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.

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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.

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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.

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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.

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Saving glut or… investment famine?

by Ugo Pagano

The financial crisis is often blamed on a saving glut, while protectionism is almost unanimously viewed as its most dangerous potential consequence. But it is more likely that the crisis is due to a famine of investments due partly to protectionism camouflaged behind the blessed principles of ‘intellectual property’.

The immediate causes of the crisis are often seen as being the lack of regulation and the expansionary policies of the Fed, which by keeping interest rates artificially low, has provoked an excessive supply of saving. As amply explained by the well-known models of adverse selection, the latter has in turn produced a growing pool of toxic debt, with the consequences by now evident worldwide. According to an article in the Economist of last January, a beneficial “flow” of saving has turned into a disastrous “flood”, but this flood is more due to “global imbalances” generated abroad than being an endogenous product of the American economy and policies. Governor Bernanke has long argued that the role of the Fed in credit expansion has been marginal, and that the prime cause of the crisis has been a saving glut forced on the United States by massive inflows of savings from other countries.


There is something appealingly infantile in Bernanke’s argument. For many of us (and for me at my mother’s), ‘bellyfuls’ and the indigestion which they cause are due to the excellent and over-abundant food that is served. The real weakness in Bernanke’s thesis, however, is not so much its infantilism as the inaccuracy of its content. As shown by the data set out in the Bank of France paper by Moec and Frey, there has been no overabundance of savings in other countries, but rather a famine of investments. In recent years, savings have not grown around the world; instead, and especially outside the United States, investments have diminished. In other words, the abundance of food in America has been the result of a blockage in the digestive systems of its neighbours. It can be argued that, in this situation, the Americans have generously done the digesting on behalf of other countries, and give them transfusions of pre-digested food. Part of the saving absorbed by America, in fact, has been injected in the form of direct investments in countries suffering from blockages in their digestive systems. Is it therefore not the fault of the neighbours if they have been unable to create suitable investment opportunities and if, moreover, they have poisoned the Americans with their flood of savings?

The problem is that the lobbies for the American multinationals, by applying pressure for the new architecture of international trade founded at Marrakech in 1994, have played a major role in causing the blockages of their competitors’ digestive systems. We may start from 1992, when George Bush Senior concluded a presidency replete with success in foreign policy which saw, among other things, the collapse of the socialist economies and the disintegration of the Soviet Union. Yet the slogan “It’s the economy, stupid!” was enough to make him lose the elections against Clinton. The cause was not so much the economic crisis which began in 1990 as the consolidated perception that the “American model” was falling behind the alternative Japanese and German models. In the previous decade, a huge body of studies had described the miracles of Japanese management and suggested various ways in which the Americans could imitate it. By the end of the 1990s the situation had gone into reverse. The United States (and the United Kingdom) had become the model to imitate, and yesterday’s heroes (not only Germany and Japan but, after the 1997 crisis, also all the Asian tigers) strove to restructure their economies on the so-called Anglo-American model. In the meantime the Chinese economy had undergone rapid development. What had led to this unexpected reversal?

The explanation may lie in the standard liberalist refrain: only the Americans (and the British) had suddenly have rediscovered the virtues of the market, thus offering numerous investment opportunities precluded to their rigid competitors. However, on closer inspection, it was not the virtues of competition, but rather the advantages of intellectual monopoly, which enabled the United States rapidly to catch up with the other Western economies. Indeed, in the first half of the 1990s, the United States no longer had global military and political rivals. It was thus able to reorganize the world economy so as to enhance its scientific and technological leadership, and above all its monopoly positions, to the maximum.

