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Reflections on the State of the Danube Region
Rumen Dobrinsky
Senior Research Associate
Vienna Institute for International Economic Studies
1st Annual Forum of the EU Strategy for Danube Region
Regensburg, 27-28 November 2012
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STRUCTURE OF THE PRESENTATION
1. Overview of recent economic performance in the Danube Region
2. The broader picture: What is happening to growth in Europe?
3. Policy implications for the Danube Region and the EUDRS
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PART 1
Overview of recent economic
performance in the Danube Region
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THE DANUBE REGION
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THE DANUBE REGION ECONOMYGDP of countries and regions at PPS in 2011, bn €
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THE DANUBE REGION ECONOMYGDP of countries and regions as % of the region's aggregate GDP in
2011
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THE DANUBE REGION ECONOMYPer capita GDP in countries and regions in 2011, ths. € in PPS
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GDP growth in the Danube region economies, %, 2001-2012
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Unemployment rates in the Danube region economies, %, 2001-2012
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General government balances in the Danube region economies, % of GDP, 2001-2012
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Public debt in the Danube region economies, % of GDP, 2001-2012
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PART 2
The broader picture: What is happening to
growth in Europe?
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Main indicators of EU-27 economic performance in 2001-2011
2001-2007 2008-2011
Annual rate of GDP growth, % 2.3 -0.1
Annual rate of growth of hourly labour productivity, % 1.7 0.3
Annual rate of growth of the GDP deflator, % 2.3 1.6
Gross fixed capital formation, % of GDP 19.9 18.9
Annual net inflow of FDI, % of GDP 3.3 1.3
Change in world export share, index, beginning of period=100 100.0 88.3
Annual rate of growth of nominal ULC, % 1.8 2.1
Annual rate of growth of real ULC, % -0.5 0.5
Private sector annual credit flow as % of GDP 11.0 3.9
Private consolidated gross debt, % of GDP 100.0 118.3
Total general government revenue, % of GDP 42.5 41.2
Total general government expenditure, % of GDP 44.7 46.3
Annual general government balance, % of GDP -2.2 -5.1
Government consolidated gross debt, % of GDP 61.3 75.7
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FACTORS OF GROWTHGross fixed capital formation and GDP growth in the EU-27, 2001-2007
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FACTORS OF GROWTHAttracted FDI and GDP growth in the EU-27, 2001-2011
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FACTORS OF GROWTHExports and GDP growth in the EU-27, 2001-2007
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FACTORS OF GROWTHReal unit labour costs and GDP growth in the EU-27, 2001-2007
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FACTORS OF GROWTHReal unit labour costs and export growth in the EU-27, 2001-2011
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FACTORS OF GROWTHInnovation and GDP growth in the EU-27, 2001-2007
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FACTORS OF GROWTHDomestic+foreign savings and GDP growth in the EU-27, 2001-2007
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FACTORS OF GROWTHPrivate credit flow and GDP growth in the EU-27, 2001-2007
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The model of growth in the EU, 2001-2011Summary of stylized facts
Factors 2001-2007 2008-2011
Productivity of labour ++ ..
Fixed investment ++ ..
FDI + ..
Exports ++ ..
Real ULC/ Competitiveness - ..
Innovation ++ ..
Gross domestic savings .. ..
Attracted foreign savings (current account balance) ++ ..
Domestic and foreign savings ++ ..
General government balance .. -
Total tax burden .. ..
Total banking sector liabilities ++ ..
Private sector credit flow + +
Private sector debt ++ ..
Government debt - -
Government + private debt ++ ..
« + » positive correlation ; « - » negative correlation ; « .. » no correlation
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Government and private debt in the EU-27,
% of GDP, 2000-2011
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GDP growth and growth of indebtedness in the EU, 2001-2011
EU-27 EU-17 (“Old” EU) EU-10 (CEE)
2001-2007
2008-2011
2001-2011
2001-2007
2008-2011
2001-2011
2001-2007
2008-2011
2001-2011
Cumulative growth of GDP, %
17.5 -0.4 16.9 16.3 -0.8 15.3 39.3 6.4 47.6
Cumulative growth of indebtedness, % of GDP of which:
18.2 31.9 50.1 17.5 32.1 49.7 31.5 26.3 57.8
Cumulative growth of government debt, % of GDP
-1.5 24.0 22.5 -1.7 24.5 22.9 1.7 13.9 15.6
Cumulative growth of private debt, % of GDP
19.7 7.9 27.6 19.2 7.6 26.8 29.8 12.5 42.2
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Change in government debt and bond spreadsSelected EU countries, 2008-2011
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PART 3
Policy implications for the Danube Region
and the EUDRS
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• The dominant factor boosting growth in the boom period was the mobilization of new resources, in the first place financial resources
• EU growth during the past decade has been very “expensive”, and – comparing mobilized resources and outcomes – rather inefficient
• This model and pattern of growth led to the accumulation of large, in some cases unsustainable, public and private debt
• The level of public sector indebtedness appears as the single most important factor that weighs of the growth prospects of individual countries
SOME GENERAL CONCLUSIONS ON THE EFFECTS OF THE CRISIS
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• The crisis rejected the previous growth model on the grounds of its unsustainability but a new model has not emerged yet
• Countries (both governments and businesses) will have to learn to live with less resources (in the first place financial) at their disposal
• One factor for reviving economic activity is raising the efficiency of resource utilization, including raising the efficiency of utilization of public funds and the efficiency of public policy
• Thus the policy motto for the foreseeable future is shaping as: “Doing more with less”
• Nevertheless, being relatively less burdened with public debt, governments of most DR countries have more degrees of fiscal freedom than the more indebted EU economies
SOME GENERAL IMPLICATIONS FOR DANUBE REGION ECONOMIES
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• The EUDRS and its Action Plan set very ambitious objectives; at the same time the crisis has generated new challenges
• “Doing more with less” is easier said than done – but not impossible!
