Thursday, May 21, 2009

How Normal Is Russia Now?

This is a Guest Post contributed by Professor Vladimir V. Popov, of the New Economic School, Moscow.

From 1989 to 1998 Russia experienced the transformational recession – GDP fell to 55% of the pre-recession 1989 level. In 1999-2008 the Russian economy was recovering at a rate of about 7% a year and nearly reached the pre-recession peak of 1989. But in 2009 due to the collapse of oil prices and the outflow of capital caused by world recession Russian GDP is expected to fall by 5-10%. Now, with some luck, the pre-recession level of GDP is to be surpassed only in 2010-12. For two decades there was no improvement in living standards for most of the Russians.

In 2004-05 Andrew Schleifer and Daniel Treisman published various articles claiming that Russia was A Normal Country (for instance, in Foreign Affairs, March-April 2004). They compared Russia with Brazil, China, India, Turkey and other developing countries and argued that in terms of crime, income inequalities, corruption, macroeconomic instability, and other typical curses of the third world Russia is by far not the worst – somewhere in the middle of the list, better than Nigeria, worse than China. In short – a normal developing country.

The USSR was an abnormal developing country. The Soviet Union put the first man into space, had about 20 Nobel Prize winners in science and literature, with universal free health care and education – the best among developing countries – low income inequalities and relatively low crime and corruption. By 1965 Soviet life expectancy increased to 70 years – only 2 years less that in the US even though per capita income was only 20-25% of the US level.

The transition to the market economy in the 1990s brought about the dismantling of the state – the provision of all public goods from health care to law and order fell dramatically. The shadow economy, which the most generous estimates place at 10-15% of the GDP under Brezhnev, grew to 50% of GDP by the mid 1990s. In 1980-85, the Soviet Union was placed in the middle of a list of 54 countries rated according to their level of corruption, with a bureaucracy cleaner than that of Italy, Greece, Portugal, South Korea and practically all the developing countries. In 1996, after the establishment of a market economy and the victory of democracy, Russia came in 48th in the same 54-country list, between India and Venezuela.

Income inequalities increased greatly – the Gini coefficient (ranging from 0 to 100%, the higher, the higher are inequalities) increased from 26% in 1986 to 40% in 2000 and 42% in 2007. The decile coefficient – ratio of incomes of the wealthiest 10% of the population to incomes of the poorest 10% – increased from 8 in 1992 to 14 in 2000 to 17 in 2007. But the inequalities at the very top increased much faster: in 1995 there was no person in Russia worth over $1 billion, in 2007, according to Forbes, Russia had 53 billionaires, which propelled the country to the second/third place in the world after US (415) and Germany (55) - Russia had 2 billionaires fewer than Germany, but they were worth $282 billion ($37 billion more than Germany's richest). In 2008 the number of billionaires in Russia increased to 86 with a total worth of over $500 billion – 1/3 of GDP.

Worse of all, the criminalization of the Russian society grew dramatically in the 1990s. Crime was rising gradually in the Soviet Union from the mid 1960s, but after the collapse of the USSR there was an unprecedented surge – in just several years in the early 1990s crime and murder rates doubled and reached one of the highest levels in the world. By the mid 1990s the murder rate stood at over 30 people per 100,000 of inhabitants against 1-2 persons in Western and Eastern Europe, Canada, China, Japan, Mauritius and Israel. Only two countries in the world (not counting some war-torn collapsed states in developing countries, where there are no reliable statistics anyway) had higher murder rates – South Africa and Colombia, whereas in countries like Brazil or Mexico this rate is two times lower. Even the US murder rate, the highest in developed world – 6-7 people per 100,000 inhabitants – pales in comparison with the Russian one.

The Russian death rate from external causes (accidents, murders and suicides) by the beginning of the twenty-first century had skyrocketed to 245 per 100,000 inhabitants. This was higher than in any of the 187 countries covered by WHO estimates in 2002. It was equivalent to 2.45 deaths per 1,000 a year, or 159 per 1,000 over 65 years, which was the average life expectancy in Russia in 2002. Put differently, if these rates continue to hold, 1 out of 6 Russians born in 2002 will have an ‘unnatural’ death. To be sure, in the 1980s murder, suicide and accidental death rates were quite high in Russia, Ukraine, Belarus, Latvia, Estonia, Moldova and Kazakhstan—several times higher than in other former Soviet republics and in East European countries. However, they were roughly comparable to those of other countries with the same level of development. In the 1990s these rates rapidly increased, far outstripping those in the rest of the world.

The mortality rate grew from 10 per mille in 1990 to 16 in 1994, and stayed at a level of 14 to 16 per mille thereafter. This was a true mortality crisis, a unique case in history, when mortality rates increased by 60% in just 5 years without wars, epidemics or volcanic eruptions. Never in the postwar period had Russia such high mortality rate as in the 1990s. Even in 1950-53, during the last years of the Stalin’s regime with high death rate in the labor camps and consequences of the war time malnutrition and wounds, the mortality rate was only 9-10 per mille as compared to 14-16 in 1994-2008.

Russia became a typical “petrostate”. Few specialists would call the USSR a resource-based economy, but Russian industrial structure changed a lot after the transition to the market. Basically, the 1990s were the period of rapid deindustrialization and “resource-lization” of the Russian economy, and the growth of world fuel prices since 1999 seems to have reinforced this trend. The share of output of major resource industries (fuel, energy, metals) in total industrial output increased from about 25% to over 50% by the mid 1990s and stayed at this high level thereafter. Partly this was the result of changing price ratios (greater price increases in resource industries), but also the real growth rates of output were lower in the non-resource sector. The share of mineral products, metals and diamonds in Russian exports increased from 52% in 1990 (USSR) to 67% in 1995 and to 81% in 2007, whereas the share of machinery and equipment in exports fell from 18% in 1990 (USSR) to 10% in 1995 and to below 6% in 2007. The share of R&D spending in GDP was 3.5% in the late 1980s in the USSR, but fell to 1.3% in Russia today (China – 1.3%, US, Korea, Japan – 2-3%, Finland – 4%, Israel – 5%). So today Russia really looks like a “normal resource abundant developing country”.

To understand Russia now one has evaluate the record of the last 20 years. In the late 1980s, during Gorbachev’s perestroika, the Soviet Union was aspiring to join the club of rich democratic nations, but instead degraded in the next decade to the position of a normal developing country that is not considered either democratic or capable of engineering a growth miracle. For some outsiders a “normal developing country” may look better than that of an ominous superpower posing a threat to Western values. Those on the inside however feel differently. Most Russians want to find a way to modernize the country so as to make it prosperous and democratic. But they also feel that something went very wrong during the transition; the policies and political leaders of the 1990s are totally discredited. And so we find ourselves with Putin-Medvedev’s policy getting 50% plus approval rate even in the midst of economic recession.

