PUBLIC MANAGEMENT. CHALLENGES OF THE ADMINISTRATIVE SYSTEM REFORM
Solomia ANDRE Assistant Professor, Phd Faculty of Economic and Administrative Sciences, Eftimie Murgu University Re iŃa Romania
ABSTRACT This paper presents some arguments, contributions and theoretical and practical conclusions regarding the stimulation of a managerial conception development characteristic to a modern public administration, which we considered not only necessary, but also indispensable in the continually important changing conditions to which the Romanian public administration has been confronted in the last years in order to be aligned to the European standards. In order to underline the necessity of a professionalized management and the growth of the adaptability degree of the management style to the conditions appeared during the continuous change, we used the directed discussions method, the questionnaires regarding the attitude and the behavior of the public managers of four different public institutions from four different districts, followed by the dissemination of the results and of the proposals during the seminars hold as vice-director of the General Direction of Public Finances Caras-Severin. These contributions had a direct effect on the perfecting of the management style in the subordinated public institution, on the adaptation of the managerial behavior in the exercise of the basic functions and on the growth of the managerial performances. In conclusions, the methods and the instruments used for the research regarding the public managers were compatibles with the managerial practice, reflected the reality of the attributions, the responsibilities, the abilities, the specific knowledge, the managerial competence domain and the relational sphere, being received by the subjects and being considered practices which determine to introspection. For this reason, I believe that these must constitute a priority in the managerial practice of the public institutions – a source of improvement for the future law frame and for the effectiveness insurance, of the administrative reform surviving and of the successful integration in the European Union structures.
KEY WORDS: management, initiative, flexibility, professionalism, performances JEL: H83
1. INTRODUCTION
The Romanian public administration has been confronting, during the last years, with important changes regarding the functioning frame – the politics and the citizens’ expectations, the attributions and the responsibilities. The inclusion of the public administration, at least orally, in the general reforms processes has lead to a confrontation with a set of familiar dilemmas for the Romanian society. The idea of a reform, so frequently used, is too often related to general formulations, to declarations without content, to the appeal to infrastructure and to formal solutions; unfortunately the management and the organization processes are too little taken into consideration in the equation of the administrative system reform, seen as being exclusively independent from the judicial solutions. The ignoring of the ignoring of a strategic perspective, the lack of consistent preoccupations referring to the managerial preparing of the administrative responsible have put their hand on the
9 administrative institutions that are less based on initiative and flexibility. Saying that the administrative reform can not be made by the elaboration of laws and prescripts (which many times lack of coherence and time continuity), but only with the help and by considering people who work in this domain, seems puerile; observing the reality of the last two years we may consider that the accent was put on the support of these professionals, who have to face greater responsibilities, with fewer resources and confronted with great expectations from the citizens, was minimum. The solution to these problems of the Romanian public administration depends on and can not be conceived outside their actions; miraculous global solutions do not exist, and neither a positive evolution based only on statistics and declarations on television. Those who do not have objectives never risk touching them; the over passing of this phase and the stimulation of a managerial conception development characteristic to a modern public administration is not just necessary but also indispensable. The management is situates along the traditional preoccupations of the organization science, perceived as science of a good management, of an efficient management; it establishes an essential useful finality and clearly operable. Its ambition is to clearly define the rules, the laws and more over, the norms which allow the organizations to attain the proposed objectives, with the maximum of efficiency. The management is different from the empirical practices and from the first formulations of the organization science through a more powerful formalization: the theoretic and the conceptual dimensions are essential for the management, which has the tendency to combine practice to “a representation of the reality which will become scientific”. In this case we speak of “an ensemble of practices…where the pragmatism and the scientific knowledge combine” (J. P. Nioche). At the private firms level, the management has known an accentuated tendency to overcome the “operational management” frames, founded on the optimization logic along the daily activities, in order to implicate the ambition to attain a “strategic management”, which integrates into a global strategy an ensemble of variables: the management projecting, the economic environment, the enterprise possibilities and resources, the obligations and the social internal and external pressures. This management is finalized by an ensemble of strategic decisions that are used during the application procedure. But the private firm is not the only managerial model possible; the non-profit area is also cited as an example of a successful management. This vision will become more complex through the assimilation of “organizational contexts” – the management is not actually an ensemble of very general rules that are susceptible to follow different options, according to the obligation received. The “contingence” theory tries to identify the specific forms of the management, which vary according to the environment configuration, to the nature of the organization and to the strategies followed. Thus, a “mechanical” management system, characterized by formal rules and by a powerful centralization will be (Burns and Stalker) better adapted to a stabile environment, while and “organic” system, in which the formal rules have a smaller importance and the decentralizations is more accentuated, corresponds better to an instable environment. The management is the occupation that is defined by being able to lead, in a given context, a group of people with the purpose to attain common objectives of the organization finalities they belong to. The public service was built, for a long time, on the basis of a bureaucratic logic that proposes a clear distinction between those who conceive/decide and those who
10 execute a decision; a lack of initiative from the executants and a strict respect of the procedures; an extremely powerful separation vertically (between the hierarchic levels) and horizontally (Between offices and services). This type of organization has proved to be performing at the time it was conceived, for the private firms and for the public administration, responding very well to the existing situation (the necessity of ensuring standardization of mass services in the context of and existent majority population with a lower educational level).
