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relates to 2008. Later on, inflation in Azerbaijan slowed significantly under the impact of a number of factors, primarily the global financial crisis. In January-December 2009, the consumer price index rose by only 1.5% compared to the same period of the previous year.9
Questions also arise about the low, in the opinion of WEF experts, share of imports in GDP, which is known to be an indicator of economic openness. On the whole, the ratio of a country’s foreign trade (both imports and exports) to its GDP is an indicator pointing to the degree of globalization of its economy. But the share of imports considered without regard to the sectoral structure of the economy and exports, the dynamics of the country’s international reserves and other similar indicators is hardly representative enough for assessing national competitiveness. This is well illustrated by Azerbaijan, where the low share of imports in GDP certainly does not indicate their relative (let alone absolute) insufficiency. Even with full satisfaction of the country’s import requirements its international reserves continue to increase rapidly due to its huge (by the standards of the national economy) oil and gas revenues.
But on the whole the results of the WEF study are very useful for identifying the “weak spots” in national competitiveness and in this sense have great constructive potential.
9 See: Data from the Central Bank of Azerbaijan, available at [http://www.cbar.az/assets/86/qiymet_indeksinin_ deyishmesi.pdf].
Vakhtang BURDULI
D.Sc. (Econ.), Department Head at the Paata Gugushvili Institute of Economics
(Tbilisi, Georgia).
Nanuli AREVADZE
D.Sc. (Econ.), Department Head at the Paata Gugushvili Institute of Economics
(Tbilisi, Georgia).
REGIONAL FACTORS OF EMPLOYMENT GROWTH AND THEIR INFLUENCE ON ECONOMIC DEVELOPMENT (GEORGIAN CASE STUDY)
Abstract
T
his article takes a look at the external and internal reasons for the low employment level in Georgia.
It analyzes ways to improve employment structure in terms of type of occupation and region.
I n t r o d u c t i o n
Georgia is one of the few countries still suffering from the consequences of the post-Soviet economic collapse, even though GDP growth rates have been climbing recently, and some sectors of the economic infrastructure have been undergoing development. All the same, economic revival and employment growth have been stymied by the need to overcome the consequences of the August 2008 war and the impact of the global financial crisis, which later became a general economic crisis.
The serious consequences of the global financial and economic crisis can only be avoided and the task of raising employment accomplished if the country reacts adequately to its signals. This can be achieved by increasing internal trade turnover (within the country, within the regions, and between the regions) in addition to developing export-oriented production plants (in a small country, the economy is much more open and a significant increase in the export of goods and services is required to rectify the extremely negative export-import balance). In addition to measures that stimulate a further increase in production, workers must also be provided with a sufficiently high salary and the population with the possibility of obtaining additional income (in the form of interest from bank deposits and bonds, dividends from shares, and so on). Another way to increase the number of entrepreneurs and their income is to render small and medium enterprises, and not only big business, as much support as possible. This can be achieved by creating a favorable investment and competitive environment in the country and its regions for those wishing to engage in business.
Ways to Raise Employment in Present-Day Conditions
The current world financial and economic crisis has taken a greater toll than any other recession since the end of World War II. The main reason for its emergence was the gradually growing imbalance between the financial and real sectors of the economy, which was accompanied by a delay in institutional and sectoral restructuring in both the financial and real sectors. Restructuring is a gradual and ongoing process. It is powered by incorporating scientific and technical achievements into the economy, thus generating a corresponding increase in the productivity of labor and technology and an overall percentage drop in the material- and energy-output ratio of manufacture.1 One of the reasons for the delay in restructuring was the decrease in value and drop in quality of securities quoting on the U.S. stock exchanges (and then throughout the rest of the world), this country being the main driving force behind the development and introduction of scientific-technical innovations.2
This generated a sharp increase in unemployment in many countries, while a level of labor productivity and technology that meets the latest standards, given adequate organization of the institutional (including state and market coordination of redistributional processes) and technological structures in terms of type of occupation, makes it possible to reduce unemployment to the minimum. Some countries, the U.S., for example, have instituted anticrisis programs and there are already signs of gradual economic recovery.
1 See: S. Glaziev, “Mirovoy ekonomicheskiy krizis kak protsess smeny tekhnologicheskikh ukladov,” Voprosy ekonomiki, No. 3, 2009, p. 31.
