Crisis and funding of research

By Katka Svickova

In normal times, politicians of all strands are unanimously committed to the support of education, research and development. They never forget to stress how important these areas are to secure future prosperity. In crisis times, the “now” becomes more important than the future prosperity as governments are confronted with hard choices how best to use public funding to alleviate the negative effects of the economic crisis and help to re-start the up-cycle. Instead of the promised growth, public budgets for education and research either stagnate or fall in several Central and Eastern European countries (and as might be the case elsewhere in Europe, too).


A few months ago, investing in research and development was still promoted as one of the solutions to the economic crisis. Accordingly, the Czech national anti-crisis plan committed to increasing the R&D public spending over the next three years. Originally, the spending on research should grow by 8 % in 2010. Yet at the end of June, the government decided to freeze the annual outlays on research over the next three years at the level of 2009.

In addition to this, the Czech university and research community is in a sharp dispute over the allocation of these research funds. The conflict in essence boils down to rebalancing the spending to favor applied at the expense of basic research. The prevailing “now before then” logic favors the applied research – as a means to give a boost to industrial innovations. The funding allocations should be more result - and performance - oriented but the criteria, according to which the evaluation of performance is done, are far from perfect and heavily disputed.

Within Central and Eastern Europe, the Czech Republic actually belongs to countries with comparatively high governmental outlays to research: in 2007, it was 0,58 % of GDP as compared to the CEE average of about 0,4 % of GDP. However, both Czech Republic as well as the region are below the EU-27 average of 0,67 % of GDP spent on research from public funds (comparisons and calculations are based on available Eurostat data).

The education and research budget is now under strain not only in the Czech Republic. In Latvia, for example, the spending was reduced by about 65 million EUR affecting teachers’ salaries and resources to vocational schools, scientific institutions, state universities and colleges. The cuts were adopted under the pressure to trim the public budget in a country perhaps most stricken by the economic crisis in Central and Eastern Europe so far. They brought students and teachers to demonstrate in the streets in the course of spring. Also in Poland, discussions are under way to cut educational and research spending.

The developments show that despite the continuous mantras about the importance of research and development, these sectors are also subject to economic cycles and the workings of politics. A question that emerges from the Czech debate and governmental action is whether the cuts as well as the new rules for dividing public funding for research were passed after a profound weighing of short-term and long-term consequences of these decisions. To the most important consequences of the current decisions affect the capacity to engage in basic research. The abrupt shift of funding from research institutions such as Academy of Sciences (and to lesser extent universities) that are focused on basic research to institutes of applied research that are connected to various ministries and major industrial firms, may in the long term undermine both.

From the short-term perspective, more support to applied research in the situation when the budgets of the private sector are strained might bring more immediate results and help to increase the competitiveness of the industry. However, the private sector is also more likely to finance this type of research itself after the worst effects of the crisis on firms are over. On the other hand, basic research requires a lot of funds with uncertain and long-term results, and is thus not so attractive for the private sector. Moreover, the institutes focused on basic research are fundamental for creating the necessary human capital that allows applied research institutes to operate successfully within the global research networks. It is therefore here where public funding plays a crucial role.

Making public choices about educational and research priorities, and subsequent reforms of the system, including how public funds are allocated, are relevant in all conditions. However, the “now” perspective of crisis times should not prevent a decision-making based on sound weighting of both short-term and long-term consequences of the different options.

Read more on Crisis and funding of research

The Political Economy of Managed Migration by Georg Menz (book review)

by Lucia Kurekova

Georg Menz. The Political Economy of Managed Migration. New York: Oxford University Press, 2009. 298 pp. ISBN: 978-0-19-953388-6. Forthcoming in Acta Oeconomica.

Migration continues to represent an important academic and policy issue, not least due to its critical implications for political, economic, social, demographic and cultural aspects of life of individuals as well as societies. Before the 2008 world economic crisis loomed in, labor and skill shortages in booming European economies incited ‘war on talent’, forcing the European governments to redefine the basic principles of their migration policies. A recent book by Georg Menz “Political Economy of Managed Migration” addresses a topical issue of development of migration policy in the EU, both at the level of the countries and at the level of the European Union, proposing a paradigmatic shift towards ‘managed migration’. His analysis of a range of traditional immigration countries - Germany, France and the United Kingdom – together with new immigration states - Italy, Ireland and Poland is a significant contribution to migration studies, international relations and Europeanization literature and to the field of political economy. Both the novelty in respect to theoretical cross-fertilization of different fields and the breath and depth of the evidence that the author assembles and presents about the issue of active migration policy make the book an important social science read.

The first part of the book engages with explaining and connecting the rationale of the three analytical angles: political economy angle, non-state actors angle and multiple arenas (Europeanization) angle. Acknowledging that migration in the EU takes on both security and economic dimension, an important contention of the book is that the states have moved towards ‘managed migration’ of labor while simultaneously taking more restrictive stand towards other forms of migration. The most crucial novelty that the work offers is an account of the factors that determine different predilections of the states in respect to preferred types of migrants in terms of their skill levels and occupational profiles. Advocating the competitive state thesis which is behind the convergence towards more open national-level labor migration policies, the author argues that regulation of migration is strongly influenced by differences in the systems of political economy across countries, namely the nexus of production strategies of corporations, the sectoral composition of the economy and labor market regulation. The major differences between prototypical liberal market economies (LMEs) and coordinated market economies (CMEs) are embodied in the preferences of labor market institutional actors, namely the employers associations and unions embedded in different systems of political economy that will seek to influence governments to adopt labor migration policies reflecting the profile of migrants deemed complementary to national production strategies. Along these lines, the active migration policy is treated as a case study of Europeanization processes where multiple arenas in which the governments play the games can be powerfully established but which essentially provides multitude of evidence of the bottom-up Europeanization and parallel rather than sequenced timing of the games.

