Equity vs. efficiency:

Possibilities to lessen the trade-off in social, employment and education policy in South-East Europe

Part. 2 Perspectives from South-East Europe

Romania: The cost of scarce social policies – economic failure

(Gabriela Cretu)

Abstract

This article questions the supposed efficiency and equity trade-off using concrete examples, data and arguments undermining its theoretical foundation. The Romanian case is presented as an illustration of its failure, despite it still being very influential at the political level in many countries, including Romania. Quite recently, Romanian researchers started as well in providing analyses that doubt the functioning of this relation and show its limits. However, after the latest global financial crisis, everybody admits that challenging this trade-off is not as an audacious undertaking as it was before.

Scarce social policies have not made Romanian economy more efficient; on the contrary, they have contributed to reduce productivity and speeded up recessions, endangering the future long-term development of the country. The current Romanian social indicators are worrisome. Poverty is high. Inequalities are growing. Trust in institutions, in each other and in the future has reached the lowest level ever. Migration has been the solution chosen by many, especially by young active qualified persons, to overcome the difficulties of transition. Between two and three million people decided to leave the country. The social capital is damaged. The domestic labour market faces the penury of skilled labour force in many sectors, in spite of a really high unemployment. New social problems have emerged. Health care system is in danger because of lacking personnel (doctors and nurses) and chronic underfunding. Education system suffers deterioration in terms of quality and credibility. Far from being a solution for future improvement of the situation, the recent measures taken by the government to reduce deficits and balance the public budget will negatively affect the economy and back off the possibility of a more equitable society.

Introduction

Romania, with a population of 21.5 million people and 238.391 km², is the second largest country in Central and Eastern Europe and the seventh largest country among the 27 Member States of the European Union (EU). Currently, Romania has to secure quite a long external border of the EU neighbouring Moldova, Serbia, Ukraine and the Black Sea; the other neighbours are Bulgaria and Hungary. Bucharest, having more than 2 million inhabitants, is the capital city; meanwhile, it is the industrial, cultural and financial centre of the country.

The events that changed the direction of the Romanian recent history are, without doubt, the Revolution of 1989 and the accession to NATO and the EU. After the fall of the totalitarian regime, the country decided to join the western organizations and, finally, succeeded in doing so. In 2004, Romania became a member of NATO and then joined the EU on January 1st, 2007, following the completion of the negotiations in 2004 and the signing of the Accession Treaty in 2005.

The prospect of becoming an EU member constituted for more than a decade a solid external incentive for the transformation of the country throughout its transition and offered a concrete target and coherence to political measures. For the population, many of these measures were harsh, as they meant: losing jobs, closing down economic activities, introducing different rules than those people were used to; restructuring economy turned into a synonym of firing employees. The opportunity cost of change was high. As a The Economist study estimates, Assuming, generously, future regional growth of 4-5% a year, it would take another decade for the transition to have been economically ”worth it”.

Despite these difficulties, there was a huge support for the accession to the EU. Romania registered the highest rate of pro-European citizens. For Romanians, as for many others, joining the EU was the equivalent to a better quality of life, more and better jobs, freedom of movement, the feeling of participating in important decisions, playing a political role; their expectations were high.

However, accession to the Union and the adoption of European standards was neither the beginning nor the end of the integration process; sustained efforts were needed in many fields to ensure real and nominal convergence with the EU. The attempts to speed up the process of integration are, unfortunately, undermined by many factors. The disillusion after accession was even higher than the hopefulness before.

In 2009, after eight years of economic growth and absolute poverty reduction, the shockwave of the global economic and financial crisis has exposed the imbalances and economic vulnerabilities of Romania. The government decided to ask for the support of international financial organizations. The International Monetary Fund, the European Commission and the World Bank have agreed to cushion the effects of the sharp drop in capital inflows while addressing Romania’s external and fiscal imbalances and strengthening the financial sector with a package totalling Euro 19.95 billion over the period 2009-2010. The multilateral support program seeks to: · strengthen fiscal policy · maintain adequate capitalization of banks and liquidity in domestic financial markets · sustainably reduce inflation · secure external financing and improve confidence.

Nothing about economic recovery or how to face social problems during the crisis was negotiated in the agreement. As a consequence, Romania currently faces the difficult task of reconciling short-term fiscal consolidation conditionality with the need to mitigate the social costs of the crisis and restore the sources of sustainable and equitable growth. Success in mitigating the impact of the crisis depends on the commitment of the political establishment and the capacity of the public sector institutions to work together and to mobilize key stakeholders and the population behind them; it also depends on public expenses for recovery. Unfortunately, after the 2007 achievement, no other social or political significant goal has come to replace the accession to the EU, unifying national effort; suffering, if it is the case, must have a sense. Moreover, austerity measures work against economic upturn.

Recently, in order to control budgetary deficit, the government decided to reduce all public sector wages by 25% and increasing VAT from 19% to 24%. These are the harshest measures taken by a European Member State; no other, including those in a very difficult financial situation, such as Greece, went so far. Hard times are expected!