2 The U.S. is the leading country in the world in terms of the development and export of new technology, spending large amounts of money on their development and receiving large amounts from their sale (see, for example: V. Kushlin, “Faktory ekonomicheskogo krizisa i bazis ego preodoleniia,” Ekonomist, No. 3, 2009, p.6; E. Semenova, “Vozmozhnosti innovatsionnogo tipa razvitiia,” Ekonomist, No. 3, 2006, p. 100; S. Liubimtseva, “Innovatsionnaia transformatsiia eko-nomicheskoy sistemy,” Ekonomist, No. 9, 2008, pp. 31-33.
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Georgia, like several other small countries (although there are some exceptions), has been less affected by the current financial and economic crisis. The main reasons for this are as follows: the assistance it received from developed countries, its high percentage of rural residents, and the closedown of many enterprises after the beginning of the reforms (workers either emigrated, changed their field of specialization, or remained unemployed, the number of whom amounted to approximately 13% of the economically active citizens at the beginning of the crisis). But the crisis nevertheless took its toll both in the financial sphere (for example, many bank employees, as in several developed countries, lost their jobs) and in the real sector, particularly in some sectors that has been enjoying a definite economic revival in previous years, for example, the construction industry. Investors were leery of the crisis and to a certain extent of the August war, which was reflected in a decrease in foreign investments for creating new enterprises in the real sector of the economy. But there are already signs of a gradual improvement in the situation in this sphere.
In order to prevent the global crisis from having an even more serious impact on the country’s economy and to rectify its consequences in employment, as well as to create conditions for ensuring a maximum employment level, Georgia needs to engage in institutional and technological organization of the financial and real sectors of the economy that meets current needs both nationwide and in its regions.
Market competition (in the goods and services markets and stock markets) is the driving force behind scientific and technical progress, the manifestation of which leads to an increase in the productivity of technology and labor and helps to develop resource-saving technology. This process brings about a gradual restructuring of production, that is, a change in the correlation (proportions) of industry, agriculture, the service sphere (including the rehabilitation of durable goods), R & D, and others. Along with this, the demand for workers in various sectors and spheres of activity changes (for example, the proportions between industry and the service sphere change in favor of the latter). The demand for workers with high-tech skills grows, as well as for workers engaged in intellectual activity.
An increase in the productivity of labor in the context of production volume growth sometimes causes the redundancy of other workers in some sectors. At the same time, in contemporary conditions, the number of those employed in R & D, as well as in auxiliary sectors of the service sphere (including financial and non-financial organizations and enterprises, environmental protection, and others), constantly rises. Admittedly, due to the current crisis, the number of those employed in the financial sector, as noted, has decreased, but it should recover again after ensuring the relevant institutional and production-technological restructuring of the financial systems—fiscal, financial and credit, investment and fund, along with their monitoring and control components. In addition, some of those employed in R & D, and in the introduction of its results are concentrated in industry, construction, as well as in those auxiliary enterprises that promote the development of agriculture. And this supports an increase in employment.
Analysis of the Employment Structure
In order to draw a conclusion about the state and quality of the employment structure in Georgia and its regions and more precisely formulate the regional factors of its growth, the corresponding statistical information must be studied and the other circumstances influencing its current state taken into account.
The collapse of production in 1991, as well as the breakdown in traditional production-cooperative and commercial ties with the post-Soviet countries, caused an unprecedented rise in unemployment, particularly in the cities. Some of those made redundant were forced to change their profession, some migrated to other countries, and some moved to the villages.
At the beginning of the 1990s, the employment situation was also aggravated by the inflow of refugees from the Abkhazian region as a result of the ethnic cleansing of the indigenous Georgia population in most regions of Abkhazia. In 2008, they were joined by indigenous Georgian residents from the Tskhinvali region.
A comparison of Georgia’s unemployment index with the indices of other countries provides some information about the employment situation in Georgia.
