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universal and can be used to promote growth at the level of groups of countries, regions of the world, and the global economic system as a whole.
Rovshan MURADOV
Ph.D. (Econ.), associate professor, sector head at the Department of Economic Legislation, Milli Mejlis, Azerbaijani Republic (Baku, Azerbaijan).
EMPLOYMENT LEVEL AND STRUCTURE IN TERMS OF GLOBALIZATION (AZERBAIJANI CASE STUDY)
Abstract
T
his article analyzes the structural shifts in employment in Azerbaijan and eval-
uates the respective influence of globalization (its positive and negative aspects).
I n t r o d u c t i o n
Globalization is a complex, contradictory, and multifaceted phenomenon. And, consequently, the growing integration of societies and economic systems is beginning to encompass more and more aspects of human life. As V. Medvedev justifiably notes: . .the main impulses of globalization are
indeed coming from the economy. Without taking into account the economic component, the main argument, which confirms the objective nature of globalization as an inevitable and fundamentally progressive, though contradictory, process, is lost.”1 There can be no doubt that globalization in general is progressive in nature, simplifying the access of the developing countries to the commodity and agricultural markets of the developed countries, as well as to each others’ markets, and facilitating access to investments, progressive technology, and so on. At the same time, in some cases, globalization may pose threats to the interests of national economies, since they, being equal within the framework of the integration structure, partially transfer some of their economic and juridical powers to supranational formations. Based on the studies conducted by the World Bank, the following conclusions can be made with respect to the globalization process:
1 V. Medvedev, “Globalizatsia ekonomiki: tendentsii i protivorechiia,” Mirovaia ekonomika i mezhdunarodnye ot-nosheniia, No. 2, 2004, p. 3.
THE CAUCASUS & GLOBALIZATION
■ first, poor countries have made their debut on the global goods and services market, which has led to a decrease in their poverty level;
■ second, entire countries and their components have been incorporated into the global processes;
■ third, a trend toward uniformity has grown stronger, which is giving rise to justified worries that economic integration will lead to cultural standardization;
■ fourth, serious changes have occurred in the formation of both the internal and the world labor market.
Azerbaijan, after becoming incorporated into the globalization process, is undergoing changes, like other countries, which affect different spheres of social life, including social-labor. This article studies the special features of resolving the employment problem in the Azerbaijan Republic in interrelation with the global economic processes keeping in mind the above-mentioned factors.
Changes in the Distribution of the Employed Population by Economic Sector
The social-labor sphere, which plays an important role in social life, is helping to raise the efficiency of public production and enhancing the state’s economic and social security. Without efficient employment or labor motivation, the state of the economy cannot be improved either at the macro or at the micro levels. At the same time, the contemporary systems of education, public health, and culture in the country have a significant effect on social development. The benefit from enlarging these spheres is many times greater than the amount spent on their development. As global practice shows, human capital is becoming increasingly important in today’s society, having a decisive effect on all the economic processes. This is primarily expressed in the conception of a post-industrial society in the growing role of non-material economic resources. The latter include information technology, human capital, and business skills. These resources are of special value because they are related to people’s personal qualities and active nature, and they are humanitarian in nature.2 What is more, social development changes the correlation in the branch structure of the economy in favor of the tertiary sector—the branch of non-material production—against the background of the primary (agriculture and the extractive industry) and the secondary (manufacturing industry) sectors. The economy of post-industrial countries based on the leading position of the tertiary sector functions by means of non-material economic resources, which is increasing the role of the social-labor sphere. The latter centers around the individual, who interacts with the market environment in different vectors of labor organization, revenue formation, and the need for social security.
The social-labor sphere also includes the social-cultural complex, in particular public health, education, and culture; the labor sphere per se, which includes employment, unemployment, salary, labor productivity, and motivation and stimulation; and a set of protection and support measures.
2 “Human capital is the capability embodied in people to produce revenue. Human capital includes inborn capabilities and talent, as well as education and acquired skills” (S. Fischer, R. Dornbusch, R. Schmalensee, Ekonomika, Delo Publishers, Moscow, 1993, p. 303).
In this way, the social-labor sphere includes essentially all aspects of life support, including the formation of public income sources, their distribution and redistribution, and the social infrastructure.