2.1.2 The case of trade-off in social policies

Romania is not yet a welfare state, in spite of the accession to the richest “club” in the world and the big expectations the Romanian population have had before; on the contrary, the current economic and social data show a deterioration of the situation due to the recent crisis and the many difficulties of the integration. This statement is necessary because the background of the trade-off between economic efficiency and equity is related to a dispute that commonly takes place against the functioning of the welfare states.

As far as this alleged trade-off is concerned, we consider, as many have already shown, that it is based on a shortsighted understanding of economic mechanisms; the arguments against it are theoretical and empirical as well (Fouarge, D., 2003). With no further debate on this respect, we have to underscore a fact: the supporters cannot use any statistic data as a confirmation of the ideology referring to the efficiency–equity “trade-off”; on the contrary, the facts prove that the most equitable societies have built strong and healthy economies and even succeeded in overcoming the current crisis easier and faster than the others; Nordic European countries could be a relevant example.

Nevertheless, the theory is very influential in Romania; one of the biggest debates of the latest years concerns the so-called dimension of the state, which seems to be too “fat”, undermining “real economy”; this is the specific manner of dealing with the topic. Many public decisions nowadays are based on the hypothesis that the state is too big because of social expenses (the poor consume too much public money), and because the involvement of the state is too high in society as a whole (taxation is especially construed as endangering the private sector). The facts do not support at all these allegations; the efficiency is not low because of too much care for equity, but because of hardly any concerns on this respect. Total government revenue has been, during the period, around 30% of GDP placing the state in the last rank in the European Union as capacity of intervention; this indicator shows that Romania is a weak state, not a strong one. The current structure of GDP (70% private revenue, 30% government revenue) is not undermining only for social programs development, but for investment in public services and other economic activities of general interest, as well.

In our analysis, equity can go hand in hand with more efficiency. In other words, a generous level of social protection does not necessarily lead to lower economic results. On the contrary, social policies based on investments in human and social capital are conducive to higher economic efficiency for they improve productivity and the quality of labour force. Social policy is therefore a productive factor, even though its costs are generally visible in the short term while its benefits are often only apparent in the long term. The lack of coherent social policies and a low level of social spending put at risk the economic development and create/preserve third-world models of development, based on “cheap” labour force, exports of raw materials, high dependence on foreign capital movement and external markets. “Cheap” labour force does not mean having lower costs; the prices for goods and services, as a consequence of liberalization, are more or less similar with the other European countries; “cheap” means only being worse paid. The Romanian governments have made such a choice.

Of course, which policies are needed and how much public involvement is considered necessary are political choices; the “optimal policy” assessment comes over from value judgments; but, when speaking about social policies, surprisingly, among these judgments, we have still noticed the idea that the wealthy people are wealthy because of their merits, and that social policies lay on their generosity, proving their concern for social justice.

Far from being an expression of the generosity of wealthy people or governments, social benefits are the result of a moral and ethical choice made in many of our European societies and a few other non-European countries; it has been chosen that the economic and ethical points of views cannot be separated, being tightly connected and that, as a consequence, the economical order cannot be in itself disconnected from the social and political order. In this context, inequality is a subject with plenty of moral, economic and political implications; it is not at all a „social issue” that wealthy people try to deal with for philanthropic reasons or that the government only should take into account if there are extra budgetary resources left.

In this conceptual framework, the real problem is not “how to lessen the tradeoffs”; the real issue is “how to describe in appropriate terms the reality in order to discover the real problems we face” and to draft the most suitable policies; it indicates a kind of awareness about the reality that economic activities are built-up for providing people with goods and services, as means for general human development; it rejects the idea, frequent among economists, that people are born to provide companies with labour force.

The assessment of any economic system is based on two criteria – efficiency and equity; John Rawls, an outstanding theoretical reference for this topic, says explicitly that we have to give priority to the reduction of poverty in the case of a contradiction between poverty and efficiency. Unfortunately, he also offers legitimacy to larger and larger income gaps; actually, any gap is justified on the condition that it improves a little the situation of the poorest.

In practice, we are aware that the first criterion has always been considered while the second one is many times forgotten; a few new European Member States could be used as an example for this amnesia; Romania is among them.

The political decisions are more and more based on economic science and economic interests. It seems natural for economics to play such a role; it is not natural. On the one hand, politics has to deal with people, with human beings who are not a commodity like any other commodity, being subject to the same rules of supply and demand, if such rules exist. On the other hand, economics tries to find an optimal use of limited resources. There is nothing wrong with these definitions, except that they are only theoretically valuable. Practically, as it has already been proven many times by now, economics is not at all a natural science and, in fact, different economic theories try to justify different ethical choices. Despite this difficult relation between economics and politics, a large number of sociological studies in Romania have already revealed, especially during the last decade, that public opinion has cut the Gordian knot and very much approves two sentences – economics is true, politics is bad, including social policies… This kind of thinking could be a part of the explanation for the current social conditions.