After outlining the argument and methodological choices in the introductory chapter, chapter two engages with past legacies and experiences of the countries which play an important role in defining migration policies currently. However, the author deems traditional typology of post-colonial versus guest worker legacies in major immigration countries outdated. He contends that from a political economy angle, the similarities in labor migration regulation across countries are remarkable already in the after-war economic boom period, giving compelling examples of how (French) Renault, (German) Mercedes Benz and (British) London Underground conducted extremely similar recruitment activities in Algeria, Turkey and Barbados respectively. His analysis at this stage, however, makes the reader wonder in which way managed migration of the 21-st century is “a new paradigm” as he repeatedly argues throughout the work. The author’s own propositions suggest that if an attempt is made to understand migration policies in the context of economic conditions and fundamentals, it becomes evident that specific external and internal economic pressures make all governments susceptible to cater to the needs of big employers and drivers of job creation and economic growth.

Third chapter, a core of the book, outlines the logic of his two main hypotheses related to his innovative framework: 1) the varieties of capitalism and skill hypothesis and 2) the sectoral hypothesis. Using the extended typology of Hancke et al (2007), he anticipates that gradual innovation and concentration on high value added production in CMEs and relative to that more radical innovation in LMEs will induce the CME economies to be interested in migrants with specific skills and the LME employers rather to seek migrants that have general and transferable skills which are able to respond more readily to flexible corporate strategies. Further, the employers in the mixed and the emerging market economies (MMEs and EMEs) will resemble more divided strategies and their preferences will reflect the model that they are approaching. Sectoral hypothesis further contends that the employers will take into account the relative size of component sectors of the economy (primary-secondary-tertiary) and the relative importance of these sectors will affect the profile of economic migrants deemed desirable by employer associations. He sets out to evidence the predictions in the next two chapters. The author, however, succeeds only partly in providing sufficient evidence and clarity to his argumentation, which is partly due to a great density of information that he provides on each country study. In addition, an endogeneity issue of the sectoral hypothesis in relation to the varieties of capitalism theory needs to be raised – different preponderance towards secondary versus tertiary sector between the types of political economies is part of the VoC framework, deeming a separate hypothesis related to the effect of the size of sectors on migration policies essentially redundant and nearly inseparable from the first one.

In the fourth chapter the author looks at the traditional immigration countries – Germany, France and the United Kingdom and offers a careful overview of how migration policy evolved overtime and across issues (labor, asylum seekers, and family reunion). He carefully traces the positions of interests groups and NGOs within the countries and maps the trajectories of more or less successful representation (depending on their organizational capacities, domestic actor coalitions and other issues) of their interests vis-à-vis home governments and potentially the EU level institutions through the governments. Chapter four carries out similar analysis for the new immigration countries: Ireland, Italy and Poland which was chosen as a representative case from among the new accession states. The chapter argues that organizational power of interest groups has critically shaped national strategies which, however, has been much less the case in the new accession countries where a strong tendency to adopt acquis communitaire in the area of migration and asylum policies, in spite of some clearly negative implications for these countries, has prevailed. Mimicking of policy choices has taken place more generally in the new immigration countries which, the author claims adding refinement to the argument, tend to look for policies and solutions to their neighbors which are structurally similar. In that respect, his contention that the new accession countries adopt measures similar to CME economies, namely Germany, is particularly interesting and potentially creates an interesting avenue for further enquiry.

The two chapters with country studies are critical to the testing of the book’s framework. While his carefully gathered material univocally confirms that economic perceptions of migration have prevailed, clearly due to the active input of employers and support of unions who have changed their no immigration stance, the most innovative parts of his theory are not evidenced sufficiently. While his argument goes that Germany (or France) should want to attract ‘specific’ skills while liberal market economies such as the UK (or Ireland) should frame policies which favor generic skills, it rather seems to be the case that while low-skilled immigration is left to be regulated by the market, the governments irrespective of its political economy fundamentals have converged on explicit policies towards bringing in highly skilled migrants, regardless of their skill specificity. This critique can be proposed not only because of the evident gap between the designed active migration policies and the success of their implementation (Germany but also the Czech Republic provide ample evidence of the policy ‘failure’) but also because the author failed to provide any hard data about the skill profiles of the incoming migrants into at least the prototypical cases of varieties of capitalism that he scrutinizes.

The evidence about the incoming migrants seems to be crucial in order to substantiate the major argument about different skill cohorts being attracted based on the underlying political economy structures and institutions of host countries. Leaving such evidence out shows that the author has committed an unfortunate fallacy in failing to acknowledge that migration is a dyadic relationship and that sending countries matter as much as the receiving countries in determining the profiles (skill, education) of incoming migrants. To be fair with the author, in this respect he can only be blamed for not advancing the boundaries of migration policy studies which tend to vastly underestimate both structural and institutional home country parameters in the analysis of migration patterns. Nevertheless, the overview of the structure of East-West after-accession migration provides ample evidence of the above claim and is in contradiction to the predictions of Menz’ framework. For example, evidence suggests that relative not only to domestic population but also to the other migrant groups, a bulk of EU8 migrants in the UK and Ireland have gained employment in secondary tier of economy (manufacturing industry and construction). Further, important differences in terms of migrant sectors of employment can be drawn if sending country is accounted for (CSO, 2008; Accession Monitoring Report, 2008; European Commission, 2008).

