enhance public health services. Additionally, the expected social impact of these events is materialized mainly in improving the quality of medical services provided to the population and providing unconditional access to medical services for policyholders. The expected changes include: reduction of staff costs; efficient use of public services; classifying the amalgamated hospitals in a higher category; reduction of management positions; optimizing medical activity in terms of economic efficiency; and achieving a management capable of the best use of existing financial resources. Key words: Amalgamations, Hospitals, Health system, Reform, Romania JEL classification: H51; H75; I INTRODUCTION In the current worldwide economic environment, governments must take policy and financial decisions with broad consequences in response to the financial crisis. The Romanian government is not an exception. Thus, in 2009 the World Bank has committed to provide financial assistance to Romania in the form of Development Policy Loans. On the other hand, becoming a member state of the European Union (EU), this country continues to make political and economic reforms to meet the EU requirements as well as to implement the acquis communautaire. All these circumstances request a review of national regulations and the defining of a new strategic approach that lead to new trends in local governance with implications for the management of public services. This paper contributes to a growing body of literature on hospitals amalgamations and health reform, considering that there are few studies which examine these events in the context of Romania. It is important to understand the motivations and the essence of the radical programme of hospital closure realized by the Romanian Ministry of Health. In the light of an in-depth documentary research the study looks at the issues raised in the pre-amalgamation phase by public sector entities combinations at four main levels: drivers, the expected social impact, typology and purpose of the analysed amalgamations. Thus, the following section of this paper summarizes the reform and the current strategies in Romanian health system, before reviewing the literature devoted to hospitals amalgamations. The next two sections present the methodological approach 184

185 and the research results. Finally, in the last section of the study we draw conclusions and offer suggestions for future research. 2. REFORM IN ROMANIAN HEALTH SYSTEM: ANALYSIS OF CURRENT STRATEGIES In Romania, public health assistance is guaranteed by the state and protection of public health is an obligation of public authorities. Thus, the health system is organized both at central (Ministry of Public Health) and county level (42 county public health authorities). In the last two decades, this country has gone through three main periods of health system reforms, which have occurred alongside great political changes and under the influence of different international organisations (e.g. IMF, EU and World Bank). These three periods are: from 1989 to 1996 (after the revolution), between 1997 and 2005 (the introduction of the health insurance system) and after 2006 (Health Reform Law from 2006). In the context of good governance and NPM, the government has currently developed a strategy to strengthen the focus on a comprehensive reform process for spending cuts in the public sector. The restructuring and rationalization of public health system are considered as priority tools for improving control of expenditure. Moreover, they represent the basis for the preparation of a new loan from the World Bank, based on results (Result-Based Financing). The essence of the current reform (i.e. Health Reform Law from 2006), consists mainly in reaching a modernized and better performing health system through restructuring and reorganization of hospital services. There are medical and economic arguments for including the hospitals on the list of reorganization. Thus, the reform refers to the reorganization of small and inefficient hospitals. Additionally, it refers to the hospitals with debt and which need financial support. The policy initiatives also include: sustaining the development of a private health insurance system, increasing the efficiency in the provision of health services by reducing costs at the hospitals level, providing an adequate financing of the medical system, and decreasing the corruption in the health system. Furthermore, the reform focuses on the management decentralization process and the accountability of local authorities towards the health needs of the population in the concerned areas. In particular, there is an emphasis on 8 regional authorities and changes in the line of authority. The government acknowledges the importance of health sector, considering that it has increased the public funds available for this sector in the last years, especially after However, the health system legislation is very instable, considering that the regulations are amended and supplemented frequently, having consequences in management decision-making process. In accordance with art.188 of Law no.95/2006 on healthcare reform, as amended and supplemented, hospitals are public institutions financed from their own funds and operate on the principle of financial autonomy. Moreover, since 2011, the unprofitable hospitals with beds that are not able to meet certain conditions do not benefit from the contract with the National Health Insurance House. Thus, due to lack of funding the local authorities were put in the position to close some of the public sector entities. In 2011, according to a project of the Ministry of Health that was part of the reorganization of the hospital system, from 435 hospitals with beds that existed in that period, 182 units were proposed to be closed. In accordance with this project, 111 units are proposed to be reorganized through amalgamations as outer sections and the rest of 71 units will be changed in homes for elderly persons or permanent health centers. These institutional changes have continued to take place against a backdrop of bad press. Thus, a purpose of the study is to assess the level of planned and on-going amalgamations activity within the Romanian public health sector two years after the project implementation. 3. A RESEARCH BACKGROUND ON HOSPITAL AMALGAMATIONS The phenomena of entities combinations appear in both the private and public sectors, also known as mergers and amalgamations, both having the same meaning. The research of private 185

186 hospitals mergers and acquisitions has demonstrated that in the long term most of these events often produce little financial benefits (Dafny, 2009; Harrison, 2011). This is also acknowledged in the recent body of literature on public sector healthcare amalgamations (Fulop et al., 2002; Gaynor et al., 2012; Ahgren, 2008). For instance, Gaynor et al. (2012), after analysing the hospital mergers between 1997 and 2004 in UK, conclude that public sector performance does not improve due to a merger. Moreover, labour productivity does not rise and financial deficits increase. Fulop et al. (2002) also argue that mergers, amongst London-based NHS trusts, have unintended negative consequences, and the evidence for the actual benefits of these mergers remains patchy and contradictory. This view is supported by Ahgren (2008) who uses a questionnaire to assess the various responses of 498 employees regarding the merger of Blekinge Hospital from Sweden. His study concludes that the merger has neither generated economy of scale advantages nor substantial quality improvement. However, there should not be drawn any parallels between the research findings regarding the hospitals amalgamations from the public sector and the hospitals mergers and acquisitions from the private sector, because these two sectors operate in very different environments (Cereste et al., 2003:8). On the other hand, there are researchers who sustain that amalgamations bring benefits. For instance, Markham and Lomas (1995) suggest four main types of potential amalgamations benefits: economic and financial; quality of services; human resources; and organisational and managerial benefits. In addition, there are different obstacles of bringing different public hospitals together such as organizational culture (Denis et al., 1999). Other researchers have focused also on the role of management in organizational change (Kotter, 1996; Gillett, 2000). In addition, it is important to examine the amalgamations both in the pre-amalgamation phase (e.g. Choi & Brommels, 2009) and in the post-amalgamation phase (e.g. Gauld, 2003; Gaynor et al., 2012). The majority of studies in this area of research analyse also the impact of drivers on public hospitals amalgamations. The available literature suggests that these drivers fall into three main categories: economic and financial drivers (Dranove & Lindrooth, 2003; Fergueson et al., 1997), clinical quality (Bogue et al., 1995), and political drivers (Gulland, 2001; Choi & Brommels, 2009). Additionally, there are usually unstated drivers that only appear once the merger is in progress (Fulop et al., 2002). Based on this fundamental idea, theories emphasizing single-factor motivations (such as the need for resources, power, legitimacy, or greater efficiency) are incomplete; a multiplefactors approach provides a more satisfactory basis for theory development (Campbell, 2009). All these studies prove the fact that combinations of hospitals which occur in the public sector are common events. The mimetic, normative and coercive institutional pressures require a high degree of conformity, especially in public sector (DiMaggio & Powell, 1983; Frumkin & Galaskiewicz, 2004). Thus, new institutional theory through the lens of NPM plays an important role, considering that public sector entities combinations have been seen as an example of this public sector management reform (Kitchener & Gask, 2003). Considering this, the majority of researchers use this theory in analysing the hospital amalgamations from the public sector (e.g. Choi & Brommels, 2009). 4. METHODOLOGICAL APPROACH The paradigms of public policy-making (NPM and good governance) through the lens of new institutional theory offer so far the best explanation for combinations of public sector institutions. According to this approach the primary reason for amalgamations are the paradigms of public policy-making mentioned above, which inspire mimetic and normative pressures upon the government (Shah et al., 2010). Thus, this study is based on new institutional theory and investigates the amalgamations of healthcare system in the context of NPM and good governance. The vast majority of researches concerning combinations of entities present these events both in the pre-amalgamation phase (e.g. Choi & Brommels, 2009) and in the post-amalgamation phase (e.g. Gauld, 2003; Gaynor et al., 2012). This research is concentrated on the wave of public hospitals in the pre-amalgamation phase that have occurred between 2011 and 2012, using a 186