After the falling of the totalitarian regime in 1989, its economic and political ideology was immediately replaced by the neoliberal theory of free markets; the attempts to introduce the social market economy as a model for Romania’s future development were unsuccessful; the free market was conceived as a universal rule for the allocation of economic resources and results and, in a strange way, for social relations and human lives, as well. From the moderate left to the right (the left no longer exists in Romania), politicians adopted the discourse of free markets, setting up and following related goals – free trade, less state intervention, privatization of public services and companies, deregulation, freedom of movement for everything – capital, goods, services, labour force, etc. The international organizations offered good marks and support for the priests of the new religion; The Market Says, The Market Can, The Market Regulates Itself and, especially, The Market is Efficient were considered undoubtedly true sentences. Neither the accession to the European Union, nor the many losers’ realness changed the attitude. Almost nobody took seriously enough the problem of the markets collateral victims; except the victims themselves… There was an excessively optimistic approach towards the future and a lack of a critical thinking in social sciences. Or, a less human social environment renders many interventions ineffective, even though they take place; this is the case in Romania where the transition has turned money into the main value and a competition without minimal ethical standards into a rule.

Based on such an approach, it was often said that the transition from socialism to free market economies has been among the most peaceful revolutions in history. This is certainly not true for Romania; the well-known bloody events of December 1989 are not the single argument. There has also been a large unseen death toll; as in the most Eastern European countries, death rate has increased after 1989; meanwhile, the life expectancy at birth has declined, especially for men; many fewer births and an outsized migration also contributed to the current demographic situation which is disquieting. (Source – Word Bank Data) Such demographic changes are clear indicators of a society in extreme stress and have previously been observed only in wartime. Such a reaction of society is not an unexpected one as long as “the competition laws” are seen as some kind of “jungle laws”, where the strongest is allowed to take everything and the less powerful feels ever insecure.

If the goal of more economic efficiency has implicitly been the reason of all these painful changes, even though not achieved, the other ideal, of more social justice, has only rarely been present when drafting policies and taking decisions.

As far as equity is concerned, at least three aspects are important to be checked when evaluating the country situation: a) if those having equal income pay the same level of taxes and have similar advantages, b) if those who have more pay more and c) if we have a correct distribution of results. Certainly, the means used to achieve a more equitable society are variable, as well as the manner of assessing the results of intervention; unfortunately, oftentimes, they are not the most suitable. In spite of this variability and freedom to chose, a fact has to be taken into consideration – not only “specific” social policies have social effects; fiscal or monetary policies may equally have direct effects.

In Romania, the progressive taxation system in force has been replaced in 2005 by a flat tax rate of 16%; the first concrete social result was a deepening of inequalities. Inequality of income distribution (GINI coefficient) has increased only in a few years of application from 36.3 (in 2004) to 37.8 (in 2007); for a clearer image about the situation, in most of the European Member States, this coefficient varies between 23 and 30. The other indicator measuring the inequality of income distribution (S80/S20 income quintile share ratio) shows the same evolution/involution – it was 7 in 2008, after achieving a level of 7.8 in 2007, the highest in the European Union; the average indicator for EU27 is 5. (Source – Eurostat)

The rich people have become richer and the poor people poorer than they were before. Immediately after the December 1989 events, a period of economic decline began and lasted until 1992; GDP lost more than 40%. The situation began to slightly improve afterwards, but poverty deepened once again between 1997 and 1999. At the beginning of 2000, the number of poor people had grown four times compared to the 1989 number. 35.9% of the population lived in absolute poverty in 2000. The period between 2000 and 2008, however, was one of continuous economic growth. In spite of this economic rapid GDP growth, the country was characterized by a slightly increasing level of those earning less than 1.17 euro per hour, the current calculated threshold.

In 2000, using relative poverty as a measure, 17% of the Romanian population was poor. According to the official governmental data (INS, 2007), after seven years of growth, 18.5 % of the Romanian citizens had been living under the poverty threshold; a small gender gap has been registered (18.3% poor men and 18.8 poor women). The dominant groups among the poor are a) single persons, any category of age, but with a larger extension for elderly single, b) monoparental families, and c) families with more than three children. 70% of poor people live in rural areas. Unemployed, pensioners, and independent workers live in poverty more than other categories. North Eastern and Southern regions of the country face this problem the most. The ethnic group that is most affected by poverty is the Roma population; up to 70% of them live in poverty.

There is another fact that is more worrying than poverty itself; the Romanian society is characterised by a large category of “working poor”. Many “full-time activity” employees and independent workers enter this category. In Romania – as in Europe, generally – it is typical to think of ‘the poor’ as non-working people; a poor person is thought to be a jobless, a pensioner, a child in a large family, people whose ability to work is restricted because of reasons related to their personal capacity (having disabilities) or a social responsibility (being a single parent). In contrast to this general opinion, various studies (Peña-Casas and Latta, 2004; European Commission, 2008; regarding the extreme poor in Romania, Stanculescu and Berevoescu, coord., 2004) showed that a substantial share of the poor work and that the majority of the poor in Europe live in households with at least one household member working.