Monday, May 18, 2009

Immigration Is Economically Intractable

Last year over 191 million migrants were on the move worldwide (Transatlantic Trends: Immigration 2008). In 2009 “…immigration issues will again be atop the political agenda. The United States will look to a new president to pass much-needed immigration reform, and in Europe, the [former] French EU Presidency has made it clear that a common EU immigration policy is a priority. All this comes at a time when the United Kingdom is adjusting to its new points-based immigration system. Germany has put its new citizenship test into use, Poland is transitioning from a country of emigration to one of immigration, and Italy is adopting more restrictionist [sic] policies than ever before” (from the report cited above).

Intra-Europe migrations

European Union enlargement from 15 member states to 25 (2004) and then 27 (2007), and the EU emphasis on “free movement” of labour – as well as goods, services and capital – raised fears of invasion by job-seekers and “welfare-scroungers”. Only the UK, Sweden and Ireland did not take advantage of the possibility of suspending full access for a transitional period of up to 7 years.

The UK saw the largest inflow of foreign labour ever recorded, hugely exceeding all predictions; Ireland followed suit. In Poland between 2004 and 2007 the number of citizen “temporarily residing” in another EU country more than doubled, reaching almost 2 million; the Poles’ preferred destination switched from Germany to the UK (where 27% of Polish immigrants in 2007 had a University degree, up from 22% in 2003). This was reflected in Polish remittances in 2007 being 60% higher than in 2003; while in Latvia remittances were nearly three times the level of 2003. (see B. Galgòczi, J. Leshke and A. Watt, Intra-EU labour migration – Flows, effects and policy responses, ETUI-European Trade Union Institute, Working Paper 2009.03, March 2009).

Other ‘sending’ (Hungary) and ‘receiving’ (Sweden) countries experienced much less dramatic flows. Clearly the pattern of migration was distorted by transitional restrictions, with the three more open countries raising their share of Polish immigrants from 12.1% to 42.4%; only Hungarian immigrants stuck to their favourite destinations of Germany and Austria. Some of the sending countries also experienced inward migration, notably Hungary from Romania and Slovakia (Ibidem).

The key macroeconomic drivers of immigration were the wage gap and relative unemployment (especially youth unemployment). Prior to enlargement the wage gap between the EU-15 and accession countries was very large. In 2003 Latvia had an average wage, at Purchasing Power Parity exchange rates, equal to 12.9% of the EU-15 average, Poland 21.5%, Hungary 29.0%; gaps were much higher at actual exchange rates, due to relative undervaluation of eastern currencies. By 2007 the gap had shrunk but was still substantial: 18.2% for Latvia, 25.4% for Poland and 31.1% in Hungary. Unemployment rates in 2003 were 17.9% in Poland, 10.5% in Latvia, 5.9% in Hungary. By 2007 unemployment had risen to 7.4% in Hungary but fallen respectively to 9.6% and 6.0% in Poland and Latvia – against a EU unemployment rate of 7.9 in 2003 and 7.0% in 2007. Relative employment opportunities in the destination country were a very important driver. (Ibidem, pp. 14-25).

In the receiving countries the rise in labour supply due to immigration was accompanied by higher aggregate output and labour demand. Even lacking a counterfactual alternative for a comparison, the ETUI study concludes that in Austria, Germany and Sweden “the overall unemployment trend … is inconsistent with the idea of post-accession pushing up unemployment: it rose slowly until 2005; and subsequently fell. However, the unemployment trend in the UK, the country with the largest relative influx, does appear at first sight consistent with the idea of unemployment-creating immigration: the jobless rate bottomed out in 2004 and has been slowly but inexorably rising ever since”. The evidence on sectoral wage trends in the presence of high or low incidence of immigration is mixed. (Ibidem p. 25-27). The ETUI underlines the importance of welfare provisions trends in the sending countries as a determining factor of emigration, but is silent on the vexed question of the attraction of relative welfare provisions with respect to and among the countries of destination.

Economic and non-economic obstacles

Immigration raises deep emotional issues of race, ethnicity, religion, culture, language, customs – generating barriers and conflicts. Apparently 50% of Americans and 47% of Europeans in the public opinion poll conducted by Transatlantic Trends (cited) “perceived immigration to be more of a problem than an opportunity, but majorities in France and the Netherlands, as well as sizable minorities in other countries considered it to be more of an opportunity”. Interestingly, on average 7% of those respondents who were asked this question twice during the interview, at the beginning and at the end, consistently switched their view of immigration from problem to opportunity – presumably on reflection or out of concern for their image.

But even if all these controversial issues did not arise, even if immigrant assimilation was costless and instantaneous, immigration would still be economically intractable. Because even in this ideal world:

1) the redistribution of gains and losses from immigration, so that its net benefits should affect everybody positively, is either impossible or undesirable or both; and

2) immigration, like any population increase, involves the appropriation by the newcomers of some social capital. Losers in the host country are usually happy to bear this cost for the future generations of the nation’s children (and not just of their own prospective children), but resist social capital dilution for the benefit of outsiders.

Free movement of labour was remarkably trouble-free and successful in the re-unification of Germany, but only thanks to exceptional factors. The non-economic obstacles mentioned above – race, ethnicity, religion, culture, language, customs – were totally absent; they were all tall, blond, blue-eyed, and one as good or bad as the other. Massive re-distribution of gains and losses from (internal) migrations were funded by the federal government within a single state; social capital was left in the hands of the entire nation; and the economic disruption involved by internal migrations was compensated for by the joys of re-unification, national independence and the return of democracy. These are all non-repeatable factors – except for the prospective reunification of Korea.

Impossible or undesirable redistribution of gains and losses

There is no doubt that immigration is efficient, for it involves a potential net increase in universal economic welfare. But this potential benefit is the net result of gains and losses accruing to different groups of individuals, and even accruing to the same individuals in different proportions in different capacities. A potential net benefit is not enough to assert the superiority of any economic change, including the opening of borders to immigration. The losers must actually be over-compensated by winners, potential over-compensation not being sufficient to assert an improvement. When it comes to immigration – as is often the case with opening international trade and factor movements – redistribution of winners’ gains to losers is almost invariably impossible, or undesirable or both.