During the transition period, principal changes occurred in social-labor relations which primarily affected their constituent parts. For example, whereas prior to the transition period, the state and the employee played these parts, now representatives of different forms of property can act as employers. In other words, both the state and the businessman can be employers.
As a result of the changes, the ratio of those employed in the state sector to those employed in the non-state sector of the economy has significantly changed in Azerbaijan. For example, whereas in 1990, those employed in the former accounted for 70.7%, and in the latter for 29.3%, in 1995, the ratio amounted to 56.1% and 43.9%, respectively. During this period, there was a 22.6% drop in the number of people employed in the state sector, while employment rose to 46.2% in the non-state sector. In subsequent years, this data became stable, and by 2006, the ratio of those employed in the state sector to those employed in the non-state sector amounted to 32% and 68%, respectively (see Table 1).
Table 1
Dynamics of the Ratio of People Employed in the State Sector to People Employed in the Non-State Sector of the Economy for 1995-2006 (thou. people)
1995 2000 2001 2002 2003 2004 2005 2006
Total number employed in the economy 3,613.0 3,666.3 3,715.0 3,726.5 3,747.0 3,809.1 3,850.2 3,973.0
Including: in the state sector 2,027.2 1,240.0 1,240.0 1,192.0 1,180.0 1,209.3 1,229.8 1,271.9
Percentage 56.1 33.8 33.4 32.0 31.5 31.7 31.9 32.0
in the nonstate sector 1,585.8 2,426.3 2,475.0 2,534.5 2,567.0 2,599.8 2,620.4 2,701.1
Percentage 43.9 66.2 66.6 68.0 69.5 69.3 69.1 68.0
N o t e: Compiled and calculated by the author based on: Statistical Indices of Azerbaijan, Baku, 2007, p. 90 (in Azeri).
It stands to reason that development of the non-state sector of the economy is a positive process (particular during the time when, as a result of the changes going on in society, there was a reduction in employment in the state sector). But it should be noted that in Azerbaijan, employment in the state sector is traditionally more stable and workers are guaranteed paid vacation and sick leave. At the same time, in several branches of the state sector (particularly public health and education), the salary level is still low, while in the state administration system it is much higher. This leads to certain amount of differentiation in remuneration of labor in the state sector.
It is important to note that on the whole the level of labor remuneration in the non-state sector is higher than in the state sector. However, although the salaries are higher in the non-state sector than
in the state sector, hired workers come up against certain problems. For example, they are not entitled to paid vacation or temporary unemployment benefits, they perform all kinds of work that are not stipulated in the contract and are not part of the job description, and do overtime work without corresponding pay. Apart from this, in the event of a reduction in production volume, financial difficulties, or the failure of an employee to carry out the management’s orders, an employer often ceases labor relations with an employee unilaterally, fails to issue severance pay in the event labor relations are curtailed, can fire an employee in the event of matrimony or pregnancy, and so on. The general conclusion is that state and non-state enterprises and organizations are different in terms of their work conditions and the guarantees they offer.
Branch Shifts in the Employment Structure
The processes going on in Azerbaijan since the collapse of the Soviet Union changed the branch employment structure. For example, on the eve of the Soviet Union’s disintegration, the number of people employed in the country was distributed as follows: 12.7% in industry, 30.9% in agriculture, 6.8% in construction, and 49.6% in the service sphere. As the data of Table 2 show, in subsequent years there was a drop in employment in industry and an increase in those employed in agriculture.