The salient features of the new world were contained in the TRIPS agreement signed at Marrakech on 15 April 1994. Significantly, TRIPS was the 1C annex to the agreement founding the WTO. The preamble to TRIPS states as self-evidently obvious that “intellectual property rights are private rights” like all other private property rights. Yet this obviousness would have been unknown to an innovation economist of Schumpeter’s calibre, and it has been recently disputed in Boldrin and Levine’s fine book Against Intellectual Monopoly. Whilst the granting of property rights (including intellectual ones) constituted the natural basis for free trade, ratification of TRIPS necessarily created an annex to the WTO agreements, and an obligatory requisite for access to international trade. Unlike all previous international agreements on intellectual property, the inclusion of TRIPS in the WTO constitution created an efficient mechanism with which to enforce intellectual property rights. States could now be disciplined through the institutions of the WTO itself; and, in extreme cases, access to international trade by intellectual property “thieves” could be restricted.

Notwithstanding the seductive rhetoric extolling free trade and private property, the Marrakech agreement surreptitiously introduced super-tariffs such that the most extreme protectionism pales into insignificance. Since TRIPS, intellectual property rights have become global monopolies; that is, in a certain sense, customs tariffs of almost infinite magnitude. Not only are competitors of other countries not allowed to export a good to the country of the intellectual monopolist, they are also prohibited from producing it in their own country. When multinationals of some countries organize themselves into “patent pools”, the economic desertification of that sector in other countries becomes inevitable, resembling Britain’s erstwhile levies on its colonies, especially India (Marcello De Cecco, Money and Empire, Rowman and Littlefield, 1975).

With notable exceptions like Krugman, a chorus of alarm at the dangers of impending protectionism has been raised in recent months. It is claimed that one of the worse effects of financial crises is the disruption of free trade. Yet the relationship between the two phenomena has a chicken-and-egg complexity which does not admit to easy solutions. It is certainly true that the crisis is generating protectionist attitudes and the resumption of economic nationalism. But it also true that protectionism, by appropriating the blessed principle of private property rights, has helped produce the financial crisis. It initially only reduced opportunities for investment outside the United States, while the latter, thanks to direct investments by its multinationals, for a certain time also ‘digested’ for others. In fact, as Moec and Frey show, the crisis was preceded primarily by a fall of investments outside America. This fall was initially attenuated by the direct investments of multinationals endowed with an unbeatable recipe based on American intellectual monopoly and low-cost Chinese labour.

Added to the fall of investments by other countries was a gradual digestive blockage of the American multinationals themselves. Already in July 2005 an article in the Economist talked of a “corporate savings glut”, and its subtitle noted that the great corporations, more than the emerging economies, had become the world leaders of the global switch to thrift. The same article then referred to Keynes’ famous paradox of thrift whereby if everyone wants to save, they must (in the absence of investments) reduce their saving … though they naturally first go through speculative bubbles and various “financial innovations”.

In conclusion, although the financial crises have provoked protectionism, the super-protectionism of intellectual property has driven down investments. This has happened in two stages (largely overlapping in time) and through two mechanisms. The first stage after TRIPS saw the launching of the Chinese-American model and a shift to investments designed to consolidate American intellectual monopolies. As new spaces opened up for the American companies super-endowed with these “resources”, numerous opportunities for investment were closed to Japan and the former Asian tigers, which had neither America’s monopolistic endowment nor China’s lower costs. This phase culminated in the Asian crisis of 1997. In the second stage, because of the mechanisms described in the well-known tragedies of the anti-commons, world intellectual monopolies became too pervasive and began to block each other. At this point the accumulation mechanism used by the great “knowledge owners” became jammed as well. The fall in investments therefore created some of the factors that led to the financial crisis, and the latter in its turn drove investments down to further depths from which it will be difficult to re-emerge without a significant number of economic policy measures. One such measure should engender an investment super-multiplier by combining Keynesian policies, on the one hand, with the capacity for knowledge to be used infinite times without deterioration on the other. Support for aggregate demand and the re-appropriation of knowledge may constitute the two components of a single policy intended to free innovation from the cage of intellectual monopoly and to furnish greater investment opportunities for everyone.

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Anti-crisis policies in the Czech Republic and Slovakia: what do they have in common?