The Statistical Yearbook of Georgia gave unemployment indices for several countries (postsocialist countries, Western European countries, the U.S., China, and Japan). In 2006, according to official data (on average for the year in percentage of the size of the economically active population), a very high index of 13.6% was registered in Georgia, although in previous years this index was even higher in some countries. Of those countries presented in the statistical yearbook, Georgia’s index is comparable to the index for Poland, 13.8%, and Slovakia, 13.4%. In Belgium this index is equal to 8.5%, in Latvia to 9.0%, in Finland to 8.7%, in Kazakhstan to 7.8%, and in the Czech Republic to 6.0%. In neighboring Azerbaijan (where the unemployment index is only taken into account among urban residents, which, generally speaking, is high in most countries compared to the mean urban and rural index), the level of unemployment is only 1.3%.3
The fact that the size of the population has dropped in all Georgian cities (apart from Zugdidi, where the inflow of refugees swelled the size of the population from 49,600 in 1989 to 72,100 in 2008, which amounted to 145.4% of the 1989 level) shows that the number of employed has dropped in Georgia and its regions. Although refugees have settled in other cities as well, the size of their population has dropped. For example, in Tbilisi, the population in 2008 amounted to 1,106,000 people, which is 89.0% of the 1989 level. In Rustavi, the population amounted to 117,300 people in 2008, or 73.8% of the 1989 level. The size of population has particularly decreased in cities that specialize in one type of production: in Chiatura from 28,900 to 13,700 (which is 47.4% of the 1989 level), and in Tkibuli from 22,000 to 13,900 (63.2%).
If we keep in mind the significant drop in urban population, it becomes clear that the number of jobs has dropped much more severely than can be surmised from the official unemployment data, where the percentage is calculated based on the economically active population left in the cities, since migration mainly occurred due to redundancy.
It is clear from the correlation between the unemployed registered at employment agencies and the available vacancies that the employment problem is acute in Georgia: in 2006, there were 66 registered unemployed for every vacancy. In 2005 alone, 34,300 people were registered at employment agencies (they were joined by the unemployed who were registered before but had not yet found a job), while only 3,400 people found work through the employment agency.4
The production structure must be improved taking into account the current restructuring trends and by ensuring the highest possible employment growth in order to increase employment and raise personal income throughout the country as a whole and in its regions.
Let us take a look at the employment structure in terms of type of occupation. The total number of employed fluctuates within a small range (at least it did before the world financial and economic crisis)—in 2000, the number of employed amounted to 1,877,700 people, in 2005 to 1,744,600, in 2006 to 1,747,300 people, and in 2007 to 1,704,300 people.5 In agriculture (including hunting and forestry), the percentage of employed amounted to 54.3% in 2005, to 53.4% in 2006, and to 53.4% in 20076 (in most developed countries, the number of employed in agriculture is no higher than 10%).
The number of those employed in the mining industry continues to drop. In 2000, the employment level was 0.4%, but over the past four years it has been fluctuating within the range of 0.2-0.3%.
3 See: Statistical Yearbook of Georgia, State Department for Statistics of Georgia, Tbilisi, 2008, p. 318.
4 See: Statistical Yearbook of Georgia, State Department for Statistics of Georgia, Tbilisi, 2006, p. 49.
5 Statistical Yearbook of Georgia, 2008, p. 43.
6 Ibid., pp. 44-45.
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Unfortunately, this trend is also seen in such a strategic sector as the manufacturing industry (including sectors that produce high-tech items or their components and the processing branches of the agricultural industry). In 2000, it was 5.9%, in 2006, 5.1%, in 2006, 4.7%, and in 2007, 4.9%, and this is when this branch is the main source of income and particularly of export earnings in many countries.
The increase in employment in construction is to some extent a good sign. But recovery from the current world crisis can only be accomplished if several different methods are used to renew the economic structure. The main efforts should be aimed at creating new jobs and redistributing the employed among different spheres of activity. This is a foreign economic factor that requires coordinating the development of construction taking into account contemporary world economic processes. The domestic economic factor, on the other hand, requires paying more attention to industrial, infrastructural (with respect to production infrastructure), and hotel-recreation construction, in addition to the office and housing sector, as well as construction in the villages (both residential and various types of production facilities, whereby without causing damage to farm land).
The percentage of those employed in transport and communications fluctuated between 4.0% in 2005 and 4.2% in 2007. In developed countries, as we know, this percentage, taking into account the dissemination of computer and information technology, is rather high.
A slight trend toward an increase in employment can be seen in the municipal, social, and personal services sphere. In 2007, it amounted to 2.6%. This index is also increasing in commerce and the repair of cars, household appliances, and personal items (unfortunately, the commerce and repair sectors, that is, spheres of different types of activity, although both belong to the service sphere, were lumped together in the yearbook), their share amounts to 10.8%.