Romanian national statistics do not include studies on the extent and characteristics of the working poor. It is estimated that more than two million people in the Romanian economy are working in and living on subsistence agriculture, and can therefore be termed as ‘working poor’. The phenomenon began to increase rapidly in 2009, when Romania entered recession and poverty reached 23.5%; the rising trend in poverty has maintained in 2010. And the level of poverty might grow even further in 2011 after the cuts in public spending. Unprecedented austerity measures to counter Romania’s public budget deficit, including a five point increase in value added taxes (VAT) from 19% to 24%, and a 25% wage reduction in all public sectors, will speed up the process. These measures, together with the effects of the economic crisis in the European Union which impact remittances to Romania, threaten to plunge vulnerable and impoverished families even deeper into poverty; a larger part of working people, as well.

The VAT change is expected to generate a severe price increase of food, fuel, and basic necessities, and decrease the consumption level, which producers say will impact or bankrupt several businesses in the food and agricultural industries. In addition to the tax increase and wage reduction, the government plans to cut state benefits for disadvantaged categories (maternity leave allowance, unemployment allowance, the allowance that personal caregivers of persons with disabilities receive, etc.). Significant reductions in the number of civil servants jobs have also been announced, with more than 100,000 jobs expected to be cut by the end of the year.

In 2009, a study entitled ‘Romania – a rapid assessment on the impact of economic crisis on poverty’, issued by UNICEF and the World Bank, anticipated that the economic crisis and recession will most probably lead to an increase in the number of children living in absolute poverty – from 256,000 to approximately 350,000 children, while the number of people living in absolute poverty will reach 1.6 million (that means 7.4 % of the population). The report also states that 75% of these children will be from rural areas, under the age of 14 and from families with three children or more. Before 1990, children allowance was an important tool to balance a family’s income and it was the equivalent of 10 percent of the average wage. The allowance was maintained after 1990 too but its quantum dropped to less than half. At the moment, a child’s allowance is 43 lei, not even ten percent of the minimum wage. The study also shows that a family with two children, who relies on two minimum wages, will always face severe poverty. More precisely, they will have to manage with 50 percent of the minimum income needed for a decent living.

Before 1989, the children living in public institutions had been in the worst situation; afterwards, the reform of child protection system together with a much better funding have succeeded in improving the living conditions for many of them. A new problem has emerged instead – the children living in poverty in their own families and the children living alone, because of the huge economic migration in the latest years, a phenomenon we shall describe later.

The prognosis made by UNICEF and the World Bank also states that the growing recession in EU countries, which affects major sectors in which Romanians work abroad (constructions and agriculture), will decrease the flux of funds transferred from abroad to Romanian families living in the country, which was previously around five to six percent of the country’s GDP. “This will affect the well-being of Romanian emigrants’ families, including the well–being of the significant number of children left in the country”. The facts show that the prognosis has been regrettably correct.

All these statistic data describing poverty are useful for our understanding; nevertheless, we cannot avoid noticing, as sociologists, the strange image of reality that we obtain based on the different instruments that we use to assess the situation. Absolute poverty indicator (used by World Bank or UNICEF) has decreased since 2001 (except the crisis period, when it started rising again). Relative poverty has increased continuously. It is a fact that, for many years, the absolute poverty has been higher than the relative poverty; the theoretical consequence is clear and paradoxical – somebody has been living in absolute poverty, with less than $ 3 per day, without being considered (relatively) poor. This theoretical paradox can be met in many poorer countries with large income inequalities among citizens.

However, these considerations concerning statistics do not change the real social situation. Such a situation has to be dealt with through coherent policies; for both social and economic reasons. Reducing income inequality and poverty may expand and stabilize consumers’ demand, increase poor people’s investment in education, and heighten workers’ motivation and workplace cooperation, speeding up recovery.

Usually, we consider the share of total social spending in GDP as a general measure for the efforts made by the state in order to produce a more equitable society. If that is true, Romanian governments have taken, during the latest years, few responsibilities in this direction; public social spending registers a very low level comparing to the other EU Member States; it represents only 12.8% of GDP (rank 25 out of 27, just behind Estonia and Latvia). The European Union average is more than twice higher. Romania spent 741 Euros per inhabitant for social protection in 2007 (before the crisis and austerity measures), while Denmark spent 11570, and Hungary, which is closer to Romania and shares a similar recent history, spent 1927 Euros.