187 qualitative approach. For showing the particularities of these amalgamations the study uses primary resources documents and it is based on a content analysis of 25 Government Decisions from 2011 to The Law no. 95/2006 on healthcare reform is the legislative framework for the reorganizations (including amalgamations) of hospital system. According to this law, as subsequently amended and supplemented, the public hospitals under the Ministry of Health shall be set up, respectively, are dissolved by Government Decision. On the other hand, all Government Decisions have Substantiation Notes, which are legal instruments of presentation and motivation of the legislative acts and ordinances (simple and emergency). Thus, the data are collected from all the Government Decisions and Substantiation Notes regarding hospital reorganizations that are available on the Romanian Government official site. Additionally, the research implies the content analysis of these documents and data analysis methodology. The examined elements in the paper are: county, factors, social impact, typology, drivers and purpose of analysed amalgamations. We have chosen these elements, because they represent the main issues that are included in the Government Decisions and they are important in analysing the pre-amalgamations phase. For instance, the financial, clinical and political drivers are very much presented and debated in the research literature (e.g. Dranove & Lindrooth, 2003; Fergueson et al., 1997; Bogue et al., 1995; Gulland, 2001; Choi & Brommels, 2009). 5. PRE-AMALGAMATION PHASE: ANALYSIS AND RESEARCH RESULTS Even though in 2011 the Ministry of Health has made public a list of 111 proposed amalgamations of hospitals, only 30 of them have occurred in Romania between 2011 and These events led to around 6.89% of hospitals disappearing from 19 counties (Figure 1). The amalgamations, given the focus on removal of spare capacity, have occurred more in urban areas than in rural ones. All the combinations from the analysed period are involuntary and are selected on territorial criteria and depending on the distance, the specific health services for the intended purpose of efficient use of human and material resources in order to enhance public health services County 1 0 Figure 1. Number of hospitals amalgamations by county Source: Authors The findings reveal the fact that the absorption is the predominant typology of Romanian hospitals amalgamations (there is only one merger). On one hand, the majority of acquiring institutions (79.31%) are emergency hospitals - general hospitals with county residence; complex 187

188 surgical specialties; and emergency receiving units that provide medical and surgical emergencies and specialized medical assistance, including serious cases in the county that cannot be solved at the local hospitals level. On the other hand, most of the acquired institutions (61.29%) are specialized hospitals - the hospitals that provide medical care in a specialty in conjunction with other complementary specialties. Additionally, there are seven health centers, three institutes, a sanatorium and a preventorium, which participate in the amalgamations process (Figure 2). According to the law on healthcare reform, the health centers represent units with beds that provide specialized healthcare in at least two specialties for the people in several nearby localities. The institutions represent the specialized healthcare units and activities with teaching and scientific research, medical, methodological guidance and coordination in their fields and continuing medical education. The sanatorium is a health unit that provides nursing beds using natural healing factors associated with other methods, techniques and therapeutic means. Finally, the preventoriums are health unit beds that provide prevention and combating of tuberculosis for children and young people, as well as for tuberculosis patients clinically stabilized and noncontagious. Figure 2. Number of amalgamations by type of hospitals Source: Authors Centralized data also show that generally the amalgamated hospitals are managed by local authorities, especially by county councils (Figure 3). There is only one amalgamation in which both the absorbing and the absorbed institution are subordinated by the Ministry of Health. The management of healthcare provided in Romanian hospitals with beds can be transferred from one public authority to another public authority, by Government Decision, with the agreement of both parties. Considering this, the analysed combinations involve bringing two or occasionally more independent public hospitals into one, with the removal of management from one public authority to another public authority. Furthermore, the technical, economic, administrative and maintenance staff which operates in the health units which are dissolved, is taken by the absorbing units. The reorganizations as well as organizational structure of resulting hospitals are approved by the administrative directors of the institutions, with the approval of Ministry of Health within 30 days after the enforcement of the Government Decision. 188

189 3% 30% 20% 47% County council Town/municipality council Ministry of Health Mixt Figure 3. Number of hospitals amalgamations by subordination Source: Authors Due to lack of funding, local government strategy, both in the short and medium term, aims to identify solutions to reduce maintenance and other operating costs of hospitals. In addition, the local authorities aim to improve the technical basis in hospitals from the municipality network, by integrating the existing services or newly created ones. More specifically, the expected changes include: optimizing medical activity in terms of economic efficiency; reducing the staff costs; efficient use of public services; classifying the amalgamated hospitals in a higher category; reduction of management positions; patients will be treated for different diseases within the same hospital; and achieving a management capable of the best use of existing financial resources, according to the county's health policy and of the objective priorities outlined in the demand of health services (Figure 4). The government also expect to have a unitary organization of activities, structures that will meet the demand for medical and complex surgical services and to achieve efficient hospitals with complex surgical specialties able to provide healthcare to patients from the county. As can be observed, the financial pressures are important drivers of amalgamations during this period. Also, the expected social impact of these events is the belief that the reconfiguration of public services will improve the quality of medical services provided to the population and will provide unconditional access to medical services provided to policyholders. The results of this paper are consistent with other studies from the available body of literature regarding hospitals amalgamations. Thus, in the context of Romanian hospitals amalgamations, there are also economic and financial drivers (Dranove & Lindrooth, 2003; Fergueson et al., 1997), clinical quality (Bogue et al., 1995) and political drivers (Gulland, 2001; Choi & Brommels, 2009). Taken together, these results suggest that the Romanian health system is influenced by the public-policy paradigms (NPM and good governance). The elements of good governance that are mirrored in the Government Decisions regarding the analysed amalgamations are: transparency, lawfulness, sustainable growth, public sector efficiency, citizens satisfaction, participation and accountability. Also, there are elements of NPM such as: decentralisation, effective management and performance orientation. Additionally, there is an extensive government role (with the influence of international organisations), considering that the reform strategy is a central issue of government s overall policy. Due to the lack of financial and human resources, local government and county councils have a minor influence on health policy development. Thus, whether a hospital in Romania is amalgamated or not depends on financial and clinical performance, as in the private market, but also on national political and legislative measures. 189

190 Figure 4. Number of hospitals amalgamations by expected changes Source: Authors 6. CONCLUDING REMARKS In summary, the Romanian government undertook a radical programme of hospital closure between 2011 and 2012, which resulted in 30 hospitals amalgamations that were co-located geographically. The research findings of this paper provide a practical insight into the concerns and challenges of hospital amalgamations in the pre-amalgamation phase in the context of reform process in public health system. The Romanian authorities use for this reform decision a top-down approach. Thus, the reorganization of these public sector institutions is part of the Ministry of Health strategy of hospital system efficiency and of a system in which the entities meet the requirements of current health. Although the current study is based on a small sample of amalgamations and focuses only on the pre-amalgamation phase, the findings suggest that the government (influenced by international organisations) has an extensive role and the political and financial pressures are the dominant drivers of amalgamations during this period in Romania. Therefore, the results of this paper are consistent with those of other studies and suggest that amalgamation decisions in the public sector may not necessarily result from stated and economic drivers only (Fulop et al., 2002; Choi & Brommels, 2009). According to Government Decisions regarding hospital amalgamations, the rethinking of local governance in health system offers essential opportunities for public hospitals to enhance the public health services and to be strategic in the local reconfiguration of these services. Based on this fundamental idea, further research needs to be done to assess the effectiveness of this strategy and to establish whether in the case of Romanian hospitals, the configuration of the health system by government and local public authorities results in the promised gains. On the other hand, the amalgamations of institutions have happened relatively often in the worldwide public sector in recent years and it is expected that these kinds of public sector combinations will continue to 190

191 happen in the future. Thus, future studies may wish to explore these events using a cross-country perspective. 7. ACKNOWLEDGEMENT This work was cofinanced from the European Social Fund through Sectoral Operational Programme Human Resources Development , project number POSDRU/159/1.5/S/ Performance and excellence in doctoral and postdoctoral research in Romanian economics science domain. BIBLIOGRAPHY 1. Ahgren, B. (2008). Is it better to be big?: The reconfiguration of 21st century hospitals: Responses to a hospital merger in Sweden. Health Policy, 87(1), Bogue, R.J., Shortell, S.M., Sohn, M.W. and Manheim, L.M. (1995), Hospital reorganisation after merger, Medical Care, Vol. 33, pp Campbell, D. A. (2009). Giving up the single life: Leadership motivations for interorganizational restructuring in nonprofit organizations. Administration in Social Work, 33(4), Cereste, M., Doherty, N. F., & Travers, C. J. (2003). An investigation into the level and impact of merger activity amongst hospitals in the UK s national health service. Journal of health organization and management, 17(1), Choi, S., & Brommels, M. (2009). Logics of pre-merger decisionmaking processes: The case of Karolinska University Hospital. Journal of Health Organization and Management, 23(2), Dafny, L., Estimation and identification of merger effects: an application to hospital mergers. Journal of Law and Economics 52 (3), Denis, J. L., Lamothe, L., & Langley, A. (1999). The struggle to implement teaching-hospital mergers. Canadian Public Administration, 42(3), DiMaggio, P. J., & Powell, W. W. (1983). The iron cage revisited: Institutional isomorphism and collective rationality in organizational fields. American sociological review, Dranove, D. and Lindrooth, R. (2003), Hospital consolidation and costs: another look at the evidence, Journal of Health Economics, Vol. 22 No. 6, pp Ferguson, B., Sheldon, T. and Posnett, J. (Eds) (1997), Concentration and Choice in Healthcare, Financial Times Healthcare, London. 11. Ferlie, E. (1997), Large-scale organisational and managerial change in health care: a review of the literature, JHSRP, Vol. 2 No. 3, pp Frumkin, P., & Galaskiewicz, J. (2004). Institutional isomorphism and public sector organizations. Journal of Public Administration Research and Theory,14(3), Fulop, N., Protopsaltis, G., Hutchings, A., King, A., Allen, P., Normand, C. and Walters, R. (2002), Process and impact of mergers of NHS trusts: multicentre case study and management cost analysis, British Medical Journal, Vol. 325, 3 August, p Fulop, N., Protopsaltis, G., King, A., Allen, P., Hutchings, A., & Normand, C. (2005). Changing organisations: a study of the context and processes of mergers of health care providers in England. Social Science & Medicine, 60(1), Gauld, R. (2003). The impact on officials of public sector restructuring: The case of the New Zealand health funding authority. International Journal of Public Sector Management, 16(4), Gaynor, M., Laudicella, M., & Propper, C. (2012). Can governments do it better? Merger mania and hospital outcomes in the English NHS. Journal of Health Economics, 31(3), Gillett, S. (2000), Turn of the screw, Health Service Journal, Vol. 6, April. 191