It is obvious from the indices presented that carrying out serious restructuring and ensuring both an increase in personal income on this basis and employment in the regions is the main prerequisite of Georgia’s economic development. The current structure of the economy is very backward. The percentage of the manufacturing industry compared with the 1990 index and the index for developed countries is extremely low. The reasons for this are as follows: the large amount of outmoded noncompetitive technology that had accumulated by 1990, which cannot be used since it is impossible to sell the products it manufactures, the squandering of technology still suitable for at several enterprises (for example, selling equipment as scrap metal, which for a long time occupied first place in the list of export commodities), and the abrupt collapse of technological and, consequently, many commercial outlets for selling consumer goods (incidentally, the latter was typical of all the post-Soviet countries and even affected some capitalist countries that had close economic relations with the Soviet Union). Only a few enterprises survived (for example, those that manufactured Azot fertilizers, cement factories, bread-baking and a few other enterprises of the food industry), the products of which enjoyed a steady demand in different markets.
Recently, due attention has not been paid to creating enterprises of the processing industry and the necessary infrastructure for their functioning. If we compare the number of employed in terms of type of occupation with the added value created in these spheres, it turns out that one employee in industry (unfortunately with an abrupt drop in its volume and number of workers employed in it) accounts for approximately 10-fold more added value than in agriculture. This shows, first, that the products put out by households are not precisely accounted for; second, the number of those employed in agriculture is overestimated; and, third, the productivity of labor in agriculture is low (due to the absence of equipment, auxiliary, consultative, and other necessary production plants, and other circumstances).
In Georgia, the high level of unemployment is caused, among other things, by the insufficient rate at which the mechanisms for ensuring a rise in employment in terms of the types of occupation most in demand in countries with a market economy operate. In contemporary conditions, the lag in the introduction of state-of-the-art technology is one of the main reasons many local manufacturers (without the appropriate assistance from state and private institutional-financial structures and other
necessary measures to promote business) are unable to compete with imported products. The pressure import places on local competitive commodities is such that the import volume amounts to $4 billion, or is more than four times higher than the export volume.
Information about the income of the employed in terms of region deserves attention (unfortunately, the statistical yearbooks of recent years (after 2004) do not present such data). In 2004, throughout Georgia, the average nominal salary of workers for hire was 156.8 lari7, whereby in terms of region, it was 218.7 lari in Tbilisi, 155.1 lari in the Ajar Autonomous Region, 89.0 lari in Guria, 110.3 lari in Imereti, 83.7 lari in Kakheti, 89.2 lari in Mtskheta-Tianeti, 69.3 lari in Racha-Lechkhumi and Lower Svaneti, 103.8 lari in Samtske-Javakheti, 142.8 lari in Kvemo Kartli, and 112.0 lari in Inner Kartli.8 Although this information relates to 2004, it is still of some immediate interest today. The data presented shows that there is a significant variation in the level of income among those employed in different regions (whereby it is obvious that the proportions have not changed very much in recent years). So this information deserves attention when drawing up and conducting a policy aimed at raising and effecting a certain regional alignment in household incomes during restructuring of the Georgian economy. It is obvious that more detailed information is required by region about the size and characteristics of the economically active population in order to draw up a justified strategy of employment growth and increase the income of the employed, as well as attract new technology to the regions and increase product export from them, and so on.
We can also follow the dynamics of the changes in the average salary of those employed in different types of activity over the past few years. In 2004, the average monthly wage of those employed in the economy was 156.8 lari, in 2008—534.9 lari, including 68.0 and 299.3 lari, respectively, in agriculture, hunting, and forestry; 60.1 and 211.1 lari, respectively, in fishing; 179.5 and 808.9 lari, respectively, in the mining industry; 183.8 and 510.5 lari, respectively, in the manufacturing industry; 259.2 and 738.3 lari, respectively, in the manufacture and distribution of energy, gas, and water; 264.5 and 597.3 lari, respectively, in construction; 107.9 and 510.6 lari, respectively, in commerce, the repair of cars, household appliances, and personal items; 70.3 and 333.6 lari, respectively, in hotels and restaurants; 229.1 and 667.7 lari, respectively, in transport and communications; 739.3 and 1,343.5 lari, respectively, in financial activity; 125.5 and 540.1 lari, respectively, in real estate, rental, and service operations; 192.4 and 869.5 lari, respectively, in state administration; 88.7 and 243.7 lari, respectively, in education; 80.3 and 305.8 lari, respectively, in public health and social security, and 123.2 and 408.7 lari, respectively, in the municipal, social, and personal service sphere.9
In recent years, the wage level in all spheres has been on the rise. But it is insufficient to ensure the participation of broad strata of the population in dynamic trade turnover, without which efficient development of the economy of the country and its regions is impossible.