In sum, the weaknesses of Menz’s book are a corollary of his ambitious attempt to perhaps answer too many questions, at the expense of fleshing out his main arguments about the uniqueness of managed migration in the new millennium and about the implications of various political economy structures and institutions on the active migration policy sufficiently. First, while the evidence that the current world economic crisis is providing about migration policies supports his point about the crucial weight of ‘economics’, it also seems to elucidate that it is economic fundamentals such as growth and job creation rather than economic structures that are substantial determinants of the form and shape of migration policy. Second, it is somewhat paradoxical that while the author at one hand validly and interestingly brings the agency in through the role he assigns to labor market associations, he at the same time leaves it out via failing to attribute necessary attention to the account of the actual (rather than hypothesized) migrant profiles and to take seriously the push side of the migration equation. Third, while he contends that migration policy reveals that state and state policies continue to matter and that the state has not retreated but rather “a recast state with new priorities is playing role in engineering the construction of regulatory regimes ensuring a steady labor supply of desirable talent and skill portfolio” (p.37), his evidence partly suggest that state is hardly insulated from interest groups. This is particularly clear through his ample reference to dilemmas and even conflicts attached to allocating private but also public resources to retraining and upskilling domestic labor versus importing foreign labor which have important implications for future economic and social development of host (and home) countries.

Against this critique, however, the pioneering and innovative aspects of author’s research, partly introduced in his earlier contributions, must be fully acknowledged. The inter-disciplinary nature of the book as well as a serious attempt to conduct comparative work not only across (six!) cases but also overtime make the book everything that the migration discipline has been calling for. I have no doubt that the book is likely to entice rich scholarly as well as policy debate across different research areas that the author draws on and valuably contributes to.

References:
Accession Monitoring Report. 2008. May 2004 – December 2007. A Joint Online Report by the Home Office, Department for Work and Pensions, HM Revenue & Customs and Communities and Local Government.

CSO (Central Statistical Office). 2008. Census 2006. Non-Irish nationals living in Ireland. Government of Ireland. June.

European Commission. 2008. Employment in Europe 2008. DG Employment, Social Affairs and Equal Opportunities. Brussels.

Hancke, Bob, Martin Rhodes and Mark Thatcher. 2007. Beyond varieties of capitalism. Conflict, contradictions and complementarities in the European economy. Oxford: Oxford University Press.

Read more on The Political Economy of Managed Migration by Georg Menz (book review)

The complicated politics of free movement

by Chris Wright, guest author
PhD Candidate, Department of Politics and International Studies, University of Cambridge, United Kingdom, cflw2@cam.ac.uk

Public policy-making invariably involves weighing the potential benefits derived from anticipated policy outcomes against the possible costs. This is particularly the case with labour immigration, which depending on the attributes of immigrants and the labour requirements of receiving economies, can deliver substantial macroeconomic benefits to host countries. But expansionary labour immigration policies can also deliver a range of unanticipated outcomes, and tend to be electorally unpopular. The balancing act between economic benefits and political costs was particularly apparent in the deliberations of the 15 Western European member states of the European Union (‘the EU-15’) when 10 Central and Eastern Europe states joined the EU in 2004 and 2007. The EU-15 states were permitted to restrict nationals from the new member states from freely working in their labour markets for up to seven years, but the transitional measures used by EU-15 governments were mixed and varied.

On the accession of the eight states that joined in on 1 May 2004 – the ‘A8’ states – Ireland, Sweden and the United Kingdom were the only three EU-15 states to allow free movement from the outset. When the EU further enlarged three years later to include Bulgaria and Romania (the ‘A2’ states), only Sweden and Finland opened their labour markets from the date of accession.

There is no straightforward explanation for the varying responses of EU-15 states to free movement, but domestic political pressures and economic institutional factors – not to mention the policy positions of other member states (1)– certainly played a part. This is evident in the case of the UK, which was the only large member of the EU-15 to allow A8 nationals to freely work, but subsequently prevented A2 nationals from being able to do so.

The majoritarian nature of Westminster democracy meant that Blair government had few political constraints in implementing a policy of free movement in 2004. This was a privilege that would not have been offered by the political systems of many other EU-15 states, but perhaps meant that the Blair government was more shielded from any discernable political costs, which were no lesser than elsewhere.

Nonetheless, economic considerations had the greatest bearing over the Blair government’s decision to opt for a policy of free movement. Labour shortages arising from low unemployment fuelled by over a decade of sustained economic growth meant that the competition for jobs between A8 nationals and UK residents was likely to be less of a problem than in other EU-15 labour markets. But whereas most EU-15 governments saw free movement as having a potentially adverse economic impact, the Blair government justified its position in terms of the benefits that could be delivered.

When announcing the Blair government’s intention to allow A8 nationals to work freely in December 2002, Foreign Secretary Jack Straw said such a move was “in the UK’s interest” because it would “attract workers we need in key sectors”(2). By contrast, the language used by leaders of the EU-15 states that imposed restrictions was often couched in terms of the potential costs that would otherwise be imposed on their more protectively regulated labour markets. For instance, German Chancellor Gerhard Schröder said that domestic labour markets, particularly those in areas bordering the accession states, would not be able to accommodate a large inflow of workers (3).