By Lucia Kurekova and Katka Svickova

Czech Republic and Slovakia have diverged in their developmental paths and policy choices over the course of transition. In spite of common institutional legacy and very similar export profiles, sixteen years after separation, the policy choices frequently differ, perhaps not least because of opposing political orientations of their governing elites during different periods of transition. This is the case also today, when individual countries are facing the world economic downturn in their local shapes and forms: Slovakia is governed by social democratic/third way SMER in coalition with centre-right HZDS and nationalist SNS while the Czech Republic is headed by a centre-right government of Miroslav Topolanek. In spite of many similarities in how the crisis has been affecting these two countries, which are both heavily dependent on automotive industry, the remedies that the governments have passed are quite different.

The governments of both countries, however, shared a similar initial denial that the global crisis might have any significant effects on their domestic economies. In both countries, too, the opposition was coining a different message and suggesting their own recipes for a remedy. And in both countries, the governments have not been really listening to these voices. While the wounds to the economies of both countries have been caused by a deep dip of external demand for their exports of consumer durable goods, the reactions of both countries in the form of adopted anti-crises measures have been different. Is the reason for these different reactions an underlying difference in the state of these economies, as persuasively argued in the last week’s issue of the Economist, or is it purely an outcome of different ideological orientations and tastes of the governments steering the countries?

To summarize, the set of Czech anti-crisis measures has a strong pro-business flavor while the Slovak government has concentrated more on supporting the ‘ordinary citizens’ and keeping employment almost at any cost. Further, while the Czech measures are partially forward-looking and have a modernizing aspect (support for environmental measures, increase of R&D investment), this can hardly be said about any of the three Slovak anti-crisis packages. While the government of Robert Fico fiercely refuted any opposition calls to decrease further the 19% flat tax rate, the “tax package” that it passed in the end will make most of working Slovaks richer by about 10 euro per month via the raised tax deductible minimum. The Czech Republic, on the other hand, will not only reduce the corporate tax by another 2% in the next two years (only reaching, however, the current Slovak level of 19 %) but has also decreased social insurance deductions on salaries for employees by 1,5%. Instead of up to 2000 euro ‘srotovne’ (bonus on buying a new car and recycling an old car) passed after its success in Germany last week also in Slovakia, the Czech Republic decided to reduce the VAT for cars. Additional changes to the administrative and institutional business environment in the Czech Republic include an amendment of the insolvency law, faster depreciations, an abolishment of the obligation to pay an advance on income tax for self-employed and small enterprises (below 5 employees) or enhancing the provision of export loans to businesses and loan guarantees for SMEs. The overall goal is to reduce the cost of labor and thus, desirably, preserve employment and facilitate the cash-flow for businesses. Fairly enough, Slovakia passed a handful of pro-business oriented measures too, among them easier book-keeping for self-employed and SMEs, faster depreciations, a quicker return of VAT to businesses or state guarantees for loans (up to 55% of the loans for companies employing less than 100 people).

However, the core of Slovak anti-crisis tools is in its ‘social package’. The leitmotif of the government is ‘keeping employment at any price’, which is not surprising in the light of the Slovak structural (read “high and persistent”) unemployment nightmare that has been present during the whole transition. Yet the set of job creation measures passed by the government is not only extremely complicated, but there are fears that many of them are very corruption-prone and might lead to more – rather than less - red tape. Measures such as state help to employers who are experiencing serious operational problems to cover the compulsory health and social insurance payments for their employees for a maximum of 60 days, or intentions to subsidize new jobs for a period of 12 months up to 15% of the costs of a new job in Bratislava region and 30% in the other regions of Slovakia are only examples of ways where crony practices and potential waste of money are likely to loom in unless the system is properly monitored and the support is given to enterprises with good prospects of future growth and innovation. The law on the support for one-man businesses started during the crisis, for example, had to be amended shortly after it came into effect following cases of its misuse.