Regional Employment Growth Factors and Rationalization of Employment Structure
We believe the regional growth factors to be the following: the expansion of state and market coordination for developing business and the socioeconomic sphere; the creation and functioning of
7 The lari exchange rate to the dollar has recently been fluctuating within the range of 1.62-1.67 lari to the dollar.
8 See: Statistical Yearbook of Georgia, State Department for Statistics of Georgia, Tbilisi, 2005, pp. 71-72.
9 See: Statistical Yearbook of Georgia, State Department for Statistics of Georgia, Tbilisi, 2009, p. 47.
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an efficient mechanism of the regional financial system (fiscal, financial and credit, and investment-fund); the conducting of regional production diversification in the cities and villages; the development of a commodity-promotion infrastructure (including for export purposes) in the regions; and the promotion of sales based on the specific conditions of the regions and the economic situation, the practice of professional retraining, and so on.
These factors can be divided into action factors, which ensure the implementation of the designated strategy, and circumstance factors, which must be taken into account when drawing up and implementing a regional development strategy.
Action factors that should ensure an increase in employment and rationalization of its structure:
(1) Expanding the functions of regional state and market coordination10 is one of the most significant factors for promoting an increase in employment in the regions and rationalizing its structure in terms of type of occupation. This is expressed in a certain decentralization of management (broken down into certain functions) with increased rights and responsibility of the territorial state administration structures (and a simultaneous increase in control functions by the center, particularly with respect to the use of those funds that are allotted by the central state structures for implementing certain programs at the territorial level). Development of the functions of market coordination, on the other hand, is expressed, for example, in the creation and functioning of various associations of businessmen which enter contracts with the state structures that set forth their mutual obligations (for example, the institution by the central or territorial state structures of tax or other preferences for businessmen in exchange for an increase in their export potential or the creation of additional jobs; whereby such contracts can also be entered with individual large companies), or in the creation of such associations of businessmen that, within a set framework, define the conditions of fair competition (for example, when determining the average prices for certain products in certain markets for a certain period of time11). Or those same associations could initiate measures for improving the conditions in a particular market (for example, to increase employment, develop innovation activity, and so on).
(2) Establishment in the regions of an efficient mechanism of financial support. In developed countries it covers three main branches—fiscal,12 financial and credit, and investment-fund systems (the last two systems include special joint funds that accumulate state and private resources, banks or their regional branches, markets of shares, bonds, and other securities, venture capital).13
(3) Regions or other territorial units that specialize in the production of one or several products often find themselves in a depressed state. For example, the Georgian cities of Tkibuli and Chiatura, which specialize only in raw material production (coal and manganese), have lost a larger percentage of their population than the country’s other cities.
In developed countries, this fact has long been taken into account and, in order to prevent this kind of economic depression from emerging, a mechanism for stimulating regional diversification of production is incorporated into the systems of regional develop-
10 See: S. Grigoriev, “Mestnoe upravlenie v Velikobritanii,” Voprosy ekonomiki, No. 9, 1991; J.-R. Boudville, Problems of Regional Economic Planning, Edinburg, 1996; V. Burduli, Coordination of Social and Economic Development at the Regional and Local Level, Meridian, Tbilisi, 2006 (in Georgian); R. Abesadze, V. Burduli, “Ways of Innovative Development in Globalization Conditions,” in: Collection of Scientific Works of the Gugushvili Institute of Economics, Vol. 1, Gugushvili Institute of Economics Publishers, Tbilisi, 2008 (in Georgian); A. Odintsova, “Territorialnoe upravlenie vo Frantsii,” Voprosy ekonomiki, No. 5, 1991.
11 See: V. Manevich, “O zakonomernostiakh stanovleniia rynka,” Voprosy ekonomiki, No. 3, 1993.
12 See: T. Beridze, E. Ismailov, V. Papava, Tsentralnyy Kavkaz i ekonomika Gruzii, Nurlan, Baku, 2004, pp. 114123 (see also: V. Burduli, op. cit., pp. 86-137).