• To address these challenges we need bold new policy approaches and policy innovation
• I discuss two possible approaches for addressing some EUDRS objectives against the backdrop of the current challenges:
Internal restructuring of the set of existing policy instruments with greater emphasis on non-financial policy instruments and with a particular focus on those promoting innovation
Wider application of participatory policies
HOW TO ADDRESS THE EUDRS CHALLENGES IN THE CURRENT CONDITIONS?
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• “Non-financial” are those instruments that do not involve direct public financial support to actions implemented by non-public bodies
• They rely on the coordinating capacity and convening power of the state and its role in stimulating linkages between key stakeholders
• Among the most efficient such instruments are those that promote connectivity among stakeholders
• Others efficient instrument are those that promote risk sharing among stakeholders through knowledge sharing among them
• Examples include “information brokerage” (technology forums, fairs, exhibitions); “innovation intermediaries”; knowledge services; etc.
• These are relatively “cheap” policies in terms of the claims on épublic resources
“NON-FINANCIAL” POLICY INSTRUMENTS
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• Non-financial policy instruments can be especially effective in supporting and promoting innovation and innovative activity
• They can have a significant positive effect on firms’ innovative performance and productive efficiency
• Such policies are already present in national innovation policies as well as in EU programmes
• The main issue here is that of restructuring the overall policy mix within the available public funds, assigning greater emphasis on this type of instruments
• Such a restructuring will raise the overall efficiency of the policy mix
“NON-FINANCIAL” INSTRUMENTS PROMOTING INOVATION
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• Non-financial policy instruments promoting innovation address some of EUDRS key objectives and issues: the knowledge society; research and innovation; the competitiveness of enterprises
• Their wider application will contribute to better connectivity and more linkages between businesses, R&D institutions and other stakeholders in the Danube Region
• This will contribute to more innovation and higher productive efficiency in the Danube Region
• Their wider application will not be ascociated with new claims for public (national or EU) financial resources; it will only be a matter of re-prioritizing and internal restructuring of resources
• They can be applied at the European, national or regional levels
THE EU DANUBE STRATEGY AS A VEHICLE FOR PROMOTING NEW POLICY APPROACHES
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• One of the policy answers to the challenge: “Doing more with less” is through PARTICIPATORY POLICIES
• Participatory policies and policy processes are policies for empowering stakeholders/people to agree on coordinated actions of shared interest (or seeking to achieve common goals) and their implementation
• The most trendy segment of this class of policies - “smart specialisation” is only one brand of participatory policies
• The same concept can be applied to a range of policy issues at the national or regional levels
PARTICIPATORY POLICIES: A WAY TO ADDRESS CURRENT CHALLENGES
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• Participatory policies are about sharing the responsibilities both in the design of policies and in policy implementation with the stakeholder community and with the expected beneficiaries
• Participatory policies therefore are about further democratisation of the policy process: giving back more power to the people to deal with the issues that are important for them
• Introducing and applying participatory policies requires supporting social innovation and introducing policy innovation to engage a wide community in the policy process
• Participatory policies and social innovation are usually based on the new communication opportunities provided by Internet
PARTICIPATORY POLICIES: A WAY TO ADDRESS CURRENT CHALLENGES (contd.)
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“Social innovations are new practices for addressing societal challenges, which are adopted and utilized by individuals, social groups and organizations concerned” (Source: Centre for Social Innovation, Vienna, 2008, 2012)
Examples:Wikipedia
Open innovation Social entrepreneurship
Spontaneous civic initiatives
The common denominator: INTERNET
SOCIAL INNOVATION
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HOW SOCIAL INNOVATION WORKS
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The traditional model of policy making
SOCIAL INNOVATION IN POLICY MAKING
P o p u l a t i o nV o t i n g c o n s t i t u e n c y
Political party 1 Political party 2 Political party N
Government Policy makingPolicy
implementation
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Newly emerging models of participatory policy making
SOCIAL INNOVATION IN POLICY MAKING
P o p u l a t i o nV o t i n g c o n s t i t u e n c y
Political party 1 Political party 2 Political party N
Government Policy makingPolicy
implementation
Internet community
Internet community
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POLICY INNOVATION: PARTICIPATORY POLICY MAKING
Participatory policies are policy innovations amounting to mainstreaming public initiatives; they usually involve bringing social innovation into the policy-making process
This type of policy making enables large constituencies – and people in general – to implement social practices that are traditionally considered as a prerogative of politics
The domains where such new practices policy innovation are still limited but they are growing. Examples include:
Local communities compel the local authorities to subject local public investment projects to Internet-based popular votePublic procurement bids are subject to evaluation by the population via Internet-based popular votePolicy agenda setting via Internet-based popular vote
Ultimately, in the future this may entirely change the landscape of politics and policy making
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• Applied at the international level (such as the Danube Region) participatory policies can make it possible to engage a wide, cross-border community to address issues of common interest
• Such policy processes could include the actual setting of the agenda for cross-border cooperation
• This aproach provide mechanisms to address some of the main underlying objectives of the EUDRS: They contribute to “connect people, their ideas and needs” They contribute to “prioritising inclusion” This is a way to empower people and guarantee ownership
• Finally a word of caution: Participatory policy mechanisms are mostly applicable to socio-economic issues and may not necessarily be applicable to all aspects of the EUDRS
INTEGRATING PARTICIPATORY POLICIES IN THE EU DANUBE STRATEGY