192 18. Gulland, A. (2001), Doctor wins seat in fight to save hospital, British Medical Journal, Vol. 322, p Harrison, T.D., Do mergers really reduce costs? Evidence from hospitals. Economic Inquiry 49, Kitchener, M., & Gask, L. (2003). NPM merger mania: Lessons from an early case. Public Management Review, 5(1), Kotter, J. (1996). Leading change. Boston: Harvard Business School 22. Shah, H., Malik, A., & Yaqub, M. Z. (2010). Accounting for Merger: The Case of HM Revenue and Customs. European Journal of Economics, Finance and Administrative Sciences. 23. Press.Markham, B. and Lomas, J. (1995), Review of the multi-hospital arrangements literature: benefits, disadvantages and lessons for implementation, Healthcare Management Forum, Vol. 8 No. 3, pp

193 The USV Annals of Economics and Public Administration Volume 14, Issue 2(20), 2014 STRUCTURAL FUNDS - INSTRUMENTS TO SUSTAIN ECONOMIC GROWTH IN ROMANIA Senior Lecturer Ph. D. Elena RUSU (CIGU) Alexandru Ioan Cuza University of Iasi, Faculty of Economics and Business Administration, Romania elena @yahoo.com Abstract: The aim of this research paper is to highlight that one of the main instruments employed to sustain economic growth in Romania, while also reducing disparities between Romanian regions is represented by the European Union structural funds. Although there have been made many changes for the alignment of Romania s economic policies to those of EU, Romania still facing with one of the lowest absorption rate for the Programme , but there are established strategies for a higher absorption for the next financial exercise We must not omit the fact that Romania s major development needs and the current economic context imperatively demand a high as possible level of structural funds absorption, as well as their efficient use, meant to generate a significant impact at a national, regional and local level. This paper will present an overview of theoretical approach of the role of Structural Fund and the reason for which they were created, followed by empirical evidences of absorption of EU Structural Funds over the period in Romania comparative with the other EU countries, and in the end the new challenges posed by the Programme for EU countries, including Romania. Key words: Structural Funds, Absorption rate, Regional disparities, Economic growth. JEL classification: F43, P25, O52, R11 INTRODUCTION The European Union (EU) try to achieve to a more dynamic and competitive economy. For this objective, the EU must meet the challenge of developing new instruments to sustain economic growth and to reduce disparities between regions such as Cohesion policy and its Structural Funds (Common Strategic Framework (CSF), i.e. the Cohesion Fund (CF), the European Regional Development Fund (ERDF), the European Social Fund (ESF), the European Agricultural Fund for Rural Development (EAFRD) and the European Maritime and Fisheries Fund (EMFF)). These funds are allocated to the EU countries taking into account a number of determinant factors, one of them being the level of development of their regions, under a complex legal framework. The absorption of funds over the period was relatively low, few reasons being identified by the UE countries and European Commission as following: the financial and economic crisis, insufficient administrative capacity of countries, many changes in national/regional/local governments, and the effects of national sectorial reforms. This paper will present an overview of theoretical approach of the role of Structural Fund and the reason for which they were created, followed by empirical evidences of absorption of EU Structural Funds over the period in the EU countries, but especially for Romania, and in the end the new challenges posed by the Programme for EU countries, including Romania. AN OVERVIEW OF THEORETICAL APPROACH OF THE ROLE AND IMPACT OF STRUCTURAL FUNDS Cohesion policy framework is built for a period of seven years as one of the main axes of EU action in delivering the Europe 2020 Strategy for Growth and Jobs and supposes to invests to modernize national and regional economies by supporting innovation and job creation, labour markets and human capital, by building key network infrastructures, protecting the environment, 193

194 enhancing social inclusion and building administrative capacity, for reducing the economic, social and territorial disparities between the EU regions. Its implementation is possible through Structural Funds programmes which are designed and implemented in a shared management system between the European Commission and the EU countries, which supposes co-financing between the EU and member states. National co-financing is required to strengthen project ownership and sound management (Katsarova, 2013). Allocations of fund to member states are calculated on the basis of relative regional and national prosperity and the unemployment rate, using the method set out in Annex II of Regulation 1080/2006. EU Cohesion policy is guided by four principles. The first one is concentration which mean that funds are focused on the least developed regions. The second is partnership which refers to the involvement of regional and local authorities in the planning, implementation and monitoring phases. The third principle is programming, as priorities fixed for multi-year periods. The last one is additionality which mean that the financing through the Structural Funds is not intended to replace, but to complement national investments in the same fields. Regarding the economic impact of EU Funds, the empirical literature (Boldrin and Canova, 2001; Checherita et al, 2009; Ederveen et al, 2006; Santos, 2008) generate different results. Boldrin and Canova (2001) find that Structural and Cohesion Funds are on average ineffective. Checherita et al (2009) show that Structural and Cohesion Funds help to reduce income disparities at the regional level but are incapable of promoting output growth. Other authors (Ederveen et al, 2006; Santos, 2008) find that EU funds become effective only when accompanied by an appropriate institutional framework (i.e. strong institutional quality, lack of corruption, etc). SOCIO ECONOMIC DEVELOPMENTS AND TRENDS IN ROMANIA Economic development is commonly expressed in terms of GDP, which in the regional context may be used to measure macroeconomic activity and growth, as well as to provide the basis for comparisons between regions. GDP is also an important indicator from the policy perspective, as it is crucial in determining the extent to which each Member State should contribute to the EU s budget, while 3-year averages of GDP are used to decide which regions should be eligible to receive support from the EU s Structural Funds. GDP has also come to be regarded as a proxy indicator for overall living standards (Eurostat, 2013). GDP per inhabitant in each NUTS level 2 region as a percentage of the EU-28 average, which in absolute terms was PPS (Purchasing Power Standards) in 2011, up from PPS in 2010, PPS in 2009, PPS in 2008 and PPS in Figure no. 1. Gross domestic product (GDP) at current market prices by NUTS 2 regions (Euro per inhabitant) Source: Eurostat Among the NUTS level 2 regions in Romania, GDP per inhabitant in 2011 ranged from PPS (122 % of the EU-28 average) in Bucharest-Ilfov Region to 7200 PPS (29 % of the EU- 28 average) in North-East Region. Six of Romanian regions (North-East - 29%, South-West 194

195 Oltenia 37%, South-East 39%, South-Muntenia 40%, North-West 42% and Centre 45%), are in the top 20 poorest regions in the European Union (EU), according to the level of GDP per capita (as calculated according to the purchasing power parity) compared to the EU level. In general, most of the Romanian regions (North-West, Centre and South-Muntenia) were around 40% of the EU-28 average in Table no. 1. Regional gross domestic product (PPS per inhabitant) by NUTS 2 regions in Romania Region Regional GDP (PPS/ inhabitant) by NUTS 2 regions (EUR) Regional Regional Regional Regional GDP GDP GDP GDP (PPS/ Regional (PPS/ Regional (PPS/ Regional (PPS/ Regional inhabitant GDP inhabitant GDP inhabitant GDP inhabitant GDP in % of (PPS/ in % of (PPS/ in % of (PPS/ in % of (PPS/ the EU28 inhabitant) the EU28 inhabitant) the EU28 inhabitant) the EU28 inhabitant) average) by NUTS average) by NUTS average) by NUTS average) by NUTS by NUTS 2 regions by NUTS 2 regions by NUTS 2 regions by NUTS 2 regions 2 regions (EUR) 2 regions (EUR) 2 regions (EUR) 2 regions (EUR) 195 Regional GDP (PPS/ inhabitant in % of the EU28 average) by NUTS 2 regions North- West Centre North- East South- East South - Muntenia Bucharest - Ilfov South- West Oltenia West Source: computed by author using Eurostat data Evolution in time over the period show that majority of Romanian regions registered a small positive increase. The region which experienced the highest rates, but also small fluctuations was Bucharest-Ilfov with PPS (96 % of the EU-28 average) in 2007, PPS (117 % of the EU-28 average) in 2008, PPS (112 % of the EU-28 average) in 2009, PPS (114 % of the EU-28 average) in 2010 and PPS (122 % of the EU-28 average) in At the other extreme is North-East Region with the highest of 30 % of the EU-28 average in 2009 and According to the Financial Perspective, the Romanian territory with its development regions was subject to the Convergence Objective, as the GDP per capita in the regions was below 75% compared to the UE average and was eligible to the Cohesion Fund (mainly focused on infrastructure and environment), as the GDP was below 90% compared to the EU average. ABSORPTION OF EU STRUCTURAL FUND OVER THE PERIOD EU co-financing rates are allocated on the basis of the relative level of development of the member states supported, the Cohesion policy objective under which the project is financed, and the fund under which the support is provided: a) 'Convergence objective' by improving growth and employment conditions, the EU co-financing being between 75% to 85% of the eligible costs of projects for the ERDF and the ESF, and to 85% for the Cohesion Fund; b) 'Regional competitiveness and employment objective' intends to prepare for economic and social change, promote innovation, entrepreneurship, and environmental protection, the EU co-financing being between 50% to 85% for the ERDF or the ESF; and c) 'European territorial cooperation objective' which aims to strengthen cooperation at cross-border, trans-national and inter-regional levels in the