Legislative measures are also important for achieving a more equitable society. Romania’s Labour Code has been assigned a special role in addressing the issue of poverty and correct distribution; more specifically, the provisions therein related to the guaranteed payment of a national minimum wage. Another important tool in tackling poverty is the guaranteed minimum income, enshrined by the Law No. 416/2001. Both legal measures can be legally considered as assuring enough social protection for low-skilled working persons or for those who have no job. A content scrutiny provides another perspective on this matter. Currently, the Minimum Gross Wage is 600 RON monthly, which means more or less 140 euro, according to the variations of the currency exchange rates; the net minimum wage is approximately 100 euro. Guaranteed minimum income for a single person is 125 RON (26 Euros) monthly and can achieve the level of a net minimum wage for a family of five without any other means of earning their living (approximately 100 Euros). These levels are minimum indeed and they can neither assure a living, nor be incentives/disincentives for working; instead, they are a strong incentive for leaving the country. However, Romania does not have a culture of assessing public policies; for this reason, it is quite difficult to speak about their success or their malfunction. Despite the criticism against it as being disincentive for employment, guaranteed minimum income must have contributed to the rapid reduction of absolute poverty after 2000. We may suppose that remittances from abroad have been another reason of this decrease. As relative poverty has already shown, the GDP growth during the period has had no significant direct input, due to the more and more unequal growth distribution.

There are two noticeable tendencies in Romanian social policies that prevent better results, which could be achieved in spite of the relatively small amount spent: to accumulate many different small measures and to modify them regularly. The main social benefits which have been established through various programs include the allowance for newly born children, the children’s allowance, incentives for parents who, although benefiting from parental leave, choose to resume work, the complementary family allowance, the support allowance for single-parent families and the foster-family allowance, newly-weds support program for newly wedded couple, including a financial unique contribution of €200 upon marriage, the home heating allowance programme for the cold season, etc. Up to 7 million persons would be beneficiaries. That situation creates the false impression that those in need enjoy a strong public support receiving many social benefits; since each public institution dealt with its own beneficiaries, the government had no general view about the situation – how many they were and how much each of them totally received as social support. In order to overcome this difficulty and manage all social benefits in a unitary manner, a new institution has been set up – the National Agency for Social Benefits, whose activity results are expected in the future.

The inadequate amount of social expenditure is not the only problem; the concrete aspects of each policy implementation show a limited capacity to solve the problems it has been created for. The social benefits, as they are, take a monetary form; the government and the municipalities failed in creating and providing the required social services. Therefore, beneficiaries receive a small amount of money and they have to buy the services they need on the free market; in this way, the result is quite limited. For example, there is a very poor network of public affordable child-care services for children under three years old; a baby sitter or a private solution is too expensive, even for those earning medium wage. As a consequence, women are practically forced to leave the labour market for a long time, losing skills and promotion opportunities, or to abandon giving birth to a child.

Many doubts are also related to social programs focusing on children living with their families, as there are no guaranties that parents use monetary support to improve their children’s lives; this is the main weak point used by those who reject the idea of a guaranteed minimum income and condemn it as stimulating laziness.

An intermediate conclusion is evident; efforts have to be made for improving social policies when limits have been noticed in their drafting or implementation; an appropriate definition of the issue they intend to solve is essential. However, the difficulties we face in having more effective social policies do not mean to abandon them based on the argument that by doing nothing we cannot make mistakes. The costs of such a choice are undermining for economy and society, as a whole.

2.1.3 The case of trade-off in employment policy

“A society without unemployment is not a utopia at all;

an ethical plan for erasing unemployment is a government obligation”

(Amartya Sen)

The country development over the past 20 years, as described by the GDP evolution, has been a sinuous one, characterized by two successively W-shaped trends and a long-lasting recovery after the big economic decline in the early 90’s when GDP lost more than 40%; the 1989 level was achieved only in 2004. The implemented economic reforms have radically modified the work-related structure of the population. The number of employees was more than 8.2 million in 1990, the majority working in industry, and it is officially less than 5 million today. Meanwhile, the number of pensioners increased by 2 million, other 2 or 3 million left the country looking for a job in the European Union or outside it; the number of independent workers and freelancers is surprisingly high. The companies operating at the beginning of the transition period have been restructured (based on the strict selection of the very profitable activities and on the drastic personnel cut) and privatized afterwards; many of these companies were shut down by the new owners (old competitors of the firms on the market) after their privatization. Other activities have been abandoned on account of lacking markets, with no privatization attempts whatsoever. The number of fired people was extremely high in both situations. The Romanian economy has had a limited capacity of unemployment resorption. The new companies have been established, with several notable exceptions, in miserably paid working fields, with jobs of a poor quality and with no perspective. For a decade or so, most jobs have been created in the garment industry; small and middle town’s population have survived due to the work of the thousands of new employees – most of them women – in this industry, which provided up to 40% of the Romanian exports at the beginning of 2000. These factories have been set-up as a consequence of a western delocalization process of labour-intensive activities; raw-material suppliers also provided the selling-off on the western markets. Therefore, the long-term sustainability of these activities depended on two factors – a) maintaining labour force at a very low price in order to avoid a new delocalization towards the East of the East (Ukraine, Moldova, etc.), and b) the western markets’ capacity of buying these products. The EU accession and the economic crisis have generated a significantly decreased demand. The internal market is not capable to replace it. The GDP crush at the beginning of the 90’s, liberalization of prices and the rapid inflation have drastically reduced the purchasing power and, therefore, its absorption capacity; it slowly and gradually started to recover, but the Romanian companies have to deal with the competition of the imported products, which are cheaper or of better quality. The impoverished part of the population is used to buying cheap Chinese products, while the new rich prefer the European markets for consumption purchase. The inland manufacturer faces obvious difficulties, with consequences on the ability of maintaining the existing jobs or of creating new ones. This is also quite obvious in the excessive dependency of the building sector on public investments; building companies manage to become prosperous and job-providing only in two ways – if they sign contracts with the public authorities (central or local ones) to build schools, hospitals, etc., or if they work as subcontractors for bigger foreign companies that externalize labour-intensive activities. There is not a sufficiently powerful internal market to secure their operation; therefore, labour market registers an emphasized phenomenon of insecurity as far as the maintenance of a job is concerned.