This contrast was also evident in the way that interest groups and the broader community responded to the prospect of free movement. While business groups and trade unions were hostile to such a position in states such as Germany and Austria, in the UK these groups were supportive. And although public opinion and press coverage towards immigration was similarly ambivalent in the UK and Germany, concerns about labour market impact were more apparent in the latter (4).

This was not simply a question of job vacancies and unemployment; there are also structural explanations for why free movement was a more appealing prospect in the UK than elsewhere. Rates of unemployment and/or labour market inactivity were in fact lower in a number of other EU-15 states that adopted restrictive policies – such as Austria, Denmark, Luxembourg and the Netherlands – than in the UK (5). But the more flexible nature of the UK labour market meant that it was better placed to absorb more workers without an accompanying increase in unemployment (6).

Despite both adopting open labour market policies with similarly low levels of unemployment, over 200,000 A8 nationals came to work in the UK each year following enlargement, compared with only around 5,000 to Sweden (7). While strong demand for labour in the UK was one reason for these disparities (8), weaker labour market regulation enabled employers to hire migrant workers on relatively lower wages and conditions, particularly compared with Sweden, where much stronger regulation afforded no such scope (9).

Moreover, various ‘system effects’ of the UK’s economic institutions had eroded the capacity of the government and employers to respond to labour shortages through orthodox strategies such as increasing wages, investing in labour-saving technology or training resident workers. As Anderson and Ruhs have argued, the self-reinforcing nature of the UK’s lightly regulated labour markets meant that many employers have been ‘unable or unwilling to train’ new staff, in part due to ‘a fear of poaching, the rise of self-employment and the consequent importance attached to on-the-job training and learning by doing’(10).

The decision of EU-15 states that imposed barriers to A8 nationals in the form of restrictions or quotas can perhaps therefore be interpreted as protectionist measures consistent with the regulatory characteristics of their labour markets, whereas the UK’s liberal stance was compatible with its more laissez-faire approach to market regulation. But why then did the UK opt to restrict free movement to A2 workers when the EU further expanded in 2007? Essentially because this time around, the Blair government saw the potential political costs as being greater than the economic benefits that it expected to garner.

Before the 2004 enlargement, the government had commissioned a report to predict the likely size of the migration flows from the A8 states. The authors of the report estimated, that between 5,000 and 13,000 people would arrive per year, but strongly warned that because of a ‘lack of good data’, there was, ‘a large potential error’ in their analysis (11). Nonetheless, these estimations gained much media attention, and indeed turned out to be rather inaccurate. The underestimation made the Blair government much more cautious about free movement for Bulgarians and Romanians.

Opposition was more widespread and vocal to the prospect of free movement than it had been in 2004, and although the institutional capacity of the government to override this opposition was no weaker, the economic benefits were less obvious than they had been three years earlier. The Blair government saw the economic impact of A8 workers as positive and a reason to consider continuing a policy of free movement. But it believed that changes in the UK economy, and different attributes of Bulgarian and Romanian workers, meant that the economic case for opening the labour market once again was less compelling.

Ultimately, the response of the UK and other EU-15 governments shows the complex and often entangled considerations that inform labour immigration policy-making. While such decisions invariably involve balancing anticipated economic and political benefits and costs, these benefits and costs are more apparent in some circumstances than others.

Notes:
(1) Kvist, Jon (2004) ‘Does EU enlargement start a race to the bottom? Strategic interaction among EU member states in social policy’, Journal of European Social Policy, 14(3): 301-318
(2) Quoted in The Independent (2002) Castle, Stephen, ‘UK lifts bar on workers from new EU countries’, 11 December: 12
(3) Jileva, Elena (2002) ‘Visa and free movement of labour: The uneven imposition of the EU acquis on the accession states’, Journal of Ethnic and Migration Studies, 28(4): 694
(4) Boswell, Christina, Chou, Meng-Hsuan and Smith, Julie (2005) Reconciling Demand for Labour Migration with Public Concerns about Immigration: Germany and the United Kingdom, Anglo-German Foundation for the Study of Industrial Society: London, 27
(5) OECD (2005) Employment Outlook, Organisation for Economic Cooperation and Development: Paris, 237-239
(6) Somerville, Will and Sumption, Madeleine (2009a) Immigration and the labour market: Theory, evidence and policy, Equality and Human Rights Commission/Migration Policy Institute, available at: www.migrationpolicy.org/pubs/Immigration-and-the-Labour-Market.pdf, 13
(7) Drew, Catherine and Sriskandarajah, Dhananjayan (2007) ‘EU enlargement in 2007: No warm welcome for labor migrants’, Migration Information Source, 1 January, available at: www.migrationinformation.org/feature/display.cfm?ID=568
(8) Krings, Torben (2009) ‘A race to the bottom? Trade unions, EU enlargement and the free movement of labour’, European Journal of Industrial Relations, 15(1): 54
(9) Ruhs, Martin (2007) ‘Greasing the wheels of the flexible labour market: East Central European labour immigration in the United Kingdom’, in Smith-Bozek, Jen (ed) Labour Mobility in the European Union: New Members, New Challenges, Center for European Policy Analysis: Washington DC, 24
(10) Anderson, Bridget and Ruhs, Martin (2008) A need for migrant labour? The micro-level determinants of staff shortages and implications for a skills based immigration policy, Paper prepared for the Migration Advisory Committee, September, available at: www.ukba.home office.gov.uk/mac, 38-42
(11) Dustmann, Christian, Casanova, Maria, Fertig, Michael, Preston, Ian and Schmidt, Christop M. (2003) The impact of EU enlargement of migration flows, Home Office Online Report 25/03, available at: www.homeoffice.gov.uk/rds/pdfs2/rdsolr2503.pdf, 58