196 fields of urban, rural and coastal development, the EU co-financing rate being 75% under the ERDF. The largest part of Structural Funds (approximately 82% for Programme ) were concentrated on the poorest regions of the EU countries. The eight poorest regions in the EU are considered being in Bulgaria and Romania. Figure no. 2. EU regions and corresponding Cohesion policy objectives ( ) at NUTS 2 level Source: European Commission, 2013 The financial and economic crisis that started in 2008 has altered the context for cohesion policy programmes. However, regarding absorption of EU Structural Funds, the picture across EU countries is diverse. Absorption is higher in Germany, Greece, Spain, Ireland, Latvia, Lithuania, Luxembourg, Netherlands, Austria, Poland, Portugal, Slovenia, Finland, and Sweden, where are registered rates up of 60%. Lower absorption rates have been recorded in Croatia and Romania, under 40%, where significant volume of the EU funds available was lost and the intended objectives were not achieved. Financial execution of Structural Fund Programming Period registered a rate of 60,11%. Table no. 2. Financial Execution of Structural Funds Programming Period (in EUR) Country Decided Committed Paid Committed/ Decided (%) Paid/ Committed (%) Paid/ Decided (%) Bulgaria , , , ,33 48,33 Belgium , , ,59 99,97 58,39 58,37 Czech , , , ,88 48,88 Republic Denmark , , , ,41 54,41 Germany , , , ,94 68,94 Estonia , , , ,31 78,31 Greece , , , ,14 69,14 Spain , , ,47 99,99 61,80 61,80 EU Cross , , ,72 99,89 51,25 51,20 Border France , , ,26 99,98 56,36 56,35 Croatia , , ,29 87,80 20,81 18,27 Ireland , , , ,69 67,69 Italy , , ,31 99,88 48,48 48,42 196

197 Cyprus , , , ,67 52,67 Latvia , , , ,46 65,46 Lithuania , , ,11 99,50 78,29 77,89 Luxembourg , , , ,31 63,31 Hungary , , ,00 99,95 58,56 58,52 Malta , , , ,69 48,69 Netherlands , , , ,64 61,64 Austria , , , ,93 64,93 Poland , , , ,66 66,66 Portugal , , , ,24 78,24 Romania , , ,59 99,19 37,03 36,72 Slovenia , , , ,92 61,92 Slovakia , , ,10 99,98 48,05 48,04 Finland , , , ,85 65,85 Sweden , , , ,69 68,69 United , , , ,38 56,38 Kingdom , , ,25 99,90 60,17 60,11 Source: Referring exclusively to Romania, although some progress has been made, the absorption rate was low (36,72%). There is a general opinion that the main reason for the low absorption over the period was the late agreement on the EU's Multiannual Financial Framework (MFF) for the same period, and consequent delays in the negotiations of the National Strategic Reference Frameworks (NSRF) and the Operational Programmes (OP). Moreover, the late start of the programmes then coincided with the economic and financial crisis. Figure no. 3. Absorbtion rate of EU Structural Funds Programming Period Source: computed by author using Eurostat data Romania is one of the country which the European Commission has required, as a condition for the disbursements, that their governments put aside resources for the co-financing of EU projects, and demonstrate efficient spending of EU funds by meeting specific expenditure targets laid down in the adjustment programmes themselves and, also, included higher absorption of EU funds as a condition for the disbursements of EU loans. In the same situation were Latvia and Greece. In this context, the Romanian National Reform Programme identified as the main reasons limiting growth: low efficiency, effective-ness and independence of public administration and high structural deficit of the consolidated budget. Among the NUTS level 2 regions in Romania, Regional Operational Programme (ROP) was implemented through 13 areas of intervention, organized into six priority axes (PA): 1) Support the sustainable development of cities - urban growth poles; 2) Improvement of regional and local transport infrastructure; 3) Improving social infrastructure; 4) Strengthening regional and local business environment; 5) Sustainable development and promotion of tourism; and 6) Technical Assistance. 197

198 The total budget of the Programme was aproximatelly EUR 4556,7 million, of which the contribution of the European Union (ERDF) is 3726,02 million euros, the national public contribution is EUR 657,6 million and the private contribution is EUR 173,1 million. In terms of financial allocation to the regions, there was intention of decision makers to align to the main objective of ROP, respectively prevent widening disparities in the regions development. This concerned a higher allocation of funds within certain less developed regions. Figure no. 4. Financial allocation (ERDF) for the developing regions of Romania Source: The financial allocation by region, the MA ROP (Management Authority Regional Operational Programme) The North-East Region has received the largest financial allocation because GDP per capita was low, respectively more than 16% of the total ERDF. The lowest financial allocation were found in the Bucharest-Ilfov Region (about 9%). Projects approved in the ROP are likely to generate a major regional impact, supporting sustainable economic, social and territorial development, in accordance with the specific needs and resources, focusing on urban growth poles, improving the infrastructure and environment business. Figure no. 5. Regional distribution of absorption EU funds Source: Reports of MA ROP to the Ministry of European Funds (MEF)/Authority for Coordination of Structural Instruments (ACSI) North-East Region has received the largest initial allocation of all Romanian developing regions. This was maintained after redistribution of funds from other Operational Programmes. North-East Region has managed to attract up to date, most of the grants available under the POR (2830,70 million RON). Regarding South-East Region, the amounts allocated funds was 2273 million RON being contracted a percentage of 12,65% of the total contracted funds among all Romanian development regions. South-Muntenia Region contracted funds of 2658 million RON, while the region has an allocation of 2441, 32 million RON. South West is on the third place in terms of financial allocation. By 31 December 2013, the funding for the region contracted slightly exceeded 4% over the financial allocation. West Region managed to absorbs funds of 1944,30 million RON, allocation being 1773,94 million RON. North- West Region contracted funds exceeded 2% financial allocation available of 2074,18 million RON. Bucharest-Ilfov Region received the lowest allocation among all Romanian developing regions. Thus, with only 8.86% of the initial financial allocation, funds were raised at a rate of 9.45% of the total contracted funds in the ROP. Central Region recorded a financial allocation (derived from the redistribution of funds from other OPs) of 1870,02 million RON and contracted 1970,58 million RON. If we refer to the number of inhabitants, it is clear that there are situations where a higher 198

199 level of absorption was recorded in the more developed regions of the country (West Region), while the less developed regions (North-East Region) is on the last places. South West Region has the highest level of absorption based on the number of region inhabitants. Although North-East region has the highest level of absorption, is on the second place in terms of the absorption per capita. Table no. 4. Absorption of EU funds of each Romanian development region Region Amount Absorption of Absorption % of absorption of Population EU funds per total EU funds EU funds (million) capita (million allocated (million RON) RON) North-West ,75 2,71 780,16 Centre ,94 2,52 782,04 North-East ,72 3,70 764,91 South-East ,65 2,79 816,23 South - Muntenia ,76 3,24 820,57 Bucharest - Ilfov ,45 2,26 752,40 South-West Oltenia ,92 2, ,17 West ,80 1, ,21 TOTAL ,36 843,17 Source: Reports of MA ROP to the MEF/ACSI , National Institute of Statistics (NIS) information from 2012 on the number of inhabitants per region Comparing the regional absorbtion with reference values reflecting the development of each region at the time of 2007 (consider the reference year because it was the first year since the current programming cycle) and the number of people registered in the year 2012 (the latest data available, NIS), we can extract more information below. Figure no. 6. UE grants contracted and regional GDP (million RON) Source: Reports of MA ROP to the MEF/ACSI , NIS information from 2007 on GDP Distribution of contracted grants is approximately uniform across regions, so that GDP at current prices, respectively the number of inhabitants, does not determine the distribution of funds to the regions. For example, a lower performance recorded in the Bucharest-Ilfov region can be explained by the uniform distribution of funding. 199

