Social Cohesion

Speaking notes of Mrs. Miet Smet, Co-Chair of the Stability Pact Initiative for Social Cohesion

Ladies and Gentlemen,

Let me start by saying how pleased I am to address today the key stakeholders and partners of Working Table II in my capacity of Co-Chair of the Initiative for Social Cohesion. Having the floor now to set the scene for today’s discussions, I will speak from the perspective of how our Initiative contributes to the very important issue of enterprise development and employment generation in South Eastern Europe. I trust that my colleagues who will speak later on will complement this perspective with a description of their own contribution to this umbrella theme of Working Table II. Most importantly, I hope that these discussions will focus all our attention and efforts on the need to further strengthen and support the progress that the countries of South Eastern Europe have already made in terms of political stability, democratisation, boosting economic growth and enhancing social cohesion.

Going right to the heart of the matter, let me touch upon some of the concrete links between enterprise policy and social cohesion:

• Social dialogue is good for investment climate. South Eastern Europe has been plagued by social and labour unrest, also in job sectors like medical staff and teachers. Bringing down frequency of labour disputes contributes to raising interest on investment both national and foreign.
• In SEE, any robust job creation policy must take into account social security systems. In particular, pension systems must be structured in a way that facilitates labour mobility.
• Health sector development, mainly when private initiative can play a role, as in most western European economies, will be a tremendous boost for a large entrepreneurial sector, mainly in the area of services.
• Lastly, pension funds and health insurance institutions can, if there are favorable legal and administrative settings, become significant actors in developing financial markets and investment opportunities.

In the very beginning, I would like to point out that the key reason for launching this discussion on “Entrepreneurship and Employment Creation in SEE” is the understanding of all of us in Working Table II that economic development in South Eastern Europe must go hand in hand with the development of appropriate social policies. It is the only way to ensure sustainability of the various reforms ongoing in the region and to offer a light at the end of the transition tunnel for those countries that still have some time to go before they join the EU. We devised this umbrella theme in a way that it builds on, complements and enhances existing WT II initiatives in these areas such as the Investment Compact, the European Charter for Small Business and the Bucharest Cooperation Process on Employment.

Ladies and Gentlemen:

We are all aware, and the people of South Eastern Europe even more aware, that unemployment is one of the key challenges and a source of potential instability for the region. Some facts we should consider include:

• The reduction in employment by around 30% over the last 10 years was due to the fact that job losses caused by the economic hardships and restructuring were much stronger than the job creation process, despite all the reforms that have taken place, so that the unemployment rates have remained persistently high, even though there are some national differences in the rates;
• Permanent vulnerable groups exist in the labour market, such as Roma, youth, women;
• Migration processes aggravate the situation;
• The legislative framework is incomplete or inadequate and employment strategies are still in the making or not up to the challenge;
• There is insufficient staff training and resources for active employment programs;
• There are strained relations between governmental bodies and social partners and between the different levels of labour administrations;
• Deep problems stemming from wars in the region and the consequent existence of refugees and displaced persons, create a further burden for the labour market.

The unemployment rates in SEE are higher not only compared with those in the EU, but also compared with the rates in Central European countries. This creates a serious burden to the labour market as well as to the social services. A substantial problem, in addition to the high overall unemployment rate, is the continuously high level of long-term unemployment over the last decade.

The issues of underdevelopment and unemployment are also immediately linked to the process of de-industrialization, which, in conjunction with the wars of the 1990s, has devastated this region more than any other of the former socialist world. Throughout the region, factories that used to provide jobs for entire communities have simply collapsed as their market disappeared. This massive rise in unemployment over the past ten years that followed the steady decline of the 1980s has meant that all these countries struggle to raise public revenues to cover the cost of institutions and public sector without hindering private sector development.

Despite clear signs of an improvement in some countries, notably Bulgaria and Romania, the high unemployment rates in Bosnia and Herzegovina, Serbia and Montenegro and the former Yugoslav Republic of Macedonia are not expected to fall in the near future. Many of the jobless are young first-time job seekers who, even when they enter the labour market, are faced by a high rate of labour turnover and a high incidence of short-term employment. In these countries, there also tends to be a big difference between the rates of registered unemployment and those measured according to the ILO definition. The registered unemployment, being closely related to incentives to register, such as unemployment benefits, normally exceeds the real unemployment as many of those who are officially jobless are actually active in the informal economy.

On the economic side, the promotion of entrepreneurship is at the very center of any strategy to create jobs and to reverse the decline caused by de-industrialization. Entrepreneurship is understood as any attempt of starting up a new business venture in the form of self-employment, a new business organization or the expansion of an existing business, either by an individual, teams or already existing organizations. National entrepreneurship is often associated with three mechanisms that facilitate national economic adjustment and growth: creation of new businesses, reorientation of existing businesses towards entrepreneurial goals and the redirection of the national institutional infrastructure.

SMEs account for 99.8% of all enterprises and two thirds of all jobs in EU countries. They are of critical importance to the economic prospects, play an important role in strengthening economic performance, which is particularly important during the general slowdown in global economic growth. They are adept at responding to market opportunities. Small firms are particularly important in raising innovation, productivity and competitiveness.

Whereas SMEs account for an average of 98,1% of all enterprises in SEE, not far from the EU average of 99,8%, other measures of the state of the enterprise sector show significant differences between the two regions. SME density is extremely low, averaging 13.7 per 1000 inhabitants, compared with 52.8 in the EU region; accounting for an average of 47% of total employment in the enterprise sector, as compared to an average of 66% in the EU. The share of the private sector in GDP is also very low at 58% in the SEE region, well below the same value for the advanced transition countries who became members this year.