Read more on The complicated politics of free movement

Observations about the administration of EU Structural Funds (in CEE)

By Lucia Kurekova

The experience of several old(er) EU member states shows that the EU structural funds are an important developmental tool for the less developed parts of Europe. In relation to the administration of the EU funds, Slovakia has recently been dealing with the so called ‘notice board tender’ (nastenkovy tender) which is an appalling case of the fraud of EU structural funds along party cronyism lines connected to the Ministry of Development and Construction and the Slovak National Party. The scandal broke out in full speed already last October but it was not until Brussels blew the whistle loud enough, threatening to stop the flow of the EU funds to the country, that some political accountability and redress were taken. What is interesting about the notice board case is the fact that the irregularities were pointed out very early on by a member of the Monitoring Committee for the Operational Program Technical Assistance 2007-2013 in the framework of which the tender took place. Rather than discussing the controversiality of the politics of the above developments, I would like to talk about Monitoring Committees which is a mechanism that allows scrutinizing the ways of EU funds allocation, but due to various reasons is not used to its fullest potential.

Monitoring Committees (MCs) are organs that exist alongside each Operational Program (OP) in every EU member state. The existence of MCs is stipulated by the Council Regulation (EC) 1260/1999 which defines basis principles on which it should be organized. However, an individual Ministry that runs the OP and to that related MC (Managing Authority) has much discretion in respect to the composition of the MC, the execution of its roles and the level of internal democracy. Because the MC is required to have members from local and regional governments but also representatives from the civic sector, one of important potential side-effects of the MC lies in the establishment of partnership principle. The general idea behind the work of the MCs, however, is to create national-level mechanism of accountability and control over the management and distribution of EU structural funds. The MCs usually meet several times a year. The minutes from the meetings are normally available publicly on the web pages of particular OPs. In the case of ‘notice board’ scandal, the minutes from June 2008 provide evidence of how a representative of the NGO sector in the MC demanded more information about the tender and was silenced by the Chair.

As part of a research project conducted at CEU, I had a chance to inquire into how a particular MC which distributes finances from the European Social Fund in Slovakia functions and I would like to share with you a set of general findings. The research revealed that the perceptions about the functions of the MC and understanding of what ‘monitoring’ means differ widely among the members of that MC. It was interesting to discover that the members seem to have internalized some of the not necessarily transparent aspects of how the MC functioned, which included non-accessibility of the minutes from their meetings to public. Generally, the members were not in favor of revealing what the problems and deficiencies in the administration of the ESF were to the wider public, justifying their stand on the grounds of disinterest on the part of the public and/or incapability to understand complex processes of EU funds administration. For most of them, efficiency (allocating as much funds as possible) seemed to be more important than transparency. Surprisingly, however, this relative stealth co-existed with a great degree of internal critique in respect to the Managing Authority from the non-governmental side but also from the other ministries that were members of the MC.

For the non-governmental members, the presence in the MC has proven crucial in lobbying for the interests of the groups of society they were representing and for most of them, unfortunately, that is how far their input into the monitoring part went. Interestingly, some members pointed out that the rate of activity and substantive input of the representatives from non-governmental sector has decreased with time and is generally much lower in the second programming period than it was in the first one (2004-2006). Nevertheless, part of the NGO sector took their potential effect in MCs seriously and proactively addressed the government when the MCs for the new programming periods were being created. The government responded in a very lukewarm fashion to the proposals of NGO sector for independent nominations to the MC and in several cases the ministries selected members of (marginal) NGOs with favorable leaning towards the current Slovak government, proactively ‘preventing’ problems that might arise by too active scrutiny from the more critically tuned NGOs.

In sum, it seems that while the MCs have the potential to be a tool of effective control over the administration of the EU funds and to connect different levels of the society, it is not fully utilized towards making the EU funds work better, with greater transparency and more efficiently. It seems that in this instance clearer and more specific guidelines on the part of the EU regulation in respect to the rules of the composition of Monitoring Committees could actually serve well. Making Monitoring Committees real watchdogs over accountability, control and dialogue leading to greater efficiency and transparency should therefore become a real effort.

Read more on Observations about the administration of EU Structural Funds (in CEE)

Philosophy, hope and crisis

by Lucia Kurekova

If you felt some disillusionment or even depresion after reading a recent post in The Economist about the world economic crisis dubbed "A glimmer of hope", perhaps you will find appealing (or even inspiring) the opinion piece by Alain de Botton in the last week Financial Times issue in which he tells us what we can adopt from the Roman Stoic philosophy and Christianity when dealing with crisis. Enjoy both.

Read more on Philosophy, hope and crisis

Two new books on energy in Central Europe

By: Andrej Nosko

The following review was originally published in the CEU Political Science Journal Vol. 4, Issue 2, April 2009.

