Macedonia vs. Unemployment - Proposal Submitted to the Government - Part IV

By: Dr. Sam VakninFormer Economic Advisor to the Government of the Republic of Macedonia

Macroeconomic Policies

The macroeconomic policies of Macedonia are severely constrained by its international obligations to the IMF and the World Bank. Generally, a country can ease interest rates, or provide a fiscal boost to the economy by slashing taxes or by deficit spending.

Counter-cyclical fiscal policies are lagging and as a result they tend to exacerbate the trend. Fiscal boosts tend to coincide with booms and fiscal contraction with recessions.

In view of the budget constraints (more than 97% of the budget is “locked in”), it is not practical to expect any employment boost either from the monetary policy or from the fiscal policies of the state in Macedonia.

What I do recommend is to introduce a “Full Employment Budget” (see details in Appendix number I). A full employment budget adjusts the budget deficit or surplus in relation to effects of deviations from full or normal unemployment. Thus, a simple balanced budget could be actually contractionary. A simple deficit may, actually, be a surplus on a full employment basis and a government can be contractionary despite positive borrowing.

Apprenticeship, Training, Retraining and Re-qualification

The law should be amended to allow for apprenticeship and training with training sub-minimum wages. Mandatory training or apprenticeship is a beneficial rigidity because it encourages skill gaining. Germany is an excellent example of the benefits of a well-developed apprenticeship program.

Most of the unemployed can be retrained, regardless of age and level of education. This surprising result has emerged from many studies.

The massive retraining and re-qualification programs needed to combat unemployment in Macedonia can be undertaken in collaboration with the private sector. The government will train, re-train, or re-qualify the unemployed worker – and the private sector firms will undertake to employ the retrained worker for a minimum period of time following the completion of his or her training or retraining. Actually, the government should be the educational sub-contractor of the business sector, a catalyst of skill acquisition for the under-capitalized private sector. Small business employers should have the priority in this scheme.

There should be separate retraining and re-qualification programs according to the educational levels of the populations of the trainees and to the aims of the programs. Thus, vocational training should be separated from teaching basic literacy and numeracy skills. Additionally, entrepreneurship skills should be developed in small business skill training programs and in programs designed to enhance the management skills of existing entrepreneurs.

All retraining and re-qualification programs should double as advisory services. . The instructors / guides / lecturers should be obliged to provide legal, marketing, financial, sales-related or other consulting. Student who will volunteer to teach basic skills will be eligible to receive university credits and scholarships.

Entrepreneurship and Small Businesses

Small businesses are the engine of growth and job creation in all modern economies. In the long run, the formation of small businesses is Macedonia’s only hope. The government should encourage the provision of micro-credits (from microfinance through to commercial banking) and facilities to set up small and home-based businesses by the banking system. In the absence of reaction from or collaboration with the banking system, the state itself should step in to provide these funds and facilities (physical facilities and services – such as business incubators).

Thus, the state should encourage small businesses through microcredits, incubators, tax credits, and preference to small businesses in government procurement.

1.     The government will encourage the provision of micro-credits and facilities to set up small and home-based businesses by the banking system and non-banking special purpose financial institutions.

2.     The government – through its network of Employment Bureaus and facilities – will provide entrepreneurs with physical facilities and services – such as business incubators.

3.     The state will encourage small businesses through the provision of subsidized and state guaranteed micro-credits.

4.     The government will give domestic investors and domestic entrepreneurs and intrapreneurs (=investments within big firms) the same treatment accorded to foreign investors: tax credits, tax holidays, deferral of capital gains taxes and so on.

5.     Small to medium size businesses will be given preference in government procurement and in public tenders.

6.     The government will encourage innovation and the formation of intellectual property by financing the registration of international patents, brand names, copyrights, and trademarks and by organizing innovation fairs and exhibitions in Macedonia or participating in such fairs and exhibitions abroad in an effort to locate investors, venture capitalists and risk capital funds for Macedonian inventors and innovators.

7.     The government will encourage home businesses by supporting women entrepreneurs. This will be done by providing them with the conditions to work and exercise their entrepreneurial skills. By establishing day care centres for their children. By providing micro-credits (microfinanace). By giving women special tax credits. By allowing or encouraging flextime or part time work or work from home. By recognizing the home as the domicile of business (especially through appropriate tax deductibles). By equalizing the legal rights and pay of women with men. By protecting them from sexual or gender harassment.

8.     The government will identify priority future leading economic sectors and act to support them. The education and higher education systems will be re-directed and encouraged to produce the skills needed by these economic sectors. In Macedonia, these sectors include: designer textiles, off season agricultural products, high value added agricultural products (e.g., greenhouse flowers), organic foods, ethnic foods, remote processing of backroom operation using computers and modems, software authoring and many other sectors where Macedonia has comparative advantages.

9.     The government will encourage community-level and municipality-level economic activities and other civic local initiatives. This will be done by opening municipal “one stop shops” and by providing financial assistance and participation of the state, either through the banking system or through independent contractors.

10. The government will implement a “One Stop Shop” approach in all relevant economic legislation and regulation. It will strive to cut bureaucracy by amending all the laws related to business and trade to include a mandatory “one stop shop” provision.

11. The government will encourage big firms to reward entrepreneurial and innovating workers, to spin off small businesses, to create in-house incubators and to protect their intellectual property. This will be done by providing a mixture of tax benefits and direct financial assistance.

12. The government will act to disseminate knowledge and information regarding business, financing, business-related skills and practices, entrepreneurship, management, and quality control techniques – both through the mass media or directly, through educational schemes and institutions, both public and private.

13. All senior government officials, including ministers, will meet small business owners and entrepreneurs on a regular basis. The government will establish an inter-ministerial “Committee for Small Business and Entrepreneurship”, chaired by the Prime Minister. This will be a steering committee with executive powers.

COMMENT OF MACEDONIAN LABOR EXPERTS

BUT, empirical research has demonstrated that investors are not lured by tax breaks and monetary or fiscal investment incentives. They will take advantage of existing schemes (and ask for more, pitting one country against another). But these will never be the determining factors in their decision-making. They are much more likely to be swayed by the level of protection of property rights, degree of corruption, transparency, state of the physical infrastructure, education and knowledge of foreign languages and “mission critical skills”, geographical position and proximity to markets and culture and mentality.

Q: Women start one-third of new businesses in the region: now can this contribution to economic growth be further stimulated?

By providing them with the conditions to work and exercise their entrepreneurial skills. By establishing day care centres for their children. By providing microcredits (women have proven to be inordinately reliable borrowers). By giving them tax credits. By allowing or encouraging flexitime or part time work or work from home. By recognizing the home as the domicile of business (especially through the appropriate tax laws). By equalizing their legal rights and their pay. By protecting them from sexual or gender harassment. (continued)