There are a few instances, however, where the countries seem to stand out in a positive way. Bratislava has been praised for keeping its investment incentives to foreign firms - and extending them to domestic investors. Czech Republic, on the other hand, plans to invest more into R&D, a field where nearly every country has been trying to save during the crisis. Both of these measures are forward-looking. And although they are unlikely to act as immediate fire-fighters against the slump, which is projected to be the deepest in the next moths, the countries will be grateful for them in the mid-term to long-term period.

To answer our question from the beginning on the cause of the divergence of policy reactions in the two countries, the color of the governing coalitions seems to explain a lot of the outlined differences. At the same time, however, Slovakia has a long-lasting experience with high unemployment to which the society is extremely sensitive. In addition, both countries will need to deal with the issue of migration, but from very different ends: the Czech Republic is trying to figure out how to send back some of its foreign labor that has served it well until now, while Slovakia should start monitoring who and in which proportions is coming back to the country from nearer (Czech Republic) or farther abroad (Britain and Ireland). Lastly, Slovakia, now an EMU member, is not spending any of its energy on defending its currency, while the Czech Republic is less lucky in its respect. But then – it has one more tool at hands in dealing with the crisis cycle and its exporters are more competitive than the Slovaks exporters.

This brief comparison of reactions to the domestic repercussions of the world economic crisis in two Central and Eastern economies also contributes to underline a broader trend of divergence in the development of the countries from the whole Central and Eastern European region, despite a shared legacy as centrally-planned economies.

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5th CEU Graduate Conference in Social Sciences

PERG organizes panels on political economy at 5th CEU Graduate Conference in Social Sciences: “Old Challenges in a New Era: Development and Participation”

19-21 June, 2009
Central European University
Budapest, Hungary
www.ceu.hu/polscijournal


2009 represents a crucial year which is testing our ability to deal with substantial political and economic challenges. Bringing a continuation of the economic crisis, the deepening of the Israeli-Palestinian conflict, a new American administration, and a severe energy crisis for several of the EU members, this period is proven to be a problematic reality check for our policies and theories. Reality shows to be one more time ahead of scholars’ conceptualizations, politicians’ capabilities, and policy-makers’ solutions. With the many challenges ahead, we hope to generate interdisciplinary academic debates that tackle relevant topics in their fields of research. At the same time, we hope to connect different perspectives and approaches in order to produce high standard academic works.
We encourage graduate students and young faculty to contribute with papers and panel proposals on multiple topics. The working language of the conference is English.


Political Economy Research Group (PERG) at CEU has taken over the organization of the panels related to political economy, more specifically:

• Political economy of foreign direct investment
• Diversity between forms of capitalism in the world
• Political economy of the enlarged EU
• Political economy of development and poverty

For a list of all panels visit: www.ceu.hu/polscijournal

We particularly welcome panels proposed by scholars coming from different institutions. A panel can be proposed using the special panel form and should be accompanied by the titles and abstracts (maximum 300 words) of five papers included in the panel. Application forms can be downloaded from www.ceu.hu/polscijournal. All applications should be sent to gradconf2009@yahoo.com.

Deadlines:
- The deadline for panel proposals is April 1, 2009.
- The deadline for paper proposals is April 15, 2009.
- Accepted applicants will be notified by April 30, 2008.
- Applications after deadlines are not be considered.

The paper applications consist of:
- Completed application form (Including the abstract – max. 250 words)
- Short CV (maximum 2 pages)
- (Optional) Applicants for travel grant: Short letter for justification (up to 300 words)

The panel applications consist of:
- Completed application form
- Short CV of the panel chair (max. 2 pages). Panel chairs have the travel costs covered up to a certain amount.

Financial support:
There is no registration fee for qualified participants. Food and
accommodation are provided by the organizers. Applicants can apply for
a partial travel grant for the cheapest means of transportation. Those
intending to apply for a travel grant should write a short letter of
justification (up to 300 words).

NOTE: In case you do not receive confirmation within 72 hours please re-send your application.


For further inquiries about the conference please e-mail to: gradconf2009@yahoo.com.

For more details about PERG visit:

http://web2.ceu.hu/perg

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