200 Figure no. 7. Share grants contracted in regional GDP (%) Source: Reports of MA ROP to the MEF/ACSI , NIS information from 2007 on GDP Comparing GDP at current prices in 2007 with total contracted grants in each region shows that EU funds are, on average, about 4.77% of GDP This average value is obtained from heterogeneous value. Thus, the region of South-West contracted grant amount represents 7,28% of the regional GDP, while the region of Bucharest-Ilfov share of contracted amounts in region GDP is only 1,78%. PROGRAMME The European Commission established a new approach how to the use the Funds within the Multiannual Financial Framework, which will make available aproximatelly EUR 453,2 billion for the Programme to invest in Europe's regions, cities and the real economy. However, the principle of allocation will be the same, the poorest regions will receive bigger amount of money for achieving the Europe 2020 goals: creating growth and jobs, tackling climate change and energy dependence, and reducing poverty and social exclusion (European Commission, 2010). Figure no. 8. The EU regions eligibility Source: European Commission, 2014 Romania made a general economic progress over the period , but there are therefore some structural challenges that need to be addressed to make the Romanian economy smarter, more sustainable and more inclusive. The analysis of Romania's progress towards meeting 200

201 its national 2020 targets shows significant gaps in critical areas like increasing its research and innovation spending, boosting employment rates and reducing poverty (European Commission, 2014). Table no. 3. The analysis of Romania's progress towards meeting its national 2020 targets Europe 2020 headline targets Current situation in Romania National 2020 target in the NRP 3% of EU's GDP to be invested in research 0,47% 2% and development 20% greenhouse gas (GHG) emissions reduction compared to % of final energy consumption from renewables +9% (2020 projected emissions compared to 2005) -7% (2010 emissions compared to 2005) +23,4% 24% 20% increase in energy efficiency Member States will define/revise their targets in line with the newly agreed methodology on target setting laid out in article 3(3) of the energy efficiency directive. This will be available only by 30 April % of the population aged should be employed Reducing early school leaving to less than 10% At least 40% of years old completing tertiary or equivalent education Reducing the number of people at risk of poverty or exclusion by at least 20 million in the EU (compared with 2008 levels) 62,8% (2011) 70% 17,5% (2011) 11,3% 20,4% (2011) 26,7% (2011) % (national binding target for non-ets sectors compared to 2005) 10 Mtoe (reduction in primary energy consumption) Source: European Commission, 2014, For Romania are allocated approximately EUR million, for the Programme An important amount of money is oriented to poorest segments, as rural areas or lees development regions. According to European Comission (2014), Romania must develop and implement medium-term strategies capable of facing the challenges of globalization, but at the same time to preserve the European social model. Moreover, it provides for a flexible framework for Romania to react and refocus European, national and local resources on creating growth and employment so that fiscal sustainability and growth-friendly policies go hand-in-hand, also dealing with structural and institutional problems in Romania and across its national borders in its territorial and geographical context, including as per the EU Strategy for the Danube Region, in order to have maximum impact. 201

202 Figure no. 9. Total EU allocations of Cohesion Policy (million, current prices) for Romania Source: European Commission, 2014, CONCLUSIONS There is no doubt that the Structural Funds demonstrated the important contributions these programmes are making in many areas where investment is necessary in terms of economic modernization and competitiveness. The EU countries, the beneficiaries of EU Structural Funds must intensify their efforts for implementing the selected projects by the end of 2015, having an important contribution to the objectives of the Compact for Growth and Jobs launched by the European Council (EC) in June Exclusively for Romania, economic success of EU Structural Funds is conditional on effective governance, without so many turbulence. Raising effective absorption must be a valuable policy objective. In the context of our country, higher effective absorption alone is not sufficient. Romania must identify its weaknesses and designing projects that will contribute to solving them, achieving the objective of using UE funds for the right projects. Also, Romania, must design the next Multiannual Financial Framework more clearly for EU funds being successful in meeting the objectives for which they have been conceived. Acknowledgement: This work was supported by the European Social Fund through Sectoral Operational Programme Human Resources Development , Project number POSDRU/159/1.5/S/134197, project title Performance and Excellence in Doctoral and Postdoctoral Research in Economic Sciences Domain in Romania. BIBLIOGRAPHY 1. Boldrin, M., and Canova, F., (2001), Europe s Regions: Income Disparities and Regional Policies, Economic Policy vol. 16 (32), pp Checherita, C., Nickel, C., and Rother, P., (2009), The role of fiscal transfers for regional economic convergence in Europe, ECB Working Paper Series no. 1029, European Central Bank 202

203 3. Ederveen S., Groot, H.L.F., and Nahuis, R., (2006), Fertile Soil for Structural Funds? A Panel Data Analysis of the Conditional Effectiveness of European Cohesion Policy, Kyklos vol 59(1), pp 17-42, 02, Blackwell Publishing 4. Katsarova, I., (2013), The (low) absorption of EU Structural Funds, Library of the European Parliament 01/10/ Santos, I., (2008), Is Structural Spending On Solid Foundations?, Policy Brief 02/2008, Bruegel. 6. ***Eurostat regional yearbook 2013, 7. ***European Commission, Position of the Commission Services on the development of Partnership Agreement and programmes in ROMANIA for the period , Ref. Ares(2012) /10/2012, 8. ***Raport de evaluare finală, aprilie 2014,

204 The USV Annals of Economics and Public Administration Volume 14, Issue 2(20), 2014 THEORY OF GOVERNANCE AND SOCIAL ENTERPRISE PhD Cristina SANDU National University of Political Studies and Public Administration Faculty of Public Administration, Bucharest, Romania Associate Professor PhD Rosemarie HAINES National University of Political Studies and Public Administration Faculty of Public Administration, Bucharest, Romania Abstract: The article, subordinated to the governance and public sector reform domain, approaches governance theory, a theory that is specific to a society in a profound transformation. The transformation represents a result of globalization and the thematic of social enterprise a mean of appearance within the global arena for social actors as representatives of the new economic governance. Starting from the New Public Management reforms, the article analysis the state and public action changes within the contemporary society and in the same time, realizes a clear distinction between governing and governance and identifies a third way within the economic governance heterarchy or network management, which refers to horizontal self-organizations between the interdependent actors. The study also illustrates the fact that the development of global political economy is in strong connection with democratization. Thus, the democracy must be affirmed at both global and local levels, and the role of non-state actors must increase, democratization representing a consonance in economic liberalization, state institutional change and development of a powerful public space. The result of the current analysis materializes in the identification of the social enterprise typology, the reference models and comparative experiences of social enterprise. As a conclusion, the study formulates a complex definition of social enterprise concept, which comprises the social and economic criteria, the social aim of the ideal-type of social enterprise. The research methodology is represented by complex methods as follows: the first and the second parts are based on literature and theories analysis, the third part is based on questionnaire application, statistical data collection and comparative empirical studies. The sample the comparative studies is represented by European countries as follows: the references models - United Kingdom, France and Italy and the empirical studies Italy, Romania and Croatia. Key words: New Public Management; governance; democratization; social enterprise; reference models; experiences JEL classification: H42, H83, L33 INTRODUCTION The current study is structured in three parts: 1. New Public Management and governance 2. Democratization and civil society 3. Social enterprise an actor of the public space The first part refers to the contemporary society dilemma between preserving a state republican theory and the trend to consider the state as a superpower for coordinating the public policies as a whole. The comparison between the modern bureaucracy principles and New Public Management reveals a new development paradigm, named also the 3 Es: Economy, Efficiency and Efficacy (Rhodes, 1997:93) with specific features: the introduction of the private sector management into the public sector, active citizenship, professional management, explicit standards and performance measures, results-based management and value versus money. The state restructuring, Europeanization and globalization processes are in strong correlation with the governance concept. 204