Balmaceda, Margarita M.: Energy Dependency, Politics and Corruption in the Former Soviet Union: Russia’s Power, Oligarch’s Profits and Ukraine’s Missing Energy Policy, 1995-2006. London: Routledge, 2008, 222pp; includes tables, maps, ISBN: 978-0-415-43779-0 (Preview at books.google.com)
Orbán, Anita: Power, Energy, and the New Russian Imperialism. Praeger Security International, 2008, 264pp, includes tables, maps, chronological timeline, ISBN: 978-0-313-35222-4

The year 2009, unsurprisingly, started with a traditional gas row between Ukraine and Russia. What was surprising, however, was that it was not only a mild nuisance as in prior years. This year, for the first time in the 40-years history of gas trade between Russia and Europe, there was no gas coming from Russia through Ukraine. As a result of dependence on the single supplier, and the single supply route, for the first time in history two EU member states, Bulgaria and Slovakia, were on the brink of a comprehensive blackout. Politicians in the affected countries were competing in blaming either Ukraine or Russia, or those more diplomatic blamed them both. Blame helps no one's understanding of the problem, and it always takes two to tango, not only in the Russian-Ukrainian energy relations, but also in the wider post-socialist-bloc energy dependence. Students of Central Europe who want to understand how Russia and her former vassals in Central and Eastern Europe (CEE) have been dancing now have a unique opportunity to find answers to these questions in two books published last year.


Two knowledgeable experts on the CEE region, Margarita Balmaceda, associate professor of International Relations and Diplomacy at Seton Hall University, and an Associate of the Harvard Ukrainian Research Institute and of the Davis Center for Russian Studies at Harvard University (PhD from Princeton University); and Anita Orbán, director of Constellation Energy Institute in Budapest, (PhD from Fletcher School of Law and Diplomacy at Tufts University in Boston), in their books provide complementary views on the underlying aspects of energy policy in the region. These two books are excellent guides not only for students of international relations or transition studies wanting to understand energy policy in CEE region, but also for policymakers, journalists, or practitioners in the energy business and PR companies.

There are two major questions to the post-socialist tango. First, how is it possible that these countries, which share part of their history, large sections of energy infrastructure, and set out on the path of transition at around same time, differ so much in how they manage their energy dependency? Why some are very picky about dancing with Russia, while others dance just like Russia wants them to? Second, why is it that Russia has been more assertive in this dependence tango at some times and not others? At times being very pushy about dancing in Central Europe, while at others minding just its own business? Answers to these questions are not only relevant to understanding relations between Russia and Ukraine, which is the focus of Balmaceda’s book; or relations between Russia and Poland, Slovakia and Hungary, analysis of which is offered by Orbán. Answers to these questions can help us not only for better understanding of post-cold-war (some say resurgent) Russia, but these answers help us also to understand the broader intricacies of post-socialist transition east of Berlin.

The presented books, despite using different cases and different theoretical approaches are exceptionally complementary in tackling these questions. Orbán on the case of economic relations between Russia on the one side and Slovakia, Hungary, and Poland on the other, focuses on the reasons why Russia, through its energy companies, succeeded in moving into Central Europe in certain times, while not in others. Since she argues that for Russia today the primary means to achieve power in international relations is through its energy companies, this perspective focuses primarily on explaining the conditions for the outcome of Russian foreign policy through economic means. She thus provides analytical means for understanding temporal variation in the relation of dependency in the theoretical context of neoclassical realism.

Balmaceda, on the other hand, using a modified institutional approach, analyzes effects of the domestic political circumstances on the management of Ukraine’s energy dependencies on Russia. The puzzle that she researched evolves around “domestic factors that stand behind Ukraine’s continued energy dependency on Russia and its apparent inability to escape it.” Balmaceda criticizes the state-as-actor perspective, which is traditional to realism, (and is modified by Orbán to include perception of elites), and offers an incentive to rethink both interest representation and policy-making in the post-soviet transition. Balmaceda points out that it is not sufficient to look at policy-making only in terms of ‘state’ vs. ‘private’ but the role of specific interests and actors should be analyzed especially in the post-soviet transition.

Orbán looks at states as influence maximizers, guided by the perceptions of their elites. Balmaceda does not question the final outcome that Orbán offers, but goes deeper and opens up the black-box-of-state for further analysis through focusing on the internal interest formation, and cross-border elite collusion, which is unthinkable in the classical realism school. While Orbán’s perspective explains well the perspective of Russia’s foreign policy goals and its variation on the side of Russia, it does not aim to explain the responses of target countries. Therefore, reader might be wondering, why is it that Russia’s foreign policy outcome in, for example Slovakia, was 1 out of 2 times Russia-friendly, even if the government was “Russia-skeptical” and the outcome was not necessarily in the interest of influence maximization for the Slovak state? The analysis offered by Balmaceda in the case of Ukraine offers a good explanation of why Ukraine was unable to rid itself of this dependency. Through extrapolation, this analysis also offers an opportunity to understand why ridding of Russian influence in the energy sector was such a rare incidence among former socialist countries.