Small and medium-sized enterprises face major challenges in SEE. As well as lack of scale, resources and the capacity to handle complex business management, they frequently suffer from a complicated and bureaucratic environment that is a legacy of the past. The challenges of business entry, survival and growth are great. Developing a framework for dynamic entrepreneurship is fundamental in creating healthy and competitive market economies, and thus generating new jobs, exports and economic growth.

The 2003 Global Entrepreneurship Report outlines some key factors that contribute to entrepreneurship development: a positive personal context – knowing entrepreneurs, seeing good business opportunities, and having the skill to create business – has a major impact on participation in firm start-up. A cultural context that is positive towards entrepreneurship – reflected in social acceptance of entrepreneurial careers, respect for new business success and positive media coverage tends also to increase participation in start-ups. Educational attainment and household income affect the motives for entrepreneurship: the poor and uneducated are more likely to be responding to necessity, while the educated and well-off – to opportunities. Men are twice more likely to pursue start-ups than women, and younger adults, 25-34 years old, are the most active.

In the light of what has been said so far, special emphasis must be given to entrepreneurship and the development of SMEs in the reform agendas. SMEs have the additional advantage of diluting the existing concentration of economic power. Small enterprises had turned out to be the most dynamic economic factor in other transition countries and their development could help to break up vested interests.

But this is not all. When a more favorable economic environment creates a new demand for labour, the labour market must be ready to supply workers with the appropriate skills. Education and training must be more responsive to the needs for employability. Labour market institutions must be up to what is expected from them and the legislative framework must encourage enterprises to hire workers and discourage the shadow economy.

There are success stories. During my recent visit to Sofia, the Bulgarian Minister of Labour and Social Affairs reported with enormous pleasure that the unemployment rate in her country had been reduced from around 17% to around 11% percent. In Sofia, unemployment is as low as 5%. Of course, disparities remain high between urban and rural areas, but this example shows that with appropriate employment policies, reformed labour market institutions and a vibrant SME sector, “miracles” ARE possible.

Examples like this, ladies and gentlemen, lead me to firmly believe that the other countries of South Eastern Europe and especially those who have not yet been officially recognized as EU candidates, can achieve similar progress.

One very important area in which the Initiative for Social Cohesion works is the area of employment policies. This has also been identified as one of the priorities in the national development strategies of the SEE countries. Following the Bucharest Ministerial Conference on Employment in October last year, the expertise of the Council of Europe and the ILO has been made available to the countries of the region to help them revise and reform their employment policies. The accession experience that Romania and Bulgaria are currently going through is an additional contribution to this process of regional cooperation. What we expect as an outcome is the endorsement of modern employment policies, responding to the specific needs of the countries, but also in line with European and international standards. We also see this as an exercise to prepare the countries for the steps they will have to take on their way to EU membership. One very important basis is the European Employment Guidelines and their three overarching objectives: full employment, in particular meeting the Lisbon and Stockholm targets; the promotion of quality and productivity at work and the fostering of social cohesion and inclusive labour markets through creation of better and more jobs by fostering entrepreneurship, innovation, investment capacity and a favorable business climate for all enterprises.

Another important segment of the overall efforts to achieve socio-economic progress is the development of social partnerships. Social partnerships have gained in popularity throughout the developed and developing world, primarily out of recognition that conflict between government, industry, labour and others was self-defeating and destructive of resources. Much more could be gained from compromise and agreement than from continuing confrontation. In this respect, our Initiative focuses particularly on developing capacities and institutionalisation of efficient social dialogue in SEE. The aim is to have strong, independent and representative workers’ and employers’ organizations, which have the capacity to play their role in the social dialogue process, effective institutions of social dialogue at all levels of decision making process, operating within a sound legal framework, and effective labour administrations, which will play their role on behalf of the government. Successful regional development experiences from the Timisoara/Arad region in Western Romania are encouraging as they show the role of local government, social partners and small business in promoting a new and vibrant enterprise culture and most importantly in generating new employment and economic growth.

Drawing on the results and experience of our regional networks established in these two areas, employment policies and social dialogue, the Initiative for Social Cohesion actively participates in the work done under Working Table II’s umbrella theme of “Enterprise Development and Employment Generation in South East Europe”. The Conference in Bucharest and the workshop in Skopje brought together the experts from the economic and the social worlds, two major groups that one does not see together too often. They offered them excellent platforms to exchange views, brief one another on their activities and develop further their knowledge. The participants also had the opportunity to examine experience from established EU member states, from new EU member states still in the transition process as well as experience in SEE. This sharing of information outside of traditional networks is important and has also very much enriched our own work. We plan to continue this line of action in close collaboration with our colleagues from Working Table II, but also with other Stability Pact Initiatives. There are several events already planned for the first half of 2005, with the aim to examine more closely the inter-relatedness of education, employment, enterprise development and overall economic and social development.

The situation in SEE is evolving from post-conflict reconstruction towards combined economic and social development in view of preparing for EU accession and convergence with international standards. The experience of the transition and accession processes shows that the huge reform efforts demanded from the SEE countries can be sustainable only if the economic and social dimensions are addressed simultaneously. The Working Table II’s Initiative for Social Cohesion remains committed to continuous contribution to this process, making the accumulated expertise, human and financial resources available to all Governments in the region. I would also like to call upon the partners and stakeholders of Working Table II to continue their valuable commitment and support to our umbrella theme, because it certainly brings a high added value to our day-to-day work in our different fields.

Thank you