205 The concept occurs in the same time with the diagnosis of the governments incapacity to respond to problems and to adapt to the new ways of social, economic and political organization. Taking into consideration the fact that the traditional governance makes use of power as a tool and it is based on command and control networks, the literature refers to governance networks as models established by social relations between interdependence actors formed around the politics and/ or political programs (Kickert, Klijn, Koppenjan, 1999). The governance concept is synonym to the network management concept. Among the market and state approaches, among the market anarchy and the state coordination, the researchers propose a third way, heterarchy - the horizontal self-organization between the interdependent actors. The networks creation, negotiation and partnership constitute the components of a modern economic strategy. The state still maintains its important role is establishing the coordination regulations within the plurality of organizational forms. The globalization itself can be defined as interdependent networks situated at worldwide distances (Nye, 2001). In the perspective of European Union, the governance concept has two significations: firstly, it represents a political model on three levels the region, state and E.U. and the negotiation networks between them; secondly, the European governance refers to the orientation and coordination of the playing rules, whether they apply for networks, markets or hierarchies (Kjaer, 2004). The second part of the paper analysis the democratization concept in connection with the development of global political economy, with the economic liberalization and the state s institutional change and the development of a powerful civil society. The main idea to be highlighted is that the state s power is dissolving under the globalization pressure, and the importance of the non-state actors for international policy is extending. The third part analyses the thematic of social enterprise, as a new actor within the governance s public space. This concept is framed within the trend of adopting new business methods for the market economy. The paper refer to social enterprise s position at the cross roads between public, private and nonprofit sectors, starting from the blurred boundaries between public and private sectors (Stoker, 1998: 17), area within a private company can be contracted by state for the provision of public service or within the state can regulate governance safe conditions for the civil society s organizations (Bouckaert, Pollitt, 2011: 3) and from the idea that social enterprise represents a product of the tension between attempts to reform the public sector through the introduction of private sector management rhetoric (Ridley-Duff, Bull, 2011: 39) and arriving to the idea of public-private partnership and co-production with the civil society by new arrangements of governance (Calabro, 2011:1). 1. NEW PUBLIC MANAGEMENT AND GOVERNANCE For contemporary society, a dilemma is between maintaining a republican theory of state, a public thing which is more than the amount of the groups of institutions and agents that form it, although it is formed of different games, in conformity to the essence of public policies and the current trend to see in a state a superposition without coordination of the public politics conceived as a whole, so many games subject to the paradox of unwanted consequences and, mainly, as actions without author, since they are made based on actions with multiple scopes (Allison, 1972). The state wouldn t build collective preference by adjusting the sectoral segment to the global one but it would be actually lacked of any responsible will since, subject to some global constraints on which it could not have any influence, it would reduce to a mix of incremental adjustments where everybody would control and no one would be responsible (Leca, 2006). Let s remember the traditional model of public sector, promoted by Max Weber, by determining the principles of modern bureaucracy when public interests and private interests are completely separated. The bureaucracy characteristic to modern occidental states, also called the chain of parliamentarian government (Olsen, 1978), is a neutral tool that applies the laws 205

206 adopted by parliament and the political decisions taken by government (Kjaer, 2004). In this pattern, political authority is held by the people s suzerainty and the power is exercised by the representatives elected. The principle of plurality connects the people to its representatives. The Parliament (legislative group) defines the joint interest of nation and supervises the enforcement of its resolutions by government. The executive power is the highest administrative authority, the executive elaborating the legislative projects submitting it to Parliament debates for adoption. In conformity to the presentation of Olsen, the relation between govern (executive) and the administrative apparatus is of hierarchical authority and rules of competence. The politics and administration are two distinct fields: the politicians determine the political objectives and the administration must encounter the means to reach such objectives. The fundamental principles of the relation between the administration and people are the human rights, the principle of the rule of law and the monopole of state over the means of coercion. It may be stated that the traditional pattern of bureaucracy has been elaborated more as an ideal model. In time, public bureaucracy has faced an increasing number of problems and it has no longer proper to social reality. The reality has proved that the hypothesis based on which the hierarchy involves a direct control and the public officer is liable only to the hierarchical superior, is no longer valid; also, in many countries, the organized groups of interests enjoyed an increasing direct access to public administration and gave birth to corporatism, a system of representation of interests with components organized based on a limited number of functionally different categories, obligatory, non-competitive, hierarchically ordered and differentiated, acknowledged or authorized by state and which were deliberately provided a monopole of representation in their categories, in exchange of accepting certain influences in electing the leaders and articulation of demands and support (Schmitter, 1974:94). The corporatism has broken the chain of parliamentarian government; in the corporatist structures, the responsibility was somehow privatized since it has been directed towards the organizations of specific interests (Day, Klein, 1987). Upon the internationalization of economy, the resources could be obtained by local or regional authorities from other source than from national governments which led to another breaking of the chain of traditional government. The economists have criticized the bureaucracy as neutral element for encountering the best means of implementation of political objectives and showed that the bureaucrats have their own interests which would reduce the efficiency, expressed by services provided to population. Pursuant to the criticism to bureaucratic traditional pattern, there have been a range of reforms in the occidental democracies in the 80 s and 90 s. The reform of public sector, known as the New Public Management, was introduced for the first time by Theatcher government in Great Britain and in the United States, during the mandate of Ronald Reagan, then in Australia and New Zeeland. The introduction of the private sector management in the public sector meant: active participation, performing a professional management, explicit standards and measures of performance, management depending on results and value against money and was called the three E: Economy, Efficiency and Efficacy (Rhodes, 1997: 93). NMP is interested in increasing the managerial competences by implementing some new management techniques from the private sector and tends thus to focus on the managerial aspect, in the detriment of political aspect. The market ideas included by NMP influenced the structure of administration, the staff and organization management and the selection of instruments of public politics. In a structured manner, the reforms had as objective the breaking of governmental monopoles in certain domains and the creation of autonomous or semi-autonomous agencies in the public sector (Pollit, Talbot, 2003) and replacing them with internal markets of goods and services, distributed in the past by hierarchical devices or by involvement to large extent of private sector in the distribution of services. 206

207 The new Public Management must be approached from the perspective of state transformations and public action in the contemporary society. In general, the state approach may be related to the following perspectives: 1. The state as a specific assembly of organizations and institutionalized procedures, supported to be valued (Hutington, 1968:394) and by the deciding staff; 2. State as a concentration of forces (Tilly, 1990); 3. State as a valorized speech gathering Max Weber (related to legitimacy) and Michel Foucault (related to gouverning); 4. State as system of social domination (Jessop, 1990), object of a dispute between structuralists and instrumentalists; 5. State as game of coordination of conducts in uncertain situations, involving the presence of a third party that chairs the dyadic changes and conflicts, the Hobbes perspective expressed in the terms of rational election (Barzel, 2002). According to Edward J. Harpham and Theodore J. Lowi, the best method to study the polis is to study the politics, the public politics being the state in action, under the aspect supported, repetitive and determining of action (Leca, 2006). The reform of public sector or the administrative reform presents few defining elements for the New Public Management, such as: Deliberate change of public bureaucracies It is synonym with innovation The anticipated results of reform process consist in improving the efficiency of public services The utility of reform is explained by the need to deal with incertitude and fast changes from the organizational environment (Turner and Hulme, 1997: 106). The concepts of government and governance have changed the paradigm of the communities of development. Kooiman defines government as being those activities of the social, political and administrative actors which may be regarded as deliberate efforts to guide, to direct, to control or manage fields or aspects of societies, whereas governance as model which derives from the activities of ruling of social, political and administrative actors (Kooiman, 2003). Traditionally, the state (under central leading) deals with the leading of society and aggregation of different interests in order to define the general interest. The processes of restructuring the state, of Europeanization and globalization are closely related to the notion of governance. The concept appears simultaneously with diagnosing an incapacity of governments to answer to issues submitted to it and to adjust to the new forms of social, economic and political organization. Jean Leca defines government as a complex phenomenon: To govern means to take decisions, to settle conflicts, to generate public goods, to coordinate private conducts, to rule markets, to organize elections, to extract resources, to influence expenses (Leca in Favre, Hayward, Schemeil, 2003). Governance may be regarded as a process of coordination of actors, of social groups and institutions with a view to reach some defined objectives and collectively discussed. The concept refers to the assembly of institutions, networks, directives, regulations, norms, political and social applications as well as to that of public and private actors that contribute to the stability of a society and of a political regime, to its direction, to the capacity of directing and to that of rendering services and to providing its legitimacy (Le Gales, 2006). In other words, governance defines all those interactive arrangements when public opinion as well as private actors participate with a view to solve the issues of society and with a view to create opportunities on the level of society, getting involved in institutions where such governance activities are carried out and with a view to stimulate the normative debates related to the principles on which relay all governance activities (Kooiman, 2003). If traditional governing uses power as a tool and relies on the command and control networks, the networks of governance are the stable models of social relations between independent actors, formed around politics and/or political programs (Kickert, Klign, Koppenjan, 1999). The governance has a wider sense than governing since it involves directing and rules of 207