13 See: V. Burduli, op. cit., pp. 139, 144-148.
ment coordination. In the village, this is expressed taking into account the natural conditions, the country’s needs for a particular product, the export possibilities, and the need for crop rotation or the retention of valuable perennial crops. In the city, it is expressed taking account of the need of the regions and the country as a whole for the commodities produced, as well as of the need for technology renewal.
From the above, it is obvious that diversification of regional production is an important factor in increasing employment and keeping it at a high level.
(4) In the village, institutionalized structures should be created that will make it possible to intensify agriculture, as well as manufacture, to the extent possible, environmentally pure products. This will help to provide work and income for quite a large number of the country’s economically active population.
In some regions, state and, particularly, private auxiliary centers and farmsteads (consultative, selection, pedigree, and so on) should also be created and developed. More attention should also be given to the use of intellectual potential,14 for we know that the corresponding skills are required in order to efficiently use both new and traditional technology in private enterprises.
(5) Development of the above-mentioned regional centers (including the creation of special economic innovative and export-industrial zones) should be stimulated, where, along with basic production facilities, numerous auxiliary structures should also function (both financial and non-financial). These centers could become the main driving force behind an increase in employment.
(6) Development of commodity-promotion infrastructure in the village and city. First, this will help to increase sales possibilities and commodity optimization; second, it will promote an increase in product competitiveness; and third, it will provide jobs in the corresponding structures for a certain number of workers, including marketing experts.
Special note should be made of the need to create commodity-promotion organizations in the commodity-promotion infrastructure. They will enhance the export of goods and services, be responsible for purchases, and provide consultation on marketing questions and on the drawing up of a corresponding strategy for gaining access to foreign markets (for which corresponding organizations exist in developed countries, in particular research in-stitutes).15
(7) In order to accelerate and equalize development of the regions, as well as promote an increase in employment in them, special programs are often drawn up in developed countries with the corresponding financial support for assisting their implementation.16
(8) The development of technology, as well as the obsolescence of some occupations, requires the creation of retraining centers. In some developed countries, they are envisaged by the
14 See: R. Abesadze, “Factors of Economic Development,” in: Collection of Works of the Gugushvili Institute of Economics, Georgian Academy of Sciences: “Problems of Georgia’s Market Economy Development,” Vol. 4, pp. 60-61 (in Georgian); R. Abesadze, R. Sarchimelia, N. Arevadze, M. Melashvili, The Problems of Economic Development and Forecasting, Universal, Tbilisi, 2004, pp. 20-21 (in Georgian).
15 See: V. Dobrosotskiy, “Gosudarstvennoe regulirovanie prodovolstvennogo rynka (zarubezhnyy opyt),” World Economy and International Relations, No. 9, 2000; E. Semenova, op. cit.
16 See: M. Nikitina, “Modeli innovatsionnogo razvitiia na primere respubliki Turtsiia,” World Economy and International Relations, No. 3, 2006; E. Semenova, op. cit; V.K. Senchagov, “O iaponskom opyte upravleniia,” Voprosy ekonomiki, No. 5, 1990; Sh. Tatsuno, The Technopolis Strategy, New York, 1986; P. Didier, “Le Nord—Pas-de-Calais fase aux nouvelles dynamiques economiques: pratiques et enjeux de l’amenagement regional,” Hommes et terres nord, No. 4, 1989; P. Martin, H. Nonn, “Strategies des acteurs publics en Alsace en matiere de developpement economique et d’amenagement: 1982—1989,” Hommes et terres nord, No. 4, 1989.
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law, supported by corresponding organizations and finances, and are established and function both at the state (primarily regional) and at the corporate level. In some countries, the state offers even workers with stable jobs the free opportunity to acquire alternative fields of specialization. This makes it possible for them, should they lose their job, to quickly find a job in another sphere of activity. At present, retraining is a factor that ensures a high level of employment in the regions even in the event of crisis phenomena in some spheres of activity.
(9) Development of municipal, communication, and other facilities of auxiliary production (for example, land improvement services in the villages) of both national and regional significance also promotes employment growth (a job can be found both in the construction of these facilities and in their operation).
The following factors that reflect the circumstances (trends, special features, demands) should be taken into account when drawing up social and economic development strategies for the country and its regions, keeping in mind employment growth and rationalization of employment structure.