Employment dropped to 7% in industry but rose to 5.6% in construction after undergoing certain fluctuations, and decreased to 48.4% in the service sphere. This indicates a trend in Azerbaijan toward an increase in the number of employed in the agrarian sector of the economy. To a certain extent, this increase was promoted by the fact that according to the Law of the Azerbaijan Republic on Employment,3 everyone who has a land plot is considered employed. On the other hand, the
Table 2
Dynamics of the Branch Employment Structure for 1990-2006
(in %)
1990 11995 1 1996 ||1997| 1998 2000 2001 2002 2003 2004 2005 2006
Total 100 100 100 100 100 100 100 100 100 100 100 100
In agriculture 30.9 30.8 31.8 29.0 30.8 41.0 39.9 40.1 40 39.5 39.2 39.0
In industry 12.7 9.8 7.7 6.6 6.8 5.7 5.6 5.6 5.6 6.9 7.0 7.0
In construction 6.8 5.1 4.4 4.1 4.2 4.2 4.2 4.8 4.8 5.0 5.1 5.6
In the service sphere 49.6 54.3 56.1 60.3 58.2 49.1 50.3 49.5 49.4 48.6 48.7 48.4
N o t e: Compiled and calculated by the author based on: Statistical Indices of Azerbaijan, Baku, 2003, p. 99; 2007, p. 89 (in Azeri); The Labor Market. Statistical Collection, Baku, 2000, pp. 36-37 (in Azeri).
3 See: Law of the Azerbaijan Republic on Employment, Azerbaijan, 15 August, 2001 (in Azeri).
THE CAUCASUS & GLOBALIZATION
reduction in volume of industrial production led to some of the workforce employed in it finding jobs in agriculture.
As we know, in many countries of the world, the agrarian sector of the economy has passed through three stages in its development:
1. Subsistence farming. Here inefficient peasant subsistence farms are almost entirely orientated toward the requirements of the family. They are characterized by the use of the most primitive cultivation methods and minimum investments. Land and labor, which is used in full only seasonally—during sowing and harvest-gathering—are the basic production factors at these farms. The land is usually worked by one family, sometimes one or two hired workers are employed. The primitive labor tools, long distance from sales markets, and lack of the necessary infrastructure characteristic of these farms are not conducive to an increase in their production. However, ensuring the guaranteed production minimum for the family’s survival is characteristic of this stage.
2. Mixed farms where some of the produce is consumed, while the rest is sold on the market; they are transitional entities between inefficient subsistence farms and large productive farms. These farms are characterized by the simultaneous cultivation of different crops for sale, livestock breeding, the use of simple machinery, and the use of higher quality seeds and fertilizer. Production diversification makes it possible to avoid losses from poor harvests and raise income stability. In turn, ensuring more stable income helps to raise the family’s standard of living and increase investments in farm development.
3. Contemporary specialized farms targeted at the consumer. Differing in size and function, they are highly productive farms and gigantic fields on which vegetables as well as fruit are grown. The use of complex, labor-saving technology makes it possible for one family to work huge land plots. In contrast to subsistence and mixed farms where land and labor are the main focus, the mobilization of capital and the technical process play the primary role in producing bumper harvests at specialized farms. In terms of functioning methods, state-of-the-art farms hardly differ from large industrial enterprises. Specialization in the cultivation of one crop, the use of capital-intensive and labor-saving technology, and obtaining the highest return on production in order to reduce spending on the output of one unit of produce make it possible to achieve the highest profit.
Unfortunately, farms functioning in Azerbaijan still lag behind specialized farms in developed countries. They are closer in their characteristics to mixed farms which consume part of their produce and offer the rest on the market.
Let us take a look at the dynamics of the number of farms and related employment.4 Between 1994-2006, the number of farms in Azerbaijan rose 5.6-fold, and the number of those employed at them 2.6-fold. At the same time, the percentage of people employed at individual farms in the total number of those employed in agriculture remains very low and constitutes approximately 1%.5 So the rest of those employed in agriculture work at inefficient peasant farms.
In contrast to the agrarian sector, there was a reduction in employment in the republic’s industry. For the sake of clarity, let us take a look at the changes in the qualitative ratio of employees in this sphere for 1997-2006.6
When reviewing the branch employment structure in industry for 1997-2006, it can be noted that despite the drop in the total number of employed by 22%, the number of employees in the extractive branch rose by 31.6%, whereas it decreased in the manufacturing industry by 45%. In addi-