Imagine two countries, North and South, both – for simplicity but without loss of generality – with full employment of labour at a Northern wage higher than in the South and closed borders. Suppose borders are opened so as to allow migration from South to North. With unrestricted migration, after the time necessary to reach a new equilibrium, and neglecting travel and resettlement costs, a uniform wage level (within bounds) should prevail. Southern winners are the non-migrant workers whose wage will increase due to the fall in labour supply. Southern losers are firms that now pay higher wages and –starting from full employment – also have to reduce employment and production. Northern winners are firms that, thanks to the increase in labour supply due to migrants, now pay lower wages than they would have had to pay otherwise, and thanks to immigration can raise employment and production. Northern losers are the national workers, who get a lower wage (not necessarily lower than before, but lower than it would have been without immigration). Immigrants gain directly from being employed at higher wages.

Some of the gains and losses are national internal transfers and cancel out; all of the gain for remaining Southern workers is a loss for Southern firms; all of the loss of Northern workers is a gain for Northern firms. There is an additional loss for Southern firms, which is the surplus that they used to obtain from employing, at the lower pre-migration wage, those who now have migrated; that loss is equivalent to some (half, with linear demand and supply curves for labour) of the net gain that migrants obtain from the higher wages in the North. Finally, there is an additional gain by Northern firms, which is the surplus produced by migrants over and above their wages (except for the marginal migrant who will yield no surplus in equilibrium).

In conclusion, there is a net gain from immigration, and it accrues entirely in the North (if immigrants are considered part of the North): it consists of half the extra wage of migrants (the other half is matched by Northern firms losses) and the additional surplus obtained by Northern firms on migrants’ employment.

In principle, gains and losses could be redistributed from winners to losers and make everybody better off. But this is 1) impossible and/or 2) undesirable. If this were done nationally, in the South a transfer would have to be made from the poor non-migrants to the richer owners of Southern firms. In the North, the relatively rich owners of Northern firms could compensate Northern workers for their losses. But profit is seen as the reward of entrepreneurship and risk-taking, and the extra-profit on emigration is difficult to tap; the extra tax (if any) levied on that extra-profit is indistinguishable from other government revenues in the budgetary melting pot. Therefore the Northern extra-profit is not available for compensating Northern workers – let alone to compensate the owners of Southern firms who are also losers. And it would be undesirable to tax migrants, less poor than before but still relatively poor, in order to compensate the losses of Northern workers, let alone those of the owners of Southern firms.

International transfers are anyway unthinkable; they would require taxation and expenditure by a non-existent supranational agency, or bilateral agreements very hard to negotiate and agree between the two governments.

Therefore: no transfers internationally; no transfers from the poor to the rich which would be unfair and unjust; no transfers involving firms' profits other than through ordinary taxation. Moreover, any transfers to compensate losers who started from a monopolistic position broken by immigration is also undesirable, for it perpetuates an unfair and inefficient monopoly advantage – of capital in the South, of labour in the North.

No over-compensation of losers means stern, economically rational, opposition to immigration by national workers.

There are small oversimplifications in this picture: suppose workers have two degrees of skill, higher and lower. If the skilled migrate the unskilled wage will not rise but fall in the South, and viceversa in the North. The presence of unemployment in the South and/or the North alters the pattern of re-distribution necessary to make everybody better off in both North and South, but without making it any easier, for now Northern workers are likely to lose employment opportunities as well as wage levels if employed. Re-distribution from migrations will include remittances. As a result of immigration prices might rise in the South and fall in the North relatively to what they would have been otherwise, with people gaining or losing as consumers as well as producers. The general problem of impossible and/or undesirable re-distribution does not change.

Social capital appropriation

Every country is endowed with a certain amount of what we could loosely call “social capital”: a physical infrastructure of transport routes, schools, hospitals; public facilities like social housing, swimming pools, libraries, museums; and all the other provisions that a society makes for the future of its children. When the children arrive, they dilute that social capital, they appropriate it, but this is what it was provided for, society takes pride in providing it. Newcomers from outside have the same effect of diluting and appropriating social capital, but are regarded as intruding usurpers. Unless – as in the new worlds of the 19-th century – immigrants are needed to build up that social capital and to exploit economies of scale in under-populated territories, which is not the case today in the advanced countries that are on the receiving end of large-scale migration.

This is another source of resistance to immigration: the refusal to allow current and future generations of outsiders to take part of the social capital that has been provided and paid for by society for the benefit of future generations of national children.

Economically Intractable

These are the purely economic reasons why immigration is intractable. These reasons should be addressed as such and not mixed with less rational reasons, although all of them lead to the recommendation and adoption of unpleasant illiberal means to discourage or stop immigration.

The double-pronged resistance to immigration can be overcome either by the economic benefits of immigration being or becoming so overwhelming that opposition comes only from a silent minority, or by widespread sentiments of human solidarity prevailing over self-interest.

Immigration pressure can be reduced by a less unequal worldwide distribution of income and wealth, but this is the opposite of what has been happening in the last twenty years. Otherwise unpleasant illiberal means of dubious legality might be used to discourage it or stop it, like the “respingimento” (rejection, forced repatriation) policies of the current Italian Minister of the Interior.

Sunday, May 10, 2009

Eastern Europe: from Slowdown to Nosedive

On 15-16 May next the EBRD – European Bank for Reconstruction and Development, founded in 1991 to assist the post-socialist transition of Central-Eastern Europe – will hold its Annual Meeting in London. The Bank “could be set for a big increase of its €20bn capital to help deal with the economic crisis” (Stefan Wagstyl, EBRD considers big rise in capital, FT, 7 May 2009 The case for capital increase is greatly strengthened by the publication, on 7 May just before the Meeting (, of the latest EBRD forecasts for 2009-2010 for all the 28 transition countries where it operates plus Turkey which was added in October 2008.

On average, in these 29 countries the EBRD forecasts a 5 per cent contraction in real GNP. Such nosedive comes after the growth slowdown from 6.9 per cent in 2007 to 4.2 per cent in 2008, and is followed by a modest recovery of 1.4 per cent, anticipated for the second half of 2010. The peak of unemployment is yet to come. These forecasts are much more pessimistic than the EBRD own forecast of January 2009, of imperceptible but positive growth at 0.1 per cent, itself a significant deterioration with respect to the November 2008 forecasts of 3.0 per cent growth, which in turn had been slashed from 5.7 in May 2008.