(1) The globalization factor. In the globalization context, the possibilities and ways of regional coordination of socioeconomic development are expanded (both with respect to those regions that cover a few countries, and, what is particularly important for our study, in terms of the internal regions of particular countries). The possibility of transferring (disseminating) state-of-the-art technology and installing them in different regions of particular countries intensifies the competition between countries, and between regions within the countries, for introducing advantageous production plants in all spheres of economic activity (financial, industrial, the processing of agricultural produce, innovation, and so on). Making use of these globalization advantages can help Georgia to create new jobs and equalize to a certain extent the technological level among its regions.
(2) Accelerated implementation of the innovations generated by scientific-technical progress in all countries is giving rise to the need for constant restructuring of the economy as a whole and in terms of region in particular. It is giving rise to the need for many medium and particularly small businesses. This, in turn, by increasing labor demand, is creating the opportunity for the employees’ efficient distribution in terms of sphere of activity.
The restructuring process both nationwide and at the regional level is the most important element, if correctly coordinated, of employment growth and rationalization of its structure. This element is a circumstance factor (generated by the scientific-technical progress and globalization), which is essentially a prerequisite for transferring to a new production-technological structure.17 It is also an action factor, the realization of which, in conditions of close cooperation between state and market mechanisms in the regions, requires the drawing up and implementation of a corresponding program.
(3) The intensification of agricultural production and application of new technology usually leads to a reduction in the percentage of rural residents in the total size of the population. But in Georgia, the change in the ratio between the urban and rural population has its special traits. First, Georgia does not generally engage in seasonal labor; second, maximum use of natural fertilizers is needed to produce relatively environmentally pure agricultural products, the processing of which requires additional labor; and third, the difficult relief of Georgia’s regions requires constant soil strengthening and improvement (terrace farming is being introduced in some regions of Georgia), which creates the need for additional labor. So pursuing the correct economic policy may help to avoid an abrupt change (as happened
? See: S. Glaziev, op. cit., pp. 27, 31.
in developed countries) in the ratio between the urban and rural population and ensure that this process is carried out gradually.
(4) At the regional level, an increase in population should be ensured in the cities, particularly in the regional centers. Production can be developed in them using new competitive technology, without which economic growth and an increase in the number of employed and their income is impossible.
Regional development18 of growth centers or growth poles,19 as well as of special (export-industrial and innovation) economic zones, should be encouraged. In the context of a sophisticated structural policy, this could help to increase the percentage of regional employment in both scientificintensive and other pertinent spheres of activity.
Ways to Develop the Regional Economy Keeping in Mind the Local Factors of Employment Growth and Rationalization of Employment Structure
At present, a policy should be carried out in the country’s regions that ensures an increase in employment and rationalization of its structure keeping in mind all the circumstances promoting the achievement of efficient employment (restructuring, jobs for young people, registration of the unemployed, training and retraining alternatives, job security, and so on). This requires special organizations that are engaged in drawing up regional socioeconomic development strategies in the regional power structures20 (in our opinion it would be expedient to include sub-departments for preparing and implementing employment support programs). Diversification of regional production, the strategy of which should be drawn up by local government structures with the cooperation of scientific research organizations, is an important factor of employment growth and its stability both in the village and in the city.
Cities often experience a state of depression, if they specialize in one type of production, due to a drop in market demand for a particular product (or raw material). In the village, however, this situation could be caused by unfavorable natural circumstances or damage to a particular crop or type of livestock from natural pests (fungi, bacteria, caterpillars). In post-Soviet countries, such reasons for economic depression as the use of outmoded technology that produces uncompetitive products, backwardness in R & D, and the absence of auxiliary production units ensuring the introduction and operation of new technologies have not yet been fully eliminated.
It is clear that a mono-product and mono-crop economy, both in the city and in the village, cannot ensure stable economic development, particularly in globalization conditions. In these conditions, diversification of production and the creation of a mechanism that ensures the timely renewal of technology are the main ways to achieve a high level of both urban and rural employment.
18 See, for example: S. Kuzmin, D. Kuzmin, “K stanovleniiu mestnogo samoupravleniia: ekonomika i sotsialnoe razvitiie naseleniia,” Ekonomist, No. 3, 2003, p. 57.