According to Orbán’s argument, Russian energy companies expand in Central Europe, if and when Russian elites perceive Russian influence in the world as being low – giving them the will to act – and the Russian state has enough power to mobilize the necessary resources, thus providing Russia with the ability to act. Orbán tests this hypothesis during six periods, between 1991 and 2008. In the three empirical chapters, she walks the reader through six periods of Russian activity in three countries – offering together 15 events, which form the core cases. Balmaceda’s argument, on the other hand, is that the domestic political system of Ukraine created certain “windows of opportunity” for access to energy rents, which created also incentive for the involved actors to preempt changes in the system of existing suboptimal institutions that were intertwined with rents distribution. The central role in the interest formation in Ukraine, according to Balmaceda, was played by competition, struggle and accommodation between intra- as well as inter-state economic groups. This happened in the context of conflict and reintegration-attempts with Russia, over access to energy markets, supplies, transit and distribution of economic rents. The surprising conclusion that Balmaceda offers is collusion between the Russian and Ukrainian elites, which explains why Ukraine was unable to form independent energy policy, and set out on a genuine reform path. Her detailed account of the 2006 gas row sheds strong light also on the Orange-revolutionaries. After reading the accounts of gas trade and allegations of involvement of the highest political leaders, (which have also partly reemerged in the context of the 2009 gas row) the sweet ideals of the anti-corruption ticket of the pro-western Orange revolution have a somewhat bitter aftertaste. It is nonetheless important to note that author is cautious and presents publicly available allegations and supports the claims with many references to original sources in Ukrainian media or publicly made proclamations.

The research design Orbán employs is simple yet robust. The effects of the independent variable of relative distribution of power in the international system are catalyzed by two intervening variables. The domestic perception of the international system, measured through the analysis of a wide-array of media sources, and interviews; and the level of state power available for the country’s leaders, operationalized as state’s ability to collect recurring revenues, as second. She chooses to use share of tax revenues on total GDP to measure this variable. The dependent variable of the book is foreign political outcome, which is operationalized as the behavior of Russian energy companies in Central Europe. The Russian strategy, as Orbán argues, was in securing the monopoly position in the energy supply; this by first entrenching in the role of the monopoly supplier, and second by preventing diversification attempts. Russian companies were trying to gain leverage over the whole value chain through controlling companies with import rights, transmission owners, and wholesale companies, or refineries in the case of oil.

When summarizing Orbán’s results, Poland can be portrayed as Russia’s ‘bad neighbor’ with only 50% of Russian attempts to gain stronghold in its energy sector succeeding, followed by a 75% success rate in Slovakia and Hungary. Orbán further differentiates the results according to the stance of the domestic government. Thus, if a Russia-skeptical government is ruling the country, Russia still had 50% chance of getting its goals in Slovakia, while it had nil chance in Hungary, and only one out of three attempts could succeed in Poland. What is lacking in Orbán’s book, and the theoretical school that she is embedded in, is the explanation of the internal mechanics of the domestic receptiveness towards Russia. This is precisely where Balmaceda fills the gap.

Balmaceda operationalizes her variables carefully, offering a precise working definition of energy dependency (p. 16) as well as management of it, which she conceptualizes as way of handling energy supply diversification, organization of energy trade with main supplier, and energy-policy-making. The primary interest aggregators that she works with are the “Business-Administrative Groups” (BAGs, sometimes referred as ‘clans’). Balmaceda’s analysis is organized into three parts. In the first part, she sets the context and frame of reference of the interest formation, focusing on the role of energy in the relations of Ukraine with the main international partners, including EU and Russia, and provides the historical evidence for her argument. In the second part of her book, she further analyzes president Kuchma’s period and introduces the reader to the intricacies of the energy dependency rent system from 1995-2004. In the third part of the book, Balmaceda looks at energy policy and energy dependency after the Orange revolution. In the final chapter she focuses on an in-depth analysis of energy policy during Yuschenko’s rule.

An important policy conclusion that Balmaceda comes to is that the international community should not look at the problem in terms of Ukraine vs. Russia, but rather as a problem of corruption and lack of transparency. As a way out Balmaceda suggests eliminating innate features of the post-soviet energy market, such as lack of transparency, attractive arbitrage opportunities, difference between near-abroad export prices and lack of liberalization of domestic markets. She further notes Russia’s refusal to ratify the Energy Charter Treaty and her control over the exports of energy among additional problems. Finally, (p. 143) she puts energy in the context of transition, pointing out that raising energy prices and the pressure on the reform of the energy-inefficient economy could be a blessing in disguise. The feasibility of this is, nonetheless, even more questionable in the current economic situation in Ukraine.

The conclusion offered by Orbán is somewhat more alarming and sobering. She vividly demonstrates the relationship between the Russian corporate activity and the Kremlin’s foreign policy. In addition to Moscow's already observed attempts to build-up a neo-mercantilist empire in the so called near-abroad, as recently demonstrated also by the adventure in Georgia, she presents persuasive evidence of similar strategies pursued in the eastern part of the EU and NATO.

Both books are quite ‘readable,’ with sufficient theoretical basis, but not too much to ‘put-off’ the less theory-informed policy practitioners. In order to keep the depth of theoretical discussion, Orbán even offers an extension of it via 43 pages of endnotes. Both books are well illustrated with a number of lucid maps to walk even an untrained eye through potentially confusing meshwork of pipelines crossing the region. The annex of Orbán’s book also includes chronologies for her case countries, listing the most important political, and economic milestones. What might be surprising is that 68 pages of endnotes accompany Balmaceda’s book, which is all together 145 pages long. This only further exemplifies the level of detail with which she researched her case.

There are only few, forgivable beauty spots that one can notice. In Orbán’s book, due to perhaps a typographic mistake, the introduction of the main argument confuses reader, when in the introductory chapter (p. 5) the main hypothesis is introduced reversely from what the she later illustrates in a table (p. 32), and what she proceeds with testing, and concluding. It is also regretful that many of the hyperlinks listed in Balmaceda’s endnotes do not work, which might be partly because they are ‘dynamic’, stretching over many lines, and thus more susceptible to typographic errors. The solution, useful also for other authors wishing to list the complete uniform resource locator (URL) to the electronic source they are citing, could be in using ‘URL shortening services’.