The latest EBRD figures are also – on average but not for Central Europe – worse than the most recent growth forecasts by the IMF, in the World Economic Outlook of April 2009, on Crisis and Recovery ( The European Commission Spring Forecasts 2009 (European Economy 3/2009, 4 May 2009, are much more optimistic about Russia (only -3.8 per cent in 2009) but more pessimistic about Hungary and Poland, and otherwise only marginally different. The forecasts of UN/DESA Monthly Briefing on the World Economic Situation and Prospects (, published on 7 May 2009, the same day as the EBRD forecasts, are consistently slightly more optimistic (The next set of forecasts, by the UN World Economic Situation and Prospects Update as of mid-2009, is to be released on 26 May 2009).

The EBRD is an institution suffering from three existential problems. It is supposed to lend to the private sector in transition economies, at commercial rates, but if it does this its existence does not make any difference. It is a public financial institution whose raison d’être is the inefficiency of public financial institutions. And we will know that it has fulfilled its mission only if and when it is liquidated.

In fact, before the crisis, the EBRD government-shareholders (about 60) were considering reducing the scale of its activity – perhaps also because of the EBRD own over-generous assessment of transition progress in its yearly Transition Reports. Now an expansion is being considered instead because of both the envisaged large scale of the recession in its countries of operation, and the need to fill the gap abruptly left by the drop in current capital inflows into the area.

There is no reason to believe that the pessimism of the latest EBRD forecasts has been exaggerated in order to strengthen the case for the Bank’s capital increase. EBRD Chief Economist Erik Berglof says that "There are downside risks to these predictions. But now there is also upside potential. Our underlying outlook assumes continued external engagement, particularly from the western parents of banks in the region." ( Such an engagement on the part of foreign parent banks in the area is an over-optimistic assumption (see below). If anything, the withdrawal of foreign parent banks from transition economies is precisely what strengthens the case for an EBRD major capital increase in the near future, already before the review of the EBRD capital is due in 2012.

Within the aggregate forecasts given above, the heterogeneous group of 29 countries naturally exhibits a highly diversified economic performance. In Central Europe and the Baltics in 2009 Poland fares best, with zero growth. At the other end of the range, all three Baltics are contracting by more than 10 per cent: Estonia (already in recession at -3 per cent in 2008) at -10.5, Lithuania -11.8, Latvia -13.2. Hungary is doing rather poorly: after stagnation at 1.1 per cent in 2007 and 0.5 per cent in 2008, its GNP is poised to fall by 5.0 per cent, with zero growth next year. On average this area’s GDP is expected by the EBRD to decline in 2009 at 2.9 per cent, and to resume growth at only 0.2 per cent in 2010. In the April 2009 World Economic Outlook the IMF was even more pessimistic, with a 3.7 per cent GNP decline, but more optimistic for Russia and the rest of the Commonwealth of Independent States.

EBRD forecasts for South-eastern Europe show a slightly better performance: on average growth rates in 2007-2010 follow the pattern (in per cent): 6.3, 6.6, -2.2, 0.4; in 2009 Romania is worst with -4.0. Eastern Europe and the Caucasus (meaning the non Asian members of the Commonwealth of Independent States, not counting Russia) in the same years exhibit actual and predicted growth of: 9.9, 5.0, -6.2, 1.3; Ukraine is expected to contract by 10.0 per cent this year and grow at a zero rate next year. Central Asia is the least affected area, with GNP growth rates of 9.2, 5.0, 0.4, 3.0 in 2007-2010. Finally, Russia is seriously affected: 8.1 and 5.6 in 2007, 2008; - 7.5 in 2009, the result of an even deeper fall in the first quarter and an expected improvement in the rest of the year; the green shoots of recovery are forecast by the EBRD at 1.0 per cent in 2010.

All these countries have either completed their transition to the market economy and their re-integration into the world economy and especially Europe (the ten new member states of 2004 and 2007, with Slovenia and Slovakia already members of the Eurozone), or have made steady and very substantial progress in that direction. What makes them so vulnerable to the pandemic financial and real crisis?

Initially, when the global crisis involved only the financial sector, transition countries – regardless of EU membership – seemed to be fairly resilient. Then, as the crisis impacted the corporate sector, they began to slowdown, and by the end of 2008 and the first quarter of 2009, when domestic consumption began to be affected, they went from slowdown to nosedive.
In general the current financial crisis confronted all emerging and developing countries – including transition economies – with two shocks: “a ‘sudden stop’ of capital inflows driven by global deleveraging, and a collapse in export demand associated with the global slump” (Atish R. Ghosh et al., IMF 2009)[1]. But there are different aspects and intensities, specific to country groups, discussed both in the IMF Staff Position Note just quoted and in other papers[2].

1. Home made sub-primes. The USA sub-primes crisis of August 2007 touched only marginally the transition economies. But a large amount of domestic loans, mostly for house-purchase finance but also in the enterprise sector – and in the government sector – were originally denominated in foreign currency because the national currency a) involved much higher interest rates and b) had been stable or (with the exception of countries with a successful Currency Board: Bulgaria, Estonia and Lithuania) appreciating. All these loans, amounting to $250 billion in Central Eastern Europe (Auer and Wehrmuller 2009)[3] promptly became sub-prime, as soon as the domestic currency began to depreciate for the reasons indicated below. Thus Polish borrowers in Swiss Francs in the last quarter of 2008 and the first quarter of 2009 have seen their zloty liabilities rise by 31 per cent due to the revaluation of the SF with respect to the Polish zloty.

Auer and Wehrmuller estimate that in the 10 EU member states from Central Europe total losses from private and public debt re-valuation amount to about $60bn, under 5 per cent of GDP in most countries but as much as 18 per cent and 8 per cent in Hungary and Poland respectively. The expectation that the state will ultimately bear the cost of bailing out the debtors, plus the cost born by the state on its own debt, has dramatically raised the spread on Credit Default Swaps for the eight countries for which data are available out of the ten new Member States (Auer and Wehrmuller, cit.).

The problem is serious: in 2007 in eight countries the foreign currency-denominated debt in the non-financial private sector exceeded 50% of total non-financial sector debt: Ukraine, Romania, Bulgaria, Lithuania, Hungary, Georgia, Estonia, Latvia; over 60% in the last four of these, almost 90% in Latvia (Connelly, 2009, p.23).