19 See, for example: Growth Poles and Growth Centres in Regional Planning , ed. by A. Kuklinski, Paris, The Hague, 1972.
20 See: P. Didier, op. cit.; P. Martin, op. cit.
THE CAUCASUS & GLOBALIZATION
If an efficient mechanism of financial support and economic stimulation is not established in the regions, it will be impossible to undertake other measures aimed at increasing employment. This system in developed countries includes the following main branches: a regional fiscal system, the revenue of which also includes the government transfers, and a financial and credit system (banks or their regional branches, special regional funds, in which state and private resources are mobilized). They are partially contiguous and all play an important role in servicing the real sector of production. Mechanisms that promote interaction between the financial systems and real production sector should be built in such a way that they ensure and encourage the timely introduction of new and the renewal of current technology.
An auxiliary non-financial infrastructure should also be created in the regions, without which the development of contemporary competitive production both in the city and village and, consequently, employment growth will be impossible. In the city, this infrastructure should consist of consulting centers (including those that assist agricultural activity), engineering companies, marketing and other organizations, community-promotion enterprises, business incubators, and professional training centers. In the village, this infrastructure should include selection and pedigree stations (companies), long-term storage facilities (refrigerators, elevators, potato warehouses, and so on), service companies that support irrigation, drainage, and recultivation, environmental protection technical servicing, and so on.
The above-mentioned structures cannot be reliably established without the development of regional growth centers. Growth centers are the main nucleus for the establishment of enterprises, not only of the main, but also of the auxiliary sector. In the past few decades, new types of growth centers have appeared in the regions of many countries—technopolises, export-industrial zones, and technoparks.21 The first two can be compared with growth poles. Technoparks can be created both in growth centers and in specific areas suited to this purpose.22 The creation and development of these structures will require capital, including foreign.
Such centers are an important element of economic growth and regional employment, as well as for improving the country’s export-import balance. Product competitiveness and the timely renewal of technology cannot be achieved without creating such structures.
C o n c l u s i o n
At present, employment growth and improvement of employment structure in terms of type of occupation in Georgia and its regions are being hindered by several external and internal circumstances, among which are both problems that have still not been resolved during post-communist reform and problems that are associated with the global financial and economic crisis. Moreover, the world economic crisis was caused by several circumstances that are pointing to the need to transfer to a new technological structure, the functioning of which should be ensured by the adequate development of economic mechanisms.
In this respect, it is necessary, keeping in mind the development of each region, to draw up and implement special strategies and programs for ensuring the establishment of competitive production plants in the real sector of the country’s economy. Specific goals of regional economic and social development should be designated here, and mechanisms and tools of state and market assistance in creating a contemporary technological structure in the cities and villages must be determined. Measures ensuring the efficient use of regional potential (including labor and intellectual) and the coordinated renewal of efficient traditional technology, principles, and mechanisms for establishing the
See: M. Nikitina, op. cit.; E. Semenova, op.cit.
21
22 See: R. Abesadze, V. Burduli, op.cit.
most promising production plants must be envisaged. Success will largely depend on the correct choice of corresponding institutional forms of organization and interaction between the production plants and mechanisms for stimulating the development of small and medium enterprises. We believe that employment growth and employment rationalization nationwide and in the Georgian regions can only be achieved by carrying out such comprehensive measures.
Iza NATELAURI
D.Sc. (Econ.), Associated Professor at Javakhishvili Tbilisi State University, Department Head at the Paata Gugushvili Institute of
Economics (Tbilisi, Georgia).
EMPLOYMENT PROBLEMS AND SHORT-TERM ECONOMIC BENEFITS IN POST-COMMUNIST COUNTRIES (GEORGIAN CASE STUDY)
Abstract
Based on a case study of Georgia, this article takes a look at a modified market model of full employment and analyzes the following:
(1) the microeconomic aspects of employment in present-day Georgia, which are
the formation of a labor market, a balance between labor supply and demand, the cost of labor, and a labor cost formation mechanism; and
(2) the short-term economic benefits related to employment.
I n t r o d u c t i o n
In Georgia, as in the other post-communist countries, the market model of full employment is a modification of the socialist model of full employment and the market model of full employment. It reflects the special traits of employment generated by the crisis state of the economy, as well as those inherited from the past. In particular:
(a) in the economy’s crisis state, measures that encourage widespread employment, protection of the unemployed, stimulation of labor demand, etc. are of top priority;
(b) of the traits inherited from the past, the post-communist countries have retained the state’s active role, the population’s mindset, and labor motivation. The benefits from these three elements are long-term;