Overall, both books are well-researched works, enriching not only understanding of energy policymaking in CEE, relations between Russia and its western neighbors, but also transition studies in general. Both books significantly contribute to their respective theoretical schools, while also generating new research avenues to be followed. Either on the side of neoclassical realism, where Orbán’s research design could be replicated in the so-called near abroad, and tested on the case of Ukraine, or Balmaceda’s research design which could be tested on the cases of Poland, Slovakia and Hungary.

It is also pleasantly surprising for a well-informed student of CEE region to find two books presented in English that master the local cross-country context and empirical evidence with such a high level of detail and insight. Both of these books not only offer ready-to-use policy advice for the governments of the case-study countries, EU as well as USA, they also stand as an excellent reference for journalists covering Central and Eastern Europe, and Russia. Finally, thanks to their academic rigor, well-grasped theoretical context, and empirical richness, they are an indispensable resource for students and researchers of economic relations in the CEE region during the first two decades of transition.

Read more on Two new books on energy in Central Europe

G20 summit, crisis measures and what is in it for EU10

By Zdenek Kudrna

The G20 leaders agreed on their London summit to the following commitments:

Restore confidence, growth, and jobs by:

• fiscal expansion in 2009 of up to $5 trillion, plus $1 trillion package added at the summit;
• exceptional easing of monetary policy by central banks;
• recapitalisation, liquidity and impaired assets removal from banks;
• commitment to cooperation in order to return to trend growth;
• promise of credible exit strategies to ensure long-term fiscal sustainability and price stability of the above;
• commitment to refrain from competitive devaluations.

Repair the financial system to restore lending by:

• establishing a new Financial Stability Board (FSB) with a strengthened mandate including all G20 countries, Financial Stability Forum (FSF) members, Spain, and the European Commission;
• ensuring that the FSB collaborates with the IMF to provide early warning of macroeconomic and financial risks and the actions needed to address them;
• reshaping regulatory systems so that the authorities are able to identify and take account of macro-prudential risks;
• extending regulation and oversight to all systemically important financial institutions, instruments and markets, including systemically important hedge funds;
• endorsing and implementing the FSF’s strict new principles on pay and compensation and supporting sustainable compensation schemes;
• taking action, once recovery is assured, to improve the quality, quantity, and international consistency of capital in the banking system so that regulation prevents excessive leverage and require buffers of resources to be built up in good times;
• ending the era of banking secrecy by taking action against non-cooperative jurisdictions (on OECD black list), including tax havens to protect public finances and financial systems;
• calling on the accounting standard setters to work urgently with supervisors and regulators to improve standards on valuation and provisioning and achieve a single set of high-quality global accounting standards; and
• extending regulatory oversight and registration to Credit Rating Agencies to ensure they meet the international code of good practice, particularly to prevent unacceptable conflicts of interest.

Strengthen financial regulation to rebuild trust by:

• providing up to $750bn of new funds to IMF which shall provide it via Flexible Credit Line and reformed lending and conditionality framework;
• completing the next review of IMF voting quotas by January 2011 and ensure open, meritocratic selection of leadership for IMF and the World Bank;
• deliberating on a new global consensus desirable on the key values and principles that will promote sustainable economic activity.
• Promote global trade and investment and reject protectionism by:
• refraining from measures that in their consequences reduce trade and investment flows (even though they may be acceptable under the WTO rules);
• supporting trade financing with to $250 bn channeled through export credit agencies and multilateral development banks; and
• remaining committed to Doha Round of WTO negotiations.

Build an inclusive, fair, green, and sustainable recovery by:

• limit the impact of the crisis on poorest countries and people by sticking to pre-existing commitments for development and social financing and using additional $6 bn of IMF surplus and proceeds from gold sales to this end over next 2 to 3 years;
• channel the stimulus funding towards sustainable green projects as much as possible.

What is in it for EU10?

• The EU10 development models are crucially dependent on their connections to global economy via open trade and capital flows. Commitment to preserve the former and provide better institutional underpinnings for the latter must be welcome in EU10 capitals. EU10 economies are bound to benefit from increased demand for their exports that stimuli are likely to deliver, providing that their trading partners do not impose any "buy American" or "build in France" type of restrictions. This may be especially relevant in respect to stimuli focused on European car demand.
• Given that Hungary, Latvia and Romania depend for elementary macroeconomic stability on IMF lending, beefed up IMF is good news. It is likely that more countries will have to reach for a stand-by agreements. If they can do so under more creative and flexible conditions, then reforms of IMF practices are welcome.
• None of the EU10 economies is a member of G20 (although Czech Prime Minister was present in London as he holds the rotating EU presidency now). EU10 have limited role in global affairs and will have to adjust to whatever the new regulatory regime evolves. However, better regulation will definitely reduce the uncertainty stemming from gaping holes in the EU and global banking regulation that keeps host-country supervisors on the sidelines. In case of failures of foreign banks dominating EU10 financial sectors, the host country regulators, central banks and governments can only hope that their home-country counterparts, will succeed in restructuring and limit the spillover-effects on EU10 economies. Improvement of the international regulatory regime that would strengthen involvement of host-country authorities and define credible ex ante rules for burden sharing is better than current vagueness and uncertainty.

Read more on G20 summit, crisis measures and what is in it for EU10