2. External imbalances. Connelly (2009, cit.) considers twenty countries which he labels “Emerging Europe” (the EBRD 29 minus Turkey, Albania; Bosnia & Herzegovina, Macedonia, Montenegro, Serbia; Tajikistan and Turkmenistan; Mongolia). He notes that “Emerging Europe is the only emerging market region to collectively run a current account deficit”: apart from Azerbaijan, Kazakhstan and Russia in 2008 all the other countries in this group have current account deficits, of which seven over 10 per cent of GDP: Bulgaria at -21.2 per cent, Georgia -20.6, Moldova -15.3 Lithuania -13.9, Romania -13.3, Latvia -12.1, Estonia -11.2.

Sustained current account deficits lead naturally to higher external debt. But it cannot be argued that the current account deficits were the result of fiscal profligacy. Between 2000 and 2008 the number of countries running a government surplus increased from one (Russia) to five (with the addition of Azerbaijan, Belarus, Bulgaria, Kazakhstan), while the deficits of another 13 countries out of the twenty reviewed by Connelly fell below 3 per cent. Thus the growth of external debt is clearly due, on average, primarily to the private sector. Yet the expected emergence of contingent liabilities and costly bail-outs reduces governments’ credibility anyway. Darvas and Pisani-Ferry (2009)[4] establish a significant correlation between the cost of credit default swaps (CDS), the insurance against default on government debt, and current account deficits. Moreover, non-Eurozone members pay a higher insurance cost, rising very much faster over time: “the crisis management in the euro area has had the unintended consequence of putting non euro-area new member states at disadvantage”. Probably, without the credibility bestowed by the euro, floating rates lead to overshooting devaluation, while fixed rates lose competitiveness to the country that maintains them and provide adverse shocks when the peg sooner or later must be altered.

3. Primary product exporters – primarily Russia, Azerbaijan and Kazakhstan – until mid-2008 were in a position to run current account surpluses and accumulate foreign reserves. But in 2008 oil, gas, cotton and metals fell in price. Foreign reserves were used – wasted, we could say to some extent – to support overvalued exchange rates and to bail out financial institutions and productive enterprises. The Central Bank of Russia foreign reserves (including gold) fell from $476.4bn in 2007 to $427.1bn in 2008 and $383.9 at the end of April 2009, plus another $32bn lost by the Stabilisation Fund in the first quarter of 2009 ( , though other sources report larger losses). The EC Spring Forecasts 2009 (cited) are more optimistic than the EBRD yet expect a Russian budget swinging sharply from a hefty surplus to large deficits, of respectively 6.5% and 2.7% of GDP in 2009, due to the reduction in commodity prices and in economic activity, plus the large fiscal stimulus packages. Russia is also forecast to see major falls in both its trade and current account surpluses, respectively to 5.1% and 6.3% of GDP in 2009, and 1.4% and 2.7% in 2010.

4. Fall or reversal of FDI and portfolio investment inflows. “With net private capital flows to emerging market (and developing) countries projected to decline from an inflow of US$600 billion in 2007 to an outflow of US$180 billion in 2009, EMEs [Emerging Market Economies] are facing a severe credit crunch. Particularly affected are the countries with large current account deficits – many of which had asset price and credit booms” (Ghosh et al., 2009, p.6). Transition economies had been able to attract large and growing capital inflows thanks to privatisations at attractive prices, high interest rates net of devaluation cover or even plus revaluations, and production de-localisation thanks to low wages. These attractions have weakened, and the recession has made inflows even less attractive.

“The region [i.e. Donnelly’s Emerging Europe defined above] faces an aggregated adjusted gross external financing requirement of approximately $460bn, or around $930bn if short-term is added… The deterioration in the outlook for private capital flows to emerging markets makes ‘roll-over’ of these loans extremely unlikely, with the Institute of International Finance (IIF) projecting a fall in private capital flows to the region from around $254bn in 2008 to only $30bn in 2009” (Connelly 2009, p.4).

In these circumstances devaluations are unavoidable but steering a course between floating and pegging is hard, as we have seen above. Higher interest rates are unlikely to bring back capital in a recession. Controls on capital flows will at best stop capital flight but not bring it back, and can be counterproductive. Official financing is therefore badly needed, by the IMF in the first instance with doubling access limits, Flexible Credit Lines, and Stand-By arrangements. With additional resources, support for debt re-structuring can come from national governments, for instance converting foreign currency loans to domestic currency and compensating banks for losses, maybe only partly.

5. Foreign Banks withdrawing funds. At the inception of the transition an under-capitalised and largely insolvent state banking system was partly cleansed of what today are labelled toxic assets, re-capitalised, privatised mostly to foreign banks, and new banks were promoted, also mostly foreign. By 2006, foreign ownership in the ten New Member States, excluding Slovenia (at 22 per cent), ranges from 74 per cent in Latvia to 98 per cent in Estonia (EBRD, Transition Report 2006). Foreign banks were to provide capital and know how, and through access to foreign parent banks provide foreign exchange and in practice access to lending of last resort in the country of origin.

Today the EBRD Chief Economist still relies on “the continued external engagement, particularly from the western parents of banks in the region” (cited above). And Darvas and Pisani-Ferry (2009, cited) still argue that “Several factors have mitigated the impact of the crisis on non euro area NMS [New Member States]: … [among other things] western European ownership of NMS banks (by indirectly stabilizing their NMS subsidiaries)…” (emphasis added).

Yet the EC Spring forecasts 2009 tell a different story: “The repatriation of capital by foreign banks has been particularly abrupt in some cases. For instance, in Ukraine real GDP growth is projected to decline by 9½% in 2009, due to a severely curtailed access to external financing, which has triggered the conclusion of a stand-by arrangement (SBA) with the IMF…”. “The significant and broad-based slowdown in the CIS could have direct growth effects in Central and Eastern Europe, and the presence of EU banks in the region creates further potential negative spill-overs via the financial channel” (p.22, emphasis added). “Paradoxically, it is precisely this characteristic – strong foreign banking presence – that renders EE countries (except for the CIS) region, much more vulnerable to the present financial turmoil” (Uvalic 2009, p.4)[5]. In turn, foreign parent banks risk downgrading as a result of the declining profitability and the losses on their operations in Eastern Europe; conversely, EE countries depend on their continued financial health.

Recently the EBRD made one of its larger investments, worth a total of €432.4 million, in UniCredit subsidiaries across eight eastern European countries, to provide medium and long-term debt and equity financing through UniCredit subsidiaries in support of SMEs, lease finance and energy efficiency projects. [6] This is precisely the kind of contribution that the EBRD can make to the region’s recovery, especially if its relatively modest resources of €20bn were to be raised by 50-100 per cent.