4 It should be kept in mind that beginning in 2000, farms became called individual.
5 See: Statistical Indices of Azerbaijan, 2006, p. 86 (in Azeri).
6 The changes in the branch employment structure do not make it possible to use the data of previous years.
Table 3
Dynamics of the Number of People Employed in Industry in 1997-2006 (thou. people)
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Total 236.4 208.9 200.8 200.2 195.9 176.9 170.9 175.3 179.3 185.3
Extractive industry 31.6 33 33.7 33.7 35.6 34.9 38.6 39.6 40.8 41.6
Percentage (%) 13.4 15.8 16.8 16.8 18.1 19.7 22.6 22.6 22.8 22.5
Manufacturing industry 188.3 151.3 137.1 131.7 116.5 106.1 95.3 100 101.8 103.5
Percentage (%) 79.7 72.4 68.3 65.8 59.5 60.0 55.8 57.0 56.8 55.9
Distribution of electricity, gas, and water 16.5 24.6 30 34.8 43.8 35.9 37 35.7 36.6 40.2
Percentage (%) 6.9 11.8 14.9 17.4 22.4 20.3 21.6 20.4 20.4 21.6
N o t e: Compiled and calculated by the author based on: 2003, pp. 391-392; 2006, pp. 54-55 (in Azeri). Azerbaijan’s Industry, Baku,
tion to the extractive industry, the number of those employed in the generation and distribution of electricity, gas, and water rose 2.4-fold. The percentage of those employed in the extractive branches rose from 13.4% to 22.5%, and in the generation and distribution of electricity, gas, and water from 6.9% to 21.6%. And only in the processing industries did the percentage of employees drop from 79.7% to 55.9%.
There were two objective reasons for the changes in the employment structure in industry. First, the decrease in employment in industry was caused by the disintegration of the single economic expanse, as a result of which economic ties were broken, which paralyzed the work of many industrial enterprises and led to the dismissal of the workforce employed at them. In subsequent years, the signing of oil contracts also promoted a significant increase in the volume of investments in Azerbaijan’s economy. But this positive process caused one-sided development of the economy and had a negative effect on the structure of demand for labor. As we know, at the macro level the structure of demand for labor depends on the development of international trade and the country’s place in the world distribution of labor. World distribution of labor is based on the fact that in each state production outlays are lower in some branches and higher in others. So in each country it is more expedient to establish production in branches with low production outlays and buy products that require high outlays, if manufactured inside the country, in other states. Azerbaijan’s access to the world market is helping to develop branches working for export.
It should be kept in mind that the export orientation of Azerbaijan’s economy was due to the fact that the republic’s raw material and labor potential was greater than the volume of the internal market. As of today, crude oil is the competitive commodity Azerbaijan can export in large volumes. The
THE CAUCASUS & GLOBALIZATION
dependence of the country’s economy on the export of one resource makes it vulnerable, since a reduction in price for this resource on the world market will have a negative effect on the state’s payment balance and on the state of the economy as a whole. Investing mainly in the oil-producing industry is having a negative effect on the branch and regional structure of the demand for labor.
Summarizing the above, we will note that investments in the oil-producing industry have promoted an increase in the demand for labor in it and, consequently, jobs are still being created there. At the same time, the insufficient amount of investments in the branches of the manufacturing industry has led to a drop in employment in them.
We will analyze the state of employment in the service sphere. As we know, the branches of this sphere can be grouped as follows: infrastructure sectors and public amenities, as well as branches generating the social product. The first group includes transport, commerce, and public amenities. The second consists of public health, education, culture, and art. The special feature of the second group is that the “product” it generates is not tangible and, as a rule, cannot be moved (apart from when its carriers migrate). Under contemporary development conditions, the value of the “products” of the social sphere may be higher than the cost of products created in material production.
Let us take a look at the branch distribution of labor in the service sphere. It should be noted that with respect to the changes in its branch classification, its analysis focuses on two specific periods— 1990-1998 and 1999-2006. Between 1990 and 1998, the total number of people employed in the service sphere increased by 17.3%. The greatest increase in the number of employed was seen in commerce, catering, material-technical supply, and procurement, where it constituted 91.4%. Further in order of priority come those employed in state administration structures with an increase in 28%, in the municipal housing industry and public amenities with an increase in 25%, in education, culture, and art with an increase in 11%, and in public health, physical culture, and social services with an increase in 7.9%. In some branches there was a decrease in the number of employed. It mainly affected employment in science and scientific services where the level dropped by 47%, in transport by 23%, and in other branches by 8%.