208 the game, focusing on institutions and institutional changes. Therefore, governance refers to that frames where the citizens and dignitaries are acting, where the politics are implemented and which model identities and institutions of society (March, Olsen, 1955:6). The concept of governance is related to that of public action and, consequently, to that of public management. The governance issues are limited to the coordination and efficacy of collective action for amendment of market weaknesses. Governance may be understood as well from the perspective of political economy as stabilized articulation of regulations (Le Gales, 2006). The concept of regulation is defined, in this case, based on three dimensions: module of coordination of different activities or relations between actors; assignment of resources related to the activities or actors; structuring conflicts (prevention, settlement, sanction). One may talk about regulation when emphasizing the rather stabilized relations between actors and social groups that allow the sharing of resources and sanctions in conformity to explicit or implicit norms and rules. Five ideal types of regulation have been identified: market (competition), large company (hierarchy), state (coercion), community (solidarity), association of employers (negotiation). The combinations between these five ideal types of regulation form manners of governance of sectors, territories and society. The approach by governance focuses on the contingent dimension and on the local levels and acknowledges the diversity of institutional solutions related to the issue of collective action, social and political order or economy settlement. As defined by Kooiman (Kooiman, 2003), the governance negotiated is a mechanism that allows the actors to take decisions mutually satisfying and compelling and to solve the conflicts by negotiation and cooperation. One focuses the horizontal forms of interaction between actors, on inter-dependencies, conformity and rules of action and exchange, on autonomy of sectors and of networks related to the state, on temporal dimension, on processes of coordination of political and social actors and, sometimes, on the constrains of decision. Rhodes identifies three kinds of guiding mechanisms (Rhodes, 1996): the hierarchies that are using the power as instrument and rely on networks of command and control; those believing in market solutions consider that govern must have a minimal role in this category, there are voices that state that markets must be replaced by networks with a view to render services: The game, the collective actions, the mutual adjustment and the creation of networks are the new skills of public manager (Rodhes, 1999:666). The concept of governance is synonym with network management. The network management may take different forms: game management and network structuring (Kickert al., 1999, Klihn, et al., 1991). Game management means influencing the interaction between actors in the processes within the network and the structuring of network means the change of network characteristics. The networks in the supply of services do not actually mean less governmental leading but represent a new alternative to governmental actors (Kjaer, 2004). If the new public management supports and focuses on the distinction between politics and administration which characterizes the hierarchical pattern, in the network management, the govern is the sole dominating actor who may impose will unilaterally (Kickert, Koppenjan, 1999). Passing to post-industrial society involves configuration of another type of governance, based more on networks and horizontal dialogue between individuals on both sides of publicprivate tandem. The researchers of governance reject the net delimitation between the market approaches and those of state and propose even a third way (Jessop, 2002: ) between the anarchy of market and that of coordination by state namely heterarchy which refers to horizontal self-organizations between independent actors. Creation of networks, negotiation and partnership represent the components of a modern economic strategy (Kjaer, 2004). The economic governance refers to setting forth rules that determine the economic actors to collaborate more effectively as well as to implementation of economic politics. A plurality of state and non-state actors is more and more involved in the economic governance. The state maintains further on a significant role. In the developed states, the role of state concerns the ruling of increasing complexity of organizational structures that pass from industrial national economies to post-industrial globalised 208

209 economies. In the developing countries, the role of state concerns the involvement of society actors and the development of their capacity to elaborate and implement effective economic politics. Privatization involves the sale of enterprises from public sector in private property, with a view to increase the efficiency, to reduce the costs for consumers and to reduce the expenses. A version of privatization is the subcontracting system when the state remains the service s customer but the actual service is rendered by a private agency, the state being the customer and the private sector the supplier. Agencification refers to semi-independent agencies, (theoretically) separated from the political pressures, autonomous from central structure but having the management liberty. The agencies have operational status, their own objectives and performance targets. The executive is liable towards the minister who, on its turn, is liable in front of the parliament (Rhodes, 1996:96). In the NMP center stays the competition, as instrument of increasing efficiency. The competition is performed by privatization or by creating quasi-markets in the public sector (i.e. vouchers for health). Decentralization type deconcentration or devolution assigns the functions and competences to the lower levels, the central govern having a coordinating role. In case of deconcentration, the authority to elaborate the politics stays on central level, the implementation of politics being decentralized; in case of decentralization type devolution, the authority is fully decentralized, the local administration not being liable opposite to the central level but to the local population (Tuner and Hulme, 1997:154). It may be stated that NMP is a process of evolution, the most radical form of decentralization (Kjaer, 2004). The local administrations acquired authority and resources, being liable for the decisions taken opposite to the local communities (Nsibambi, 1948). Another innovative idea is that based on which the public officers may be held liable by their clients and by the users of the services supplied. The implicit conclusions is that NMP states that the realities of governing are other than those of traditional, ideal model and suggest the need to restore the public sector. Upon the exchange of the report between public and private and with the occurrence of a new model of interaction, there are however new approaches of public/private partnership and new perceptions related to sharing responsibilities. In administration, one may talk about a movement of the local administration towards communitarian governance (Benyon, Edward), which involves organizations both in public sector and in private sector (Rhodes, 1999). Rhodes assimilates to the concept of governance that of management of network. The network management could have several forms. Kickert and Klijn identify two forms: game management and network structuring (Kickert, Klijn, 1990, 1991). The concept of governance in EU has two significations: first: it is a model of politics which has three levels: region, state and EU and the negotiation networks between them; second: European governance refers to the orientation and coordination of game rules regardless if applied for networks, markets and hierarchies (Kjaer, 2004). Governance is more extended than government but it does not appear without governs. 2. DEMOCRATISATION AND CIVIL SOCIETY The democratisation project is a complex process of transformation of society which includes the state reform, the institutional reform and the development of global political economy. It also includes a democratisation process overhand of society, by forming and training civil society in the spirit of democratic values. The democratic functions of civil society, in conformity to liberal perspective, would be: Limitation of the state power and supervision of governments by population Providing an arena for the participation of citizens in voluntary associations, increasing their knowledge and democratic abilities 209

210 Providing a space for the development of democratic values such as tolerance, moderation and availability towards compromise; Creating channels, external to political parties for the articulation, aggregation and representation of interests Generating opportunities of participation to the local levels of government Restricting the sectoral interests and reducing the political conflict Recruiting new political leaders Partial supervision of elections meant to prevent and combat frauds and supervise the legal reforms in the new democracies Dissemination of information and, if necessary, contradicting the official information Providing resources for the economic reform Reducing the charge and demand addressed to the state (Diamond, 1994) Diamond defines civil society field of organised social life which is voluntary, has selfgenerating power, supports (to a great extent) itself, is autonomous opposite to state and submits to a legal order or a range of common rules. It generally differs from society by involving the citizens who activate in the public environment to express their interests, passions and ideas, to exchange information, to reach common scopes, to formulate petitions to the state and to make liable the officials. The civil society is an intermediary entity situated between the private sphere and state. (.) The actors of civil society need the protection provided by an institutionalized legal order, to be secured the autonomy and freedom of action. Therefore, civil society does not only restrict the power of state but legitimates its authority when it relies on law (Diamond, 1994:5-6). The liberal perspective concerns civil society essentially with a help of state. We may say that civil society is the arena between the state and the individual, the arena of individual and communitarian agents. There are researchers who state that democracy is as stronger as the network of social interactions is denser (Putnam, 1993). The idea is that democracy is localised on the level of civil society and not in the state and it is consolidated by globalisation and trans-nationalisation of politics. The state falls under the pressure of globalisation and the importance of non-state actors for national and international politics is extended (Strange, 1995:56). Democratisation is related to the development of global political economy, with the occurrence of global governmental institutions and creation of global communication network. On national level, democratisation is in accordance with the economic liberalisation and institutional change of state and development of a strong civil society. A strong public space may contribute to the consolidation of democratic governance. The concept of good governance introduced by World Bank is closely related to the concept of democratisation and signifies responsibility, transparency, receptivity, a strong civil society and a correct governing (World Bank, 1994). For Hyden, governance is conscious management of the regime structures with a view to consolidate the legitimacy of public space (Hyden, 1992). The governance space has four characteristics: 1. Authority related to legitimate power 2. Reciprocity is a form of social interaction that generates new forms of consensus related to the basic rules of politics 3. Personal trust between different groups and public authorities 4. Responsibility as form of receptivity of public authorities towards the citizens and manner how the citizens may make liable the public authorities (Hyden, 1999). The concept of governance includes trust and reciprocity, outlining, in the conception of Hyden, the importance of social capital and of the institutions of civil society in legitimating of public space. 210

211 3. SOCIAL ENTERPRISE AN ACTOR OF THE PUBLIC SPACE Theoretical debates on social enterprise and public sector reform Several debates on the public sector reform occurred on political, administrative, academic and business arenas, with the aim of identifying successful models in developing the public sector. These debates leaded to the formulation and application of some emergent models in the public sector reform, from the traditional model of public administration (Weber, 1992), the New Public Management model (Pollitt, Bouckaert, 2000, 2004, 2011) and the Neo-Weberian state (Dreschler, Kattei, 2008; Lynn, 2008), to the New Public Governance (Pierre, Peters, Kaufmann, 2009; Osborne, 2010 in Bouckaert, Pollitt, 2011: 22). When referring to social enterprise literature, the authors consider the opinion of Leadbeater (1997), which places the concept of social entrepreneurship among the three society s sectors, namely public, private and nonprofit sectors, by addressing the following proposals: importing business methods within the public sector; social purpose centered business; entrepreneurial approaches within the nonprofit sector (Nicholls, 2006: 12). One of the most important literature findings considers the integration of social enterprise domain within the models of New Public Management and New Public Governance (the Neo- Weberian model was not considered due to the absence of a public-private partnership, Pollitt, Bouckaert, 2011). Through the spectrum of the New Public Management, literature argues that the social enterprise is a product of the tension between the attempts to reform the public sector through the introduction of the private sector management rhetoric and radical responses to those attempts by local politicians and community entrepreneurs with socialist sympathies (Ridley-Duff; Bull; 2011). On the other side, Italian literature proposes the consolidation of public governance paradigm through the development of social enterprises incubators (Carrera, Meneguzzo; Messina, 2006). By considering these two perspectives and models, the current research adopts the second perspective of consolidating the paradigm of public governance through social enterprise. This position is argued by the position of social enterprise at the crossroad between public, private and nonprofit sectors (Ridley-Duff, Bull, 2011) (in this paper the nonprofit sector refers to all nongovernmental/nonprofit organizations), position that goes in line with current theoretical debates of New Public Governance, one of the governance versions (Osborne, 2010 in Pollitt, Bouckaert, 2011) (literature mentions the future governance version Digital Governance Era, Dunleavy, 2006 in Pollitt, Bouckaert, 2011). Reference models of social enterprise in Europe The European Commission underlines in Europe 2020 Strategy one of the three priorities of European governance for smart, sustainable and inclusive economy: inclusive growth a high employment economy delivering economic, social and territorial cohesion (European Commission, 2010). For achieving the mentioned-objective, the Strategy integrates the social economy and its basic institutions social enterprises, as a medium and long term solution for good governance in crisis and post-crisis times (Matei, Sandu, 2012). The elaboration of action plans in social enterprises domain at European level has its roots in national experiences and traditions, by recognizing the fact that British, Italian and French models are references models in the region (European Commission, 2013: 34-36). The British model The British model of social enterprise represents a reference model at both European and international level. 211