6. Reduction in external demand. Current projections for 2009 indicate for the first time since the last War a decline in world output (-2 per cent according to the IMF) and a much larger decline in world trade, by as much as 13% (WTO), thus reducing for the first time since the War the most common measure of globalisation, the ratio between world exports and world GNP. A sizeable de-globalisation episode is taking place. Output contraction and trade are larger in the EU, with which transition economies have grown to be increasingly integrated, with EU trade shares of the order of 60-90 per cent for the New Member States and South-Eastern Europe, all characterised by high foreign trade openness, higher than that of most old members of the EU (see the table below, penultimate column). Such openness makes the transition economies opportunities of “de-coupling” from downturns in the EU rather limited (Connelly, cit., p.5). Lower trade shares involve a slowdown in manufacturing and extractive industries, and in internal demand especially in construction and financial services.

7. Differences in initial positions and policy response. “Some [countries] were ripe for a homegrown crisis associated with the end of unsustainable credit booms or fiscal policies; others were just bystanders caught in the storm” (Ghosh et al., 2009, cit., p.3; “… the majority were just innocent bystanders”, p.2).

Uncharacteristically, the IMF has recommended, to advanced economies experiencing the global recession, easing monetary policy and lower interest rates. It has also “called for a timely, large, lasting, diversified fiscal stimulus that is coordinated across countries with a commitment to do more if the crisis deepens” (Ghosh et al., 2009, p.19-20). Naturally the IMF now is forced to recommend the same policies to transition economies in crisis, though with stronger warnings about the possible side effects: “Much of the spending and revenue policy advice for advanced economies remains relevant for EMEs [Emerging Market Economies], once scaled down for their small fiscal space” (Ibidem, emphasis added).

Thus transition economies and other EMEs are reminded that looser monetary policies involve dangers of exchange rate devaluation and consequent adverse effects on balance sheets. That it is dangerous to exceed the “policy space” and especially the “fiscal space” of a country, jeopardizing policy credibility and sustainability. Changes should be gradual (however strange this now may sound coming from the IMF) and sustainable; abrupt and non sustainable changes can be particularly costly and disruptive (see Ghosh et al., 2009).

Clearly an expansionary fiscal policy “ is likely to be more effective in stimulating aggregate demand if the economy is relatively closed to trade flows, uses monetary policy to prevent or limit the appreciation of the currency, has substantial spare capacity, has a high proportion of credit-constrained households or firms, and has a sustainable public debt position” (Ibidem, p.21). Which is fair enough, except that transition economies and other EMEs are most unlikely to satisfy these ideal preconditions.

A short digression on the euro. The question here is whether early membership of the Euroarea might assist recovery in the New Member States, of which only Slovenia and Slovakia are already members. The IMF now recommends it, speaking out of turn because it is not for the IMF to recommend anything to Europe other than possibly an application to join the Euroarea on the part of those new members that meet the Maastricht conditions for membership.

Small open economies would probably gain from being part of a large currency area in times of crisis, although Slovakia (not yet a member until 1 January 2009) and the Czech Republic have done rather well being outside it. Unilateral adoption of the euro is ruled out by the EU for both members and candidates; Currency Boards reduce the probability of a crisis at the cost of making the crisis catastrophic if and when it happens (as in Argentina); European Currency Boards are not yet out of the danger zone. The European Central Bank role as Lender of Last Resort is remarkably undetermined and left to informal arrangements with Eurozone members; non-members with hyper-fixed links to the euro (unilateral euroisation or Currency Boards) might be left high and dry in times of crisis.

The EU could have well admitted at least a few other New Member States to the Euroarea, by somewhat loosening the Maastricht criteria for fiscal and monetary convergence, and the two-year membership of the Exchange Rate Mechanism II. The Maastricht criteria for fiscal convergence are in theory looser than those of the so-called Growth and Stability Pact (GSP, which involves not only a 3% ceiling to government deficit but a stricter zero per cent over the cycle) applying to all EU members regardless of Euroarea membership. In practice however the GSP strictures and the associated penalties were considerably relaxed in March 2005, and further loosened during the current crisis, whereas Maastricht criteria for joining the euro have been very strictly enforced. It is unreasonable to subject countries that grow much faster than the Eurozone members and have relatively low ratios between public debt and GNP to the same fiscal stringency of stagnant and highly indebted Euroarea members (like Italy), moreover rigidly and inflexibly applied only to prospective members.

Lithuania was left out of the euro only because its inflation exceeded the average inflation of the three least inflationary EU members by 1.6% instead of the 1.5% prescribed by the Maastricht Treaty – not exactly an enlightened or rational behaviour, especially considering that two of those three least inflationary countries were not Euroarea members.

“The EU can certainly be criticised for clinging to criteria ill-suited to catching-up countries and the case for reforming them is strong” (Darvas and Pisani-Ferry, 2009, cited). See also Nuti 2006. [7] Be that as it may, the middle of a recession is not the best time to change or, worse, bend the rules as drastically as it would be required by early admission of all or most New Members to the Euroarea. End of digression.

The heterogeneity of country experiences is pithily and efficiently synthesised by one-liners from two sources. The first is a table on Fourteen ways to slowdown from The Economist, 26 February 2009 (

Fourteen ways to slowdown (italics=pegged to euro; underlined=in euro area)
Country...person*..rating#..% of GDP°..Exports§............In a nutshell
Belarus...12,344.... B+...........7.3...........62.1.Autocratic, isolated, gained surprise IMF bailout
Bulgaria..12,372.....A...........29.4...........61.0 Strong finances back currency peg; sleaze rampant
Czech R...25,757....AA.......... 9.4...........80.1 Thrifty and solid but hit by export slowdown
Estonia...20,754....AA.........20.0 ..........72.0 Star reformer squeezes spending to stay afloat
Hungary.19,830.....A ..........29.9..........80.2 Currency crush could topple debt-heavy economy
Latvia.....17,801....BBB........24.3..........46.6 Clinging to currency peg amid turmoil & downturn
Lithuania.18,855....A+ ........27.1...........59.0 Painful spending squeeze to avoid worse
Poland....17,560.....A+.........13.2..........42.3 Regional heavyweight speeds up euro bid
Romania.12,698...BBB+.......20.2.........36.4 Spendthrift policies meet solid reality
Russia....16,161....BBB..........2.2...........31.7 Energy-based kleptocracy in denial about crisis
Serbia... 10,911......BB-........23.5..........22.2 Seeking more IMF help
Slovakia.22,242....AAA......12.5...........90.5 Smugly in euro-area, hit by car-factory slowdown
Slovenia.28,894...AAA..........-.............70.5 Self-satisfied, rich and still growing
Ukraine....7,634...CCC+......16.1..........45.0 No end in sight to political and economic chaos

* PPP$, 2008 estimate. # Standard & Poor’s, latest. ° Current account balance, principal due on public and private debts plus IMF debits, 2008 estimate. § Goods and services, % of GDP, 2008 estimate. Sources: IMF; Moody’s; Economist Intelligence Unit; The Economist.
From: Sarah Hanson, The whiff of contagion, The Economist, 26 February 2009. (Corrected in the 5 March 2009 issue).