When analyzing the changes in the branch employment structure in the service sphere, it should be noted that in 1990 other branches accounted for the largest percentage of employed, 27.4%, while in 1998 it dropped to 21.5%. During the same period of time, the percentage of people employed in commerce, catering, material-technical supply, and procurement increased from 19.9% to 32.5%. In the municipal housing industry and public amenities, the percentage of people employed rose from 6.8% to 7.3%, and in the state administrative structures of cooperative and public organizations from 2.8% to 3%. The percentage of people employed in education, culture, and art dropped slightly from 18.4% to 17.5%, in public health, physical culture, and social security from 9.2% to 8.5%, and in science and scientific services from 3.1% to 1.4%. In 1990, the smallest percentage of employed was seen in credit services and state insurance with 0.6%, which dropped in 1998 to 0.5%.
With respect to the branch employment structure in the service sphere, it should be noted that in 1999, those employed in wholesale and retail trade, the repair of cars, motorcycles, household appliances, and personal property accounted for the largest percentage with 33.5%; in 2006, this percentage had hardly changed, constituting 33.9%. They are followed by those employed in education, their percentage in 1999 amounted to 17.4%, and in 2006 to 17.7%. The percentage of those employed in state administration, defense, and mandatory social security in 1999 amounted to 15.1%, while by 2006, it had dropped to 14.1%. The percentage of people employed in transport, the warehouse industry, and communications changed slightly, increasing from 9.8% in 1999 to 10.5% in 2006; in financial mediation from 0.9% to 0.7%, in real estate operations from 5.7% to 5.6%; and in public health and social services from 9.8% to 9.4%. The percentage of those employed in hotels and restaurants dropped from 0.6% to 0.1%, and in other communal, social, and personal services, the percentage of people employed decreased from 7.3% to 6.9%.
Table 4
Distribution of People Employed in the Service Sphere in 1999-2006 (thou. people)
1999 2000 2001 2002 2003 2004 2005 2006
Total number of employed in the service sphere 1,722.3 1,682.3 1,828.7 1,799.4 1,815.2 1,849.6 .4 1 7 ,8 1 .7 7. 1 ,9 1
Wholesale and retail trade, repair of cars, motorcycles, household appliances, personal property 576.4 626.1 659.5 611.9 618.3 630.7 638.8 650.4
Hotels and restaurants 9.8 9.8 11 11.3 11.8 12.4 14.2 22
Transport, warehouse industry, communications 168.4 167 167.5 169.8 178.5 190.5 191.5 201.8
Financial mediation 15.2 13.5 13 13.2 13.0 13.1 13.2 13.4
Operations with real estate, rental, and commercial activity 98.7 98 97 97.2 97.5 100.0 100.6 106.7
State administration, defense, mandatory social security 260.2 257.7 267.3 265.3 265.0 269.7 270.5 271.2
Education 299.6 317.9 318 329.9 330.0 330.8 335.3 339.4
Public health, social services 168.2 68.9 170 173.6 173.8 174.6 177.2 180.5
Other communal, social, and personal services 125.5 123.2 125 126.7 126.8 127.3 129.5 131.7
Organizations and institutions with an immune status 0.3 0.2 0.4 0.5 0.5 0.5 0.6 0.6
N o t e: Compiled and calculated by the author based on: Baku, 2007, p. 89. Statistical Indices of Azerbaijan,
THE CAUCASUS & GLOBALIZATION
In developed countries, the percentage of the service sphere in the GDP and total number of employed is growing. In some states, the percentage of people employed in the service sphere reaches 70%, and in the GDP it is 60% and more. The employment level in Azerbaijan’s social sphere amounted to 48.4% in 2006, which was lower than in 1995 (54.3%).7
An analysis of the branch employment structure shows that regressive shifts are occurring in Azerbaijan in this sphere, which is expressed in an increase in the percentage of people employed in agriculture, as well as in a decrease in those employed in industry and the service sphere. In order to improve the employment structure, it would be expedient to make investments in the non-oil sector of the economy.