212 This status is explained by the expansion (but also of experience - Social Enterprise UK, 2011, Fight back Britain. A Report on the State of Social Enterprise survey 2011, Social Enterprise UK) of social enterprises in UK, the majority of social entrepreneurs choose the third way in achieving a social or environmental aim (Holbrook in Bounds, 2013) and not in prioritizing the financial profit. The social enterprise has a clear mission at national level, mentioned in reports and networks: social enterprises do not exist to create shareholder value: they exist to create social or environmental value. They create that value through trading activities and generating wealth in their communities and like any other business, they seek to make a profit. The differences come in why they trade, how they work and what they do with that profit for social enterprises, social impact is what success looks like. (Social Enterprise UK, 2011: 21). British government declared its support in developing social enterprises by creating Social Enterprise Unit within the Department of Trade and Industry in In 2011, Department of Business, Innovation and Skills elaborated a guide for legal forms of social enterprises, which highlights the following categories: Category 1 Unincorporated forms and Category 2 Incorporated forms (Department of Business, Innovation and Skills, 2011:2). Besides these legal forms of social enterprises, literature identifies philosophical structures, as a self-perception modality within the organization: social firm, development trust, community enterprise, cooperative, credit union (Price, 2009: 16). The particularity of the British model is that the social enterprise benefits of the maximum trust and support of the government in all intervention domains (Department of Business, Innovation and Skills, 2002:24): 1) Public service delivery and reform the capacity of providing improved public services, by combining enterprise elements, social purpose and customer focus, local innovation, impact, variety and high quality of services. 2) Social and financial inclusion through the employment and training possibilities for marginalized persons. The Italian model The Italian model of social enterprises is recognized by the social cooperative movement and it is considered a reference model across Europe and at global level, by the legal approval of social cooperatives in 1991 by adopting the Law 318/1991 on social cooperatives (Spear, Bidet, 2003:11). The law on social cooperatives (cooperativa sociale) defines this type of organization by its mission of following the general interests of community by promoting social and humanity integration through a) health and educational services management (social cooperative A and B types) and b) accomplish agricultural, industrial, commercial or services activities with the aim of work integration of disadvantaged people (social cooperative B type) (Law 381/1991 on social cooperatives art. 1(1)). From an institutional perspective, the Italian cooperatives movement has a strong influence upon the development trends in the third sector in Europe. Roger Spear considers the fact that the existence of Italian social cooperatives represents the source of inspiration in creating EMES European Research Network, but also in the general discussion in the third sector (Spear, 2008:58). The experience of social cooperatives in Italy determined the public organizations position in adopting a new vision on the third sector, the legal regulation of social enterprises (imprese sociale). In 2005 in Italy was adopted the Law 118/2005 on social enterprises discipline, which defines the social enterprise as the private nonprofit organization with the main activity based on economical production or exchange of goods and services of social utility, for achieving the general interest (Law118/2005 on social enterprises, art. 1(1)). From an institutional perspective, Ministry of Labor and Social Policies is managing the complementarities between corporate social responsibility and the third sector organizations, the active citizenship and civil society. 212

213 Regarding the main activity domains of social enterprises in Italy, literature mentions health and medical assistance, and as emergent domains environment, trade, information and communications technology and tourism (Carrera, Ferrari, Meneguzzo, 2008:14-15). The French model The theoretical approach in the French third sector is the social economy approach, with origins in the state (Defourny, 2004:3). The social economy represents a modality of undergoing activities by legal private persons democratically governed by all stakeholders in accomplishing the enterprise s mission and in applying management principles for maintaining or developing the enterprise s activity ( ) (Legislative project on social economy, 2013, art. 1 (I)). OECD mentioned in 1999 the social enterprise phenomenon in France in the context of European debates, which was identifying two main categories: work integration social enterprises and social focused enterprises (services provision) (OCDE, 1999:25). The legislative project on social and solidarity economy in 2013 mentions the organizations that can produce and provide goods and services: cooperatives, mutual, foundations and associations and commercial societies for social utility (Legislative project on social economy, 2013, art. 1 (II)). Bernard Eme and Laurent Gardin (2003) published a study on national profiles of work integration social enterprises in France, to highlight the diversity of the organizational forms that a association can take in practice: adaptation centre to active life (centre d'adaptation à la vie active), integration enterprise (entreprises d insertion), intermediary association (l association intermediaire), neighborhood association (regie de quartier), temporary work integration enterprise (entreprise de travail temporaire), employers group for integration and qualification (groupement d'employeurs pour l'insertion et la qualification), long-term integration enterprise (Eme, Gardin, 2003). Besides these type of associations, there are identified also the foundations (fondations), regulated by Law for developing patronage, cooperatives (coopératives), regulated by Law on organizing the credit cooperatives 1917, which lead in 1947 to the regulation of cooperation by the Law , and mutual (mutuelles) (Mutual 462/ art 1, Art. L111-1). Bernard Eme and Laurent Gardin (2003) identify also the relation of these organizations with the public policies institutional framework, thus: departments for social and sanitary action, Department for integration through economic activity, Department of work, employment and professional training, Department for Social Action, etc. Comparative experiences of social enterprise The comparative study regarding the organization and the functioning of the social enterprise is realized upon 15 organizations (Table 1) from Italy, Romania, and Croatia, taking into consideration the following aspects: the year of the foundation and the legal status, the type of services and the fields of activity, the dimension of the human resources and that of financial resources, the target groups, the partnerships and the extension of the projects. From the perspective of the organization and the functioning of the analyzed organizations, there will be used as independent variables the year of the foundation, the legal status and the country of origin of the organization, and the dependent variables will include the type of services and the fields of activity, the dimensions of financial and human resources, the target groups and the types of partnerships. Thereby, it is suggested the highlighting of the common and diverse approaches of the typology of services and fields of activity, the financial and the human resources dimensions, the target groups and the types of partnerships depending of the year of the foundation (tradition versus pioneering), legal status (traditional status versus recently adopted status), country of origin (Italy versus Romania and Croatia, reference models versus developing models). 213

214 Table 1. The analyzed organizations (Sandu, 2013) The year of foundation and the legal status The main aspects related to the year of the foundation and the legal status specific to the analyzed organizations are: 1) all the organizations in Italy have been founded before 2000, and all the organizations from Romania and Croatia have been created after 2000 (excepting one case) 2) the legal statuses predominant are the associations and the cooperatives (40% each), and 3) 66.7% of the organizations (the majority being associations, and especially in Italy) adopt the non-profit approach and 53.3% approach the social economy (the majority social cooperatives, and in particular in Romania and Croatia). 214

215 Figure 1. The dynamic of the analyzed organizations (Sandu, 2013) Types of services and fields of activity The main three categories of services, more precisely personal services, labor integration and professional training, and local development, can be found at the level of the analyzed organizations by the following percentages: personal services 53.3%, labor integration and professional training 60% and local development 20%. There is however a difference of approximately 13% allocated to services considered distinct from those three big categories, namely IT3 offers services of research, information and advocacy, and HR5 offers marketing services to other organizations. If in three out of five (3/4) cases from Italy and four out of five (4/5) cases from Romania the personal services and those of labor integration and professional training are found in equal percentages, in Croatia the emphasis is put on services of labor integration and professional training, and local development. Considering the perspective of the legal status, the associations and the cooperatives from Italy and Romania are the main providers of personal services, and labor integrationand professional training, and for the category of the local development there are identified the cooperatives in Croatia. Regarding the typology of fields of activity - education, culture, environment, social services, sports, there is prevalence of social services (73.3% of all cases). Along with this are representative the fields of education (33.3%) and culture (26.7%). The dimension of human resources The main employer-organizations are the associations (5/6) and the cooperatives (5/6) in 73,3% of the cases, with a number of employees from On the same segment it is found also the legal form of limited liability companies. For the following categories of is identified the IT5 organization and identifies Ro5. The organizations with more than 100 employees are IT4 and IT2. A particular case is that of the IT2 organization that holds a number of 5,400 employees. The dimension of human resources is best represented in the organizations from Italy, and from the viewpoint of the three categories of services, the most frequent segment of the number of employees is