2. PUBLIC MANAGEMENT PROFESSIONALIZING
The needs and the expectations of the public administration “clients” nowadays are greatly different and based on a role inversion: the expectations do not come directly from the administration, which in the past was concentrating on the respecting of rules by the “administrated”, but from the “consumers – citizens”, who have great claims towards the public services and towards the way these are being treated. The main elements that sit at the basis of the needs/expectations are: - personalized answers from the administration; - the neatness of the demarche and of the administrative procedures; - the rapidity in solving the problems. Obviously these principles are too little compatible with the classic bureaucratic organization and functioning. Equally, we may consider that the citizens have the right to seek an intelligent public service, which uses managerial and informational techniques that were not present in the past. The necessity of the existence of a performing public service results from this explanation, capable of responding to the demands of the society. In order to answer to the expectations of personalized treatment of the demands, of procedures simplicity and rapidity, the classic bureaucratic logic modification and the instauration of a responsible management are needed. This one is characterized by four simple elements: - the consulting of the people who should apply a decision, before this one might be taken. The apparent time lost in order to realize this thing will be completely compensated at the moment the decision is applied, because of an executant’s adhesion and developed understanding; - the responsibility of attaining of purposes (and not on the fulfilling of tasks); - the delegation of operational decisions to the first level of competency existent (the principle of subsidiary). - the encouragement of taking the initiative on the basis of the principles and orientations respect defined “in upstream” and the enforcement of a monitoring and permanent evaluation system; - the favoring of a rigidity and separation reduction in the administration functionality, vertically (regarding the information) and horizontally (regarding the concentration and the coordination of actions). Thus, these are extremely simple principles that need a complete inversion of the functioning manner of a great part of the public administration activities. In fact, in a changing environment, if the persons who work in the public administration, especially those situated to high decision levels do not evolve in the same rhythm and from the same mentality point of view, they will take decisions based on false premises and will block the necessary transformations. Thus, the public administration leaders must be opened to the exterior and develop, travel, participate at
11 specialty seminaries in order to integrate the changes of the environment and to transmit them to their collaborators. The public management professionalizing is an ample process of attraction, selection and creation in the frame of the public institutions of a public official’s corpus specialized in the public management domain, which can exercise the functions of the public management, apply methods, techniques and modern approaches and lead to the obtaining of special performances in the public institutions, responding to the expectations of the other institutions from the administrative system and to those of the citizens. In the developed countries, starting with the triggering of the fundamental structure reform process in the public area, one of the major changes has endorsed the creation and the development of a professional corpus of public officials, neutral from a political point of view, that can assume the responsibility for the application of the law frame and especially, for the realization of the public management objective, that is the development of the public interest satisfaction degree. The professional training and the perfecting of the professional background of the public officials and of the administrative personnel from the public institutions have become, in the last 30 years, a stringent necessity in many public institutions from the developed countries. In this complex and durable process the first step was to clearly establish the place, the role and the competency limits of the politics representatives in a public institution. The second step was the acceptance of the fact that the professionalizing of the public management was an objective necessity, starting with an essential aspect; no person can exercise the functions of a public management so that the basic objective declared to be realized. In this context, the redefinition of the content of the training and perfecting of the qualification activities of the public manager has become well-timed. The third step was the starting of a training process of the human resources of the public domain, in order to understand and to implement a new value system in the public institutions, which put in the middle the citizen’s public interest. In all the European Union countries, the tendency of public management professionalizing has determined significant changes in the content of strategies and politics of the public institutions. The identification of the best person to occupy a position of public official is followed and later, for a special public function and not the identification of the acceptable persons from a political point of view for a certain government and public institution. The public management professionalizing can not be made without a proper foundation of the training strategies and politics in the human resources domain. It is well known the fact that the eastern administrations give annually almost 5% of the human resources costs for their training. Most of the training programs have a practice character and are well articulated in the content of global and institutional strategies. Another important coordinate endorses the development of a career system, giving a special attention to the development of attitudes and experiences of the capable persons, hired by the administrative authorities and public institutions. These person categories, in time, receive greater competencies in order to develop a diversified range of activities, even in different institutions and public authorities, in order to create a public officials corpus with a systematic view and a great degree of flexibility in the exercise of public functions. All the European Union countries consider this process to be difficult and they