The second source is the EC Spring Forecasts 2009 (cited), whose country chapters for transition economies (EU member states, candidate states and Russia) have the enlightening subtitles listed below:

Bulgaria: Vanishing budgetary surplus, external deficit remains large.
The Czech Republic: Output falls sharply driven by collapse in external demand.
Estonia: Adjusting to face gloomier years.
Latvia: Domestic demand and trade implode.
Lithuania: Deepening recession leads to wider fiscal deficits.
Hungary: Domestic financial crisis magnifies recession.
Poland: Mild recession knocking at the door.Romania: Growth contracts sharply.
Slovenia: Sharp falls in exports and investment point to competitiveness challenges.
Slovakia: Global downturn weighs on exports.
Croatia: a declining economy creates important fiscal challenges.
The Former Yugoslav Republic of Macedonia: Joining the general trend … albeit with a delay.
Turkey: Manufacturing faltering as exports decline.
Russian Federation: The first recession in a decade.

In the 1990s an unexpected, deep and protracted recession characterised the post-socialist transition of Central-Eastern Europe and the Former Soviet Union, with GNP decline ranging from 18 per cent in Poland over three years, to 65 per cent in Moldova over ten years. The decline may be slightly exaggerated especially at the top of the range, for well known reasons, but a reliable and unbiassed observer such as Bob Mundell reckons that the transition recession was not just deeper than the 1929 crisis, it was deeper than the recession that accompanied the Black Death in the 14th century, because then income fall was matched by population fall and living standards were preserved.

By comparison the current recession must be barely perceptible to the populations of transition countries. And at least this time they are benefiting not only from more generous assistance from the international community, but from more enlightened policies of monetary easing and low interest rates, fiscal subsidies and expansion, large scale state intervention – all policies diametrically opposite to the draconian hyper-liberal policies that contributed so much to aggravate the transition recession and the other costs of transition in the 1990s. Only two things have really changed since then: today the hyper-liberalism that inspired the course of transition in the 1990s has been thoroughly discredited by the global crisis associated with it, and the predicament of transition economies is vastly improved simply because they happen to share it with the advanced countries that control international financial organisations.

[1] Atish R. Ghosh, Marcos Chamon, Christopher Crowe, Jun. I. Kim, and Johnathan D. Ostry, “Coping with the Crisis: Policy Options for Emerging Market Countries”, IMF Staff Position Note, SPN/09/08, 23 April 2009,
[2] . See for instance Richard Connolly, “Financial vulnerabilities in Emerging Europe: An overview”, Bank of Finland Institute of Transition-BOFIT Online No. 3, 4 May 2009,
[3] Raphael Auer and Simon Wehrmuller, $60 billion and counting: Carry trade-related losses and their effect on CDS spreads in Central and Eastern Europe, 29 April 2009
[4] Zsolt Darvas and Jean Pisani-Ferry, The looming divide within Europe, Breugel, 18 January 2009,
[5] Milica Uvalic, “The impact of the global financial crisis on Eastern Europe”, Conference Paper, Bol (Croatia), 21-23 May 2009.
[6] “UniCredit is the largest banking group in the central and eastern European region, with over 4,000 branches in 19 countries. The group has invested around €10 billion of equity in central and eastern Europe and has around €85 billion of total customers loans in the region. Beside its own funding programs to its subsidiaries, it cooperates with international institutions including the EBRD in order to ensure continuing support to the local economies during these challenging times.” (from the EBRD website,
[7] D. Mario Nuti, "Alternative fiscal rules for the new EU Member States", TIGER-WSPiS Discussion Papers n. 84, Warsaw, 2006, .

Friday, May 1, 2009

Detroit: Employee Ownership and Control

The United Auto Workers’ Union “is likely to emerge as one of the biggest shareholders in the three Detroit carmakers: GM, Ford Motor and Chrysler … It could end up with 55 per cent of Chrysler, 39 per cent of GM and a sizeable stake in Ford if it accepts shares [which it did on 30 April] rather than cash for a chunk of the companies’ contribution to new union-managed healthcare trusts, due to be set up next year.”... “The prospect of union bosses in the boardroom has sent shivers down investors’ spines. The main front-page picture in the business section of Canada’s Globe and Mail newspaper on Wednesday showed a line of workers in blue jeans and T-shirts at a Chrysler plant in Detroit under the headline: “Meet the new board of directors”.” (Bernard Simon, UAW gears up to join boards of carmakers, FT 30 April 2009).

Employee stock ownership is not uncommon, whether in the form of individual ownership through market purchase or company award; of MEBOs (Managers and Employee Buy-Outs); of ESOPs (Employee Stock Ownership Plans whereby shares are eventually transferred to employees, for instance on leaving the company); or ESOTs (Employee Stock Ownership Trusts, holding shares indefinitely for a changing collective of employees, who only benefit from dividends). Stock ownership enables employees to participate in enterprise results, through dividends and (except for ESOTS) capital gains.

Any form of employee participation in enterprise results encourages higher labour productivity, not so much via greater individual effort, for the employee only gains a fraction of the extra product due to her greater effort, but through the greater intelligence and cooperation with which any given effort is exercised, and through each employee monitoring whether a sufficient level of effort is exercised by all other employees. Employee participation in enterprise results also creates a sense of identity with the company instead of a split between “us” and “them”, improves channels of communications and the chances of avoiding and resolving conflicts within the company. Unlike other forms of participation in results, like profit-sharing, the voting power attached to shareholding gives employees a pro-rata decisional power in company affairs. The dividends and capital gains attached to share ownership give a broader and permanent basis to participation in results, unlike the uncertain periodical revision of profit sharing parameters at labour contract renewals. Thus employee ownership transforms dependent labourers into part-capitalists/entrepreneurs. Employee ownership is part of both the Thatcherite “property-owning democracy” and the Blairite “stakeholders’ economy” (workers being the primary category of stakeholders, above managers, suppliers and creditors, buyers and debtors, local communities, the environment).