The lack of investment in the economy of the regions not related to oil production has led to a decrease in jobs in them, which is causing migration of the able-bodied population from these regions to the capital or beyond the country. Unilateral investments lead to an increase in disproportion in the development of the republic’s industries and regions. The lack of investments in other industries and regions of the country has also caused an increase in the number of unemployed and a drop in the number of vacancies. In addition, an increase in investments in the oil-producing sector has strengthened branch differentiation in labor payment.
Taking into account the above-mentioned facts, as well as to achieve balanced economic growth, even and sustainable growth of the country’s regions, in 2004 the government of Azerbaijan adopted the State Program of Socioeconomic Development of the Regions of the Azerbaijan Republic for 2004-2008. Within the framework of this document, development of the non-oil sector was reviewed in order to reduce the dependence of the country’s economy on the oil factor, as well as to achieve efficient use of the republic’s economic potential. The program envisaged several measures for resolving the employment problem in the country’s regions. During this period (from October 2003 to 1 January, 2008), 643,300 jobs were created in Azerbaijan, 458,000 of which were permanent.8 It should be noted that 81.4% of the permanent jobs opened up in the republic’s regions, and 85.6% in the non-state sector of the economy. In so doing, 24.5% of the permanent jobs were created at existing enterprises, 29% were organized by physical entities, 28.8% in different international organizations providing urban amenities and carrying out other undertakings, 14.8% at newly created enterprises and organizations, and 2.9% at restored production units and structures. With respect to the branch employment structure of new jobs, it should be noted that agriculture accounts for 13% of the permanent jobs, wholesale and retail trade, the repair of cars, household appliances, and personal items for 9.2%, the processing industry for 9.2%, construction for 7.9%, and education, public health, and social services for 1.4%. In order to further ensure economic growth and employment, development of business in the non-oil sector of the economy should be stimulated and foreign capital drawn into this sphere.
C o n c l u s i o n
Globalization is inevitable, and its influence on the developing countries is both positive and negative. The effect of globalization in Azerbaijan has been manifested mainly in the oil-producing industry. After signing oil contracts, the republic began to actively integrate into the world economy. Positive aspects for Azerbaijan in this process are the inflow of foreign investments, the acceleration of technological progress, the creation of new and modernization of existing jobs in the oil-producing industry, and the high level of labor remuneration. A negative effect of globalization is the fact that economic growth is generated largely by the development of the oil-producing industry, that is, there
' See: Statistical Indices of Azerbaijan, 2007, p. 89 (in Azeri).
7 <
8 See: New Jobs. Collection of Statistics, Baku, January 2008, pp. 17-34 (in Azeri).
is unbalanced progress in the country’s economy. Drawing investments into other spheres of the economy will make it possible to achieve balanced economic growth and improve the employment structure in Azerbaijan.
Demuri CHOMAKHIDZE
D.Sc. (Econ.), professor at the Georgian School of Engineering, advisor to the chairman of the National Commission on Energy and
Water Supply Regulation of Georgia (Tbilisi, Georgia).
GEORGIA: TEN YEARS OF EXPERIENCE IN REGULATING THE ENERGY INDUSTRY
Abstract
This article looks at how regulation of the energy industry took shape and developed in Georgia. It analyzes the need for a regulatory structure in the natural monopoly industries, including in the energy sector, and describes its role and influence on the development of the ener-
gy industry. It provides detailed coverage of the results of regulating the energy industry in Georgia over the past ten years, shows the positive effects of its influence on the development of this sector and of the republic’s national economy as a whole, and formulates tasks for the future.
I n t r o d u c t i o n
Georgia is the third country (after Ukraine and Russia) in which an energy-regulating commission was created after the collapse of the U.S.S.R. It arose on the basis of the Georgian Law on the Electric Power Industry. In April 1999, amendments and addenda were made to this law, and it was renamed the Law on the Electric Power Industry and Natural Gas, while the commission was called the National Commission on Energy Regulation of Georgia (NCER). The creation of this structure was a very important component of the economic reforms and major structural changes in the state’s energy industry.
In August 2007, the Regulatory Commission of Georgia celebrated the tenth anniversary of its foundation. It initially applied only to electric power, but since April 1999 it expanded its sphere of competence to include the natural gas sector.
The formation of the energy-regulating structure coincided with the transition period of the entire economy. During this transition, Georgia’s economy was of a special historical-economic na-