The crush of industry was followed by a rapid deprofesionalization phenomenon of the previous qualified labour force. Some of them reoriented for professions that were very different from the ones they had skills and experience for; engineers belonging to the old socialist industry turned themselves into service suppliers – insurance policy agents, cosmetics salesmen or clerks.

In order to reduce the pressure existing on the labour market, at the middle of the 90’s, authorities decided the anticipated retirement of workers with practically inexistent employment opportunities on account of their age and the absence of jobs. Some of these “young” pensioners, as well as a significant part of those impoverished by the loss of their better paid industry jobs, left towns generating a unique phenomenon, a reverse one to the urbanization phenomenon in the 60’s, 70’s – the re-ruralization of Romania. Almost 47% of the people in Romania live in rural areas, where employment is almost non-existing. Their only alternative was to find a job abroad. The Romanian labour migration started to become a widespread phenomenon in the post-communist period. Over one third of the Romanian households (approx. 2 500 000) had at least one person working abroad after 1989. Labour migration intensified after 2002, by the new Schengen regulations. In 2006, labour migration was three times more intense than in 2002.

Afterwards, the control of the number has been totally lost, labour migration becoming a way of escaping poverty for many. If receiving countries have better data on immigration, a first striking issue for Romanian governments is that no institution or organization has for a long time tried to approximate the number of people working abroad; 3 million persons seem to be the most correct estimate today.

For a few years, governments presented the phenomenon as a political success, calling it “freedom of movement”; the fact that many other Europeans enjoy this freedom and do not leave in such a high number their countries makes everybody think deeper on the subject. What does “freedom to move” in Europe actually mean for workers? At least three conditions have to be accomplished: a) to have rights and opportunities in their own countries and to choose going abroad; b) to be allowed to enter another country labour market when they need it, and c) to be able to come back home when they want. How could we explain in appropriate economic terms the fact of working in another European Member State for Romanian people in the circumstances we have just described? It seems more appropriate to speak about the constraint of leaving the country than the freedom to move throughout Europe. The phenomenon is not at all new. The old phenomenon was called “brain drain”; being the recent awareness about the demographic challenges and the value of human resources, this current brain and hand drain has even worse effects than before. Romania is facing now huge difficulties concerning its further development because of this drain of human resources. The government offer evidence that they have not yet realized the danger of pushing down the wages as they did; a new wave of migration is expected.

The remittances which have entered the country during the last years have helped many poor families survive; it was a short-term solution with obvious effects – three million less contributors to social security system, more difficulties to pay pensions because of a dramatic change of the report between employees and retired persons, the necessity of developing new social services to support the children left home in order to avoid school drop-out and the danger of anti-social behaviours; the fact that qualified and experienced persons found opportunities and left, has had as a main result a lower productivity and worse quality for the goods and services provided at home, etc. We cannot find a good plumber anywhere; a Romanian or even a Polish one.

Long-term consequences are not yet obvious, but we can suppose at least two of them. Many people work abroad without a legal contract and, as a consequence, without social security; this category, the less skilled one, will return in the future and increase the burden of an already scarce social assistance system. The second category, highly skilled professionals, will not come back at all, as many studies have already revealed. In spite of this worrisome social situation, migration has reduced the pressure on the labour market; it was not enough making unemployment a less important issue; domestic demand has also diminished.

The main problem the governments continue to cope with is unemployment; all governments agree to this; Romania is not an exception from this perspective. Creating enough jobs for those willing to work is still an unachieved goal much more than making the jobless occupy the unoccupied jobs; the real economic deficit of labour force generally occurs only in specific areas of activity, regions or periods; on the contrary, the population is forced to leave their homes because they lack the opportunity of a job. If this is the case, two questions require an answer: 1) is the government able to offer enough jobs for all those willing to work, and what should be done in order to achieve such an objective (dividing work, creating new jobs, in which fields, through which means, etc.), 2) is there an authentic desire to create a job for everyone, or is the jobless category necessary for the functioning of the current economic organizing!?

For many years, both political decision and scientific social research have used a few ready-made ideas and concepts that have actually prevented governments from achieving better results in facing unemployment. Artificial causal relations have been supposed in order to prove new ideologies. For example, many used Denmark as an example for the positive results of “flexibility” stating that a deregulated labour market explains the Danish economic and social success; many other economic winners will emerge by multiplying deregulated markets.