There is a European Federation of Employee Share Ownership (EFES) acting as “the umbrella organization of employee owners, companies, trade unions, and any persons and institutions looking to promote employee ownership and participation in Europe”, . There is a Central Eastern European Network for Employee Ownership and a Manifesto for the 2009 European Parliamentary Elections . In the last eighteen years the European Commission has issued no less than four major Reports on P.E.P.P.E.R., an acronym standing for Promotion of Employee Participation in Enterprise Results, which I happen to have contributed as part of an EC-funded research project on the subject, undertaken at the European University Institute in Florence in 1988-1990. The four Reports specifically endorse employee stock ownership. [1] The PEPPER Report IV (2008, cited in footnote 1) "presents conclusive evidence, regardless of data source, that the past decade has seen a significant expansion of employee financial participation in Europe. This is true of both profit-sharing and employee share ownership, although profit-sharing is more widespread" (see Ch. II and III).

If employee share ownership is common and desirable, a total stake sufficient to exercise control over the company, let alone an absolute majority stake, is an extremely rare occurrence; MEBOs are no exception, since there control is bound to be exercised not by employees but by managers, who have interests of their own. Sometimes a controlling stake by employees is the result of a generous benefaction by a successful tycoon without heirs – or without likeable heirs – wishing to reward those who have most contributed to his fortune. In the post-socialist economies of Central Eastern Europe employee ownership and control on a large scale has been the unexpected result of privatisation; for instance in Poland where MEBOs have been the privatisation form of the largest number of state enterprises, and in Russia where about 60 per cent of state enterprises involved in mass privatisation through the distribution of vouchers have ended up with a dominant shareholding by employees and managers.

In a market economy, most frequently, a company on the verge of bankruptcy may be taken over by employees at a token price, or in exchange for an outstanding or forthcoming liability otherwise incurred by the company towards its employee. This is the case of the Detroit carmakers. The guarantee of participating in the future benefits of company restructuring at a time of crisis makes the associated sacrifices more palatable to employees. On the other hand, substantial employee share ownership exposes them to the double risk of losing both employment and wealth in case of failure (as demonstrated by employee losses from Enron’s collapse).

Employee ownership is bound to have a positive impact on corporate governance, through employees monitoring directly, as insiders or, better, as members of the Board, company affairs and the information provided officially. The acquisition of a controlling share in company ownership by employees, however, creates the possibility of their exploitation of other shareholders, through the choice of strategies favouring the controlling employees and the appointment of managers inclined so to favour them. Thus shareholding employees will be in a position to promote higher wages and/or higher employment than would be consistent with the maximisation of share value for the benefit of all shareholders. This possibility is bound to occur if a controlling interest is in the hands of employees who, individually, hold a higher share of employment than in company stock, for in that case they will gain more from higher wages and employment, as employees, than what they lose as shareholders. [2]

This of course is not a unique problem associated with employee share ownership, but is common to all cases of ownership by any stakeholder. Indeed share ownership by company suppliers or customers is much more likely to produce such a conflict of interest between shareholding-stakeholders and other shareholders. In fact employees are many, while other stakeholders can be one and act more effectively; and other stakeholders can be a company exercising a controlling interest much greater than its ownership share through “chinese boxes” – a chain of companies holding a controlling interest in other companies ultimately controlling with a minimal equity participation the company in which the stakeholder is trying to assert its interest to the detriment of other shareholders. In this case the direct and indirect shareholding can be sufficient for control, while the direct interest is lower than, say, the supplier’s share in some input’s supply to the company, and a conflict of interest with other shareholders can very easily arise.

In Detroit the employee share ownership in Chrysler, Ford and GM will be vested in a single trust, a Voluntary Employees’ Beneficiary Association (VEBA), which the three carmakers agreed in 2007 labour contracts to set up as a way to keep healthcare costs down. Transferring obligations to the trust, they will strengthen their balance sheets and transfer risk to the union and its members, whose future benefits would depend on performance of the trust’s investments. In this case by definition the employees share in company employment (100%) is higher than their share in company equity, therefore the temptation of exercising control collectively to the benefit of employees and the detriment of other shareholders is present.

The risk of exploitative behaviour by employee representatives however is mitigated by the VEBA being managed by independent trustees with a fiduciary responsibility to protect retirees’ benefits. Moreover, “In keeping with the low profile that union leaders have maintained throughout their talks with the carmakers, the UAW has given no inkling of how it will behave as a shareholder. But union watchers predict that it will be less confrontational at the boardroom table than at the bargaining table.” And “VEBA trustees in other sectors have made diversification a key element of their investment strategy. Should the managers of the GM, Ford and Chrysler trusts follow suit, they are likely to sell most if not all their shares when the carmakers are on the road to recovery”. (John Read, FT 28/04/2009, . Finally, part of the Chrysler-FIAT deal is a FIAT share rising from 20% to 51% by 2016, thus eventually removing control from the AWU.

All’s well that ends well, then. But it goes to show that corporate governance and stakeholders interests can have unexpected, disquieting connections.

[1] Milica Uvalic, The PEPPER [I] Report: Promotion of Employee Participation in Profits and Enterprise Results in the Member States, Supplement No. 3/91 to Social Europe, Luxembourg, Office for Official Publications of the European Communities, 1991.

Commission of European Communities, Report from the Commission: PEPPER II – Promotion of participation by employed persons in profits and enterprise results (including equity participation) in Member States, 1996, COM (96) 697 Final, Brussels 8 January 1997.

Jens Lowitzsch et al., The PEPPER III Report: Promotion of participation by employed persons in profits and enterprise results in the New Members and Candidate Countries, Inter-University Centre Split/Berlin, Institute for Eastern European Studies, Free University of Berlin, Rome-Berlin June 2006

Jens Lowitzsch et al., The PEPPER IV Report: Benchmarking of Employee Participation in profits and enterprise results in the Members and Candidate Countries of the European Union, (Preliminary Version for Presentation to the European Parliament in Strasbourg, May 21 2008), Inter-University Centre at the Institute for Eastern European Studies, Free University of Berlin, Berlin May 2008.

[2] Nuti D. Mario, "Employeeism: corporate governance and employee share ownership in transition economies", in Mario I. Blejer and Marko Skreb (Eds) Macroeconomic Stabilisation in Transition Economies, Cambridge, CUP 1997, pp. 126-154, in particular the Appendix. Almost entirely downloadable freely at,M1