The explanation for the Danish achievements is quite different and it concerns human and institutional relations, not the content of legal provisions or the absence of such legal provisions on the labour market. Denmark did not regulate the labour market in an excessive manner because it is useless to do it. The society was built on everyone’s rights and duties and on mutual respect. The trust among social partners is higher than everywhere and verified through agreements that have been respected for more than a century; confidence among citizens is one of the highest in the world. It is not about sticks, in Denmark; it is about carrots. Moreover, in Denmark there are legal provisions guaranteeing high unemployment benefits (by 90% of the person’s previous income) for a very long period; it can attain a maximum of four years out of six years. The feeling of personal and economic security makes employment change easier; losing the job is not such a catastrophic event like in Romania where the employment benefit is paid for a much shorter period (between 9 and 15 months) and the general amount is 75% of the minimum wage together with a bonus from 3% to 10% of the previous income, according to the years of contribution; the lack of new opportunities puts the jobless in a even more precarious position.

OECD promoted very much the composite index of the strictness of employment protection legislation (EPL) as an instrument to enforce the idea that flexibility would reduce unemployment. Despite the efforts which have been made, a correlation between EPL level and unemployment reduction could not be proven. Unfortunately, labour market is not an autonomous market; there is a total dependence, in fact, on other markets and the jobs provided by the public sector; nobody hires a new employee disregarding the demand of goods and services. The fall of demand generated an increasing unemployment in the United States, even if the EPL is one of the lowest in the world; meanwhile, many European countries succeeded in managing better the situation in spite of having stricter legislations (M. Montousse, 2008).

Many political decisions based on scientific studies also insist in underscoring the role of active measures in diminishing unemployment. The importance of ALMP is real but not as high as we are used to think about it. On the short run, they are truly useful for occupying the existing jobs faster; they have only a marginal effect in reducing unemployment; actually, it is a statistic solution, not an economic one, as long as during the training programs the persons involved are not considered unemployed anymore. On the long run, they might be more effective if new jobs appear and if employment services have well anticipated the future needs of the market suitably targeting their activity.

Another aspect that we may doubt about is the practice of referring to social contributions as being a simple burden and not a part of security protection, and therefore, a part of everyone’s salary. Cutting contributions is currently seen as mean of reducing labour costs and also unemployment. As there are no concrete obligations for employers to create jobs when cutting social contributions, whenever such policies have been implemented, the results were deceiving – neither the price level has decreased, nor the number of jobs has increased, at least not enough to justify the effort. This is another piece of evidence for the weak link existing between labour cost and employment. In Romania, the number of those earning the minimum wage has almost doubled during the past ten years; the number of employees remained constant; moreover, informal economy has not decreased at all. Certainly, we may notice different concerns according to different possible perspectives – employees, employers, working people, jobless, active or retired persons. However, as Amartya Sen and other thinkers have been trying to persuade us for a long time already, it is important to place the diverse concerns within a comprehensive assessment, so that unemployment may not be treated as a reason for doing away with reasonable conditions of work for those already employed; nor should the protection of the already employed workers be used as an excuse to keep the jobless in a state of social exclusion from the labour market and employment. The need for trade-offs is often exaggerated and is typically based on very short-sighted reasoning. Furthermore, even when trade-offs have to be faced, they can be more reasonably — and more justly — addressed by taking an inclusive approach, which balances competing concerns, than by simply giving full priority to just one group over another. Proceeding as Romania did – defending competition with the risk of increasing exclusion – could have higher costs for society and could undermine economic efficiency more than we usually accept based on arguments belonging to a few trendy theories.

2.1.4 The case off trade-off in education

Education is an area of important concern due to the role that it plays in the social and the economic life of a country. A rising employability and a growing value on the labour market of human resources are only the direct quantifiable effects; improving persons’ well-being, increasing vertical mobility in society, strengthening social capital and, more generally, rising social status are some of the other aspects strongly related to a good education.

In Romania, as everywhere, the employability for educated persons is higher than the capacity of finding a job for those who are less skilled; the explanation of a generally lower unemployment rate for this category of people comes from their abilities of having access to information, their better health, the richer social capital, and other characteristics that are usually linked to a good education; moreover, it comes from their availability to accept less qualified job offers when labour market supply is inappropriate for their professional level and skills; upside-down mobility is frequent. It has been many times the case for Romania during the transition; researchers, engineers, or other highly qualified persons have agreed to work in areas where their competences have become useless, instead of not having a job at all. For the labour market current rules, such a situation seems to be a progress as long as a higher employability and mobility is a good point. Another perspective would reveal it as a misuse of human capital and an ineffective spending of public money for their former education.

Equal and affordable education for all, disregarding income or age, is a vital condition for the country progress and for economic efficiency. We believe that a better society has the following characteristics: equality of opportunities, limited income inequalities, the capability to deliver sustainable development, fostering human capital, creativity and innovation, security, social security and solidarity, social capital and trust, respect for the environment and a civil democratic society. For all these features people’s education is a necessary pre-condition.

Unfortunately, instead of defending some areas of social life – such as education – against market relations, the successive governments have not at least started this struggle; on the contrary, they thought privatization as a solution for an improved functioning of the education system; this attitude resulted in the exclusion of those who have no money to pay and an unexpected decrease in the quality of education. What a short-term perspective can justify in term of competition and efficiency, a long–term perspective can totally reject; what works in a field does not work at all in another one. This rule has been ignored when many decisions concerning education have been taken. Education was a field for uncompleted but permanent reforms, each government having many good intentions and very bad results.

Nowadays, almost everybody who is able to pay taxes could have a higher education degree; the biggest university in the word is a Romanian university (300.000 students in 2009); it provided the market with people having many diplomas but less required skills.

Of course, public compulsory education exists in Romania; as well as public educational institutions of any level. Unfortunately, as social sciences have warned us for a long time, the education structure is a mirror of the society structure. Income inequalities reflect themselves in education inequalities. The poor people, who live in rural areas or in poor urban districts, are used to sending their children to schools that are less equipped for a good education; many face hard economic limitation to send their children to school at all. As a consequence, a real trap of poverty thus emerges, for many generations. Only 1-2% of the current students in universities come from families living from agricultural activities in rural areas and only 5% from rural areas, in general.

The attempts to raise the employability through active measures, such as organizing trainings and lifelong learning face strange and regrettable situations because of poverty effects. For example, a training program has failed, even though it was well targeted, it was required by the labour market and it was well funded, because not enough persons with primary school have been found among the jobless in need; poverty had made this young persons to drop-out from educational system before graduating the compulsory primary school; in other words, illiteracy prevented them from attending the training course and from increasing their chances of employment. The real inequalities are always more profound than those perceived by interested persons themselves.

Teachers’ advice for parents is very useful in order to reduce early drop-out behaviour; however, it could sometimes be even simpler. The most successful program for improving school attendance among poor children, especially Roma children, has been the one providing a bread stick and some milk every day, for every child in primary school. In spite of all the criticism concerning the implementation of this programme, after eight years, “Laptele şi cornul” (Milk and Bread Stick) has left an example of a good reality understanding when drafting policies; a better feeding and a better school attendance for children are equally important and have long-term consequences.

Different existing assessments concerning the Romanian education system actually failed in providing a clear image because of missing a larger perspective. A few conclusions are, nevertheless, disturbing: there is a deeper and deeper lack of trust in the educational system; the confidence that education, in general, can ensure personal progress is very low; a large majority of students in universities wants to leave the country immediately after graduation; managers do not wish anymore to organize workplace qualification courses because, after acquiring the needed skills, many workers look for a job abroad and leave the country… The very low level of the monthly salary is, of course, the explanation for their leaving, and their leaving for the low efficiency.

2.1.5. Conclusions When speaking about social policies we have to disconnect two different problems and, as a consequence, two different approaches: a) the social policies effectiveness and b) the effects of having/not having social policies on economic efficiency. Social policies have to be conceived in such a manner as targeting the real needs and maximising their effects. We could have poor social programs (with restricted access and little money) but bringing relatively good results, as evaluated through the reduction of poverty and exclusion after the transfer has been done. We could notice a worse situation, when little money are spent ineffectively – the administration costs are too high, the selection of the social target is not appropriate, implementation is substandard or, frequently, there is a misinterpretation of the problem that the administration has to cope with. There are reasons to suppose that the economic effects of social welfare policies may be considerably less detrimental than assumed by the trade-off thesis; we considered that they are beneficial for both economic and social reasons. Reducing income inequality may expand and stabilize consumer demand, increase poor people’s investment in education, and heighten worker motivation and cooperation. In Romania, higher social expenditure would have prevented the human resources drain; for many, a good education for their children or a better health care constituted the decisive reason for leaving the country. A constant attention paid to social protection during the transition would have avoided the country going into economic recession too deep by strengthening domestic demand and limiting the very high dependence on external markets.

Furthermore, expansive social security programs may enhance firms’ flexibility in labour deployment facilitating labour mobility if this is necessary. In addition, social services could become a significant source of new jobs, helping the country to absorb the female unemployment, especially.

A job for everyone is a sensitive goal for each government because having a job, a quality satisfactory one, clearly defines the person’s status; losing job means losing status, not only losing income. A human being is a social animal whose self-respect is tied up to status; for this reason, inequality and long-term unemployment have many practical implications. The poor or jobless people feel incapable to earn their living, to have a life, they lose control; this causes depression, and generates the adoption of bad behaviours such as alcohol, drug use and criminality. These behaviours are clearly undermining for the economic efficiency; moreover, the government cannot “save money” by maintaining inequality and exclusion; less redistribution does not necessary result in lower expenditure on social services, as what is not spent on reducing inequalities ends up being spent on dealing with their results (for example crime, drug treatments, health care). The Eastern European countries, but especially Romania, have to pay attention to human development and spend a larger part of their revenue for this purpose; investing more in cohesion policies could be a balanced solution for dealing with both goals – a higher efficiency and a more equitable society.

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