12 take into consideration the fact expressed to their citizens: “we do not wish to se our money from taxes spent on high salaries of the public officials, without sensing the positive effect of our effort”. On the other side, we start from an elementary truth, but essentially from the fact that without a motivation system which corresponds to the public officials, in general, and to the management functions, the authorities and the public institutions will never succeed to attract, to integrate and to professionalize the human resources, to develop a professional public management based on competency and orientated towards the obtaining of performances. In the Romanian public institutions the public management professionalizing is absolutely necessary if the orientation of the administrative system and of the state towards promoted values in the eastern democracies is wanted. In my belief, a belief built by a profound study of the harmonized law with the European acquis, but also by applying this one in the practice during a transition period of over 5 years, as public manager, the most important stages of this process should be: 1.the elaboration of an ample diagnosis study in the human resources domain; 2.the underlining of the global strategy in the human resources in the public administrative area; 3.the elaboration of global strategies and of the human resources strategy; 4. the communication of the strategic content on the counseling of the human resources; 5.the preparation of human resources for the implementation of strategies; 6.the implementation of human resources strategies; 7.the monitoring, evaluation and adaptation of global strategies and of those in the human resources strategies. In the human resources domain, mainly for the managers, I have applied a study based in interviews, directed discussions and questionnaires regarding the manager’s attitude and behavior, during the years 2003-2006, inside the General Direction of Public Finances in four districts: Bihor, Bistrita-Nasaud, Caras-Severin and Sibiu. The conclusion of the study is that the tendencies most manifested by the managers, starting with service chiefs and office chiefs of the institutions of the two greatest districts: Bihor and Sibiu and at the level of the other two institutions: Bistrita-Nasaud and Caras- Severin, have a democratic consequent behavior (28%) and democratic (25%); which proves the fact that these institutions ensure the employee’s participation to a great part of the management process activities, an active participation with a renewed interest for the establishing of objectives and the fulfilling of tasks, orientating towards a reduced control and creating time resources to ensure development conditions of a innovative work. The implementation of this style has imposed behavior and attitude changes for the managers and for the employees, changes which demand a great period of time and thus the application of a participative style, according to my opinion, can be applied consequently and in fully consolidated institutions. Keeping in mind the fact that he practices situation and realities also demanded the application of a dictatorial style, the managers who participated in the study expressed reduced opinions concerning the dictatorial democratic style (14%), dictatorial consequent (10%). The predominance of the consequent democratic style and the participative style is explicable because their specific (public institutions) supposes the creation of conditions that bring to the centre of attention the human factor, which favors a more interesting collaboration between managers and employees and the solving of problems as a team. In the norm frame conditions the creation of a special status of the public official
13 called public manager, in which new attributions and tasks of the management personnel of the public institutions subjected to the study, were defined, but also the limited managerial positions from four years to two years – period established according to Linkert’s researches regarding the evaluation of the participative style. I consider that, in the case study, the theory is compatible to practice and the subjects who opted for this management style are efficient managers, during that period of time. I also consider that the dictatorial democratic and the dictatorial consequent styles can not be practiced efficiently, excepting a few cases and only for a short period of time, because they can become inefficient because of the climate created during that time: tensions and humiliation. The explanation can also be applied to the practice of these styles in the researched institutions, because this style was practiced during short periods of time and at high levels, in which the executive managers did not have the quality of a public manager for more that one year, being let go from the manager function. The global analysis of the questionnaires answers regarding the attitudes and behaviors inside the four institutions having the same activity profile, reflects the variety of tendencies, of behavior and attitude nuances and of management styles practiced, an equilibrium being present – without great option differences – regarding the orientation towards a democratic or dictatorial style (101 options for the democratic consequent, 92 options for the democratic, 81 for the dictatorial, 52 for the dictatorial democratic and 39 for the consequent dictatorial). In this situation, of transition, of reform, of concentration on the quickening of the organizational culture evolution and of operable changes (redefinition of the missions and values, the rethinking of structures, the conceiving of new functioning models, the implementation of monitoring systems – control, the institution of annual meetings for the evaluation of the activity, the reconsideration of the rewarding and stimulation systems), the necessity of an approach of the different management styles, compatible to the appeared cases is explained, and also formulating the conclusion that each of the styles analyzed could be efficient or not, according to the specific of the situation of practice. Thus, in the management of the financial institutions there can not be any universal valuable styles, the management style being different from a manager to another, as a sequel of the personality differences, specialty knowledge on one side and on the other side of the adaptation to a managerial style capacity, in the case of the same subject analyzed. The effects of the basic managerial conception changes in the authorities and the public institutions in our country, of the implementation of stages proposed for the public management professionalizing process and of the translating of knowledge gained during the implementation period, in the managerial practice – including in those institutions analyzed – regarding the flexibility of the management style adaptation to new conditions generated by the continuous change in the public administrative domain, thus the managers be flexible in choosing the efficient management style – correctly adapted to the situation appeared, are the following: the significant improving of the administrative decisions quality, the amplification of functionality at the institutional level and of the administrative system in its ensemble, the quality improving of services offered to the institutions and citizens, the improving of public institution images and of the state authorities, the hardening of administrative capacity of public institutions, the growth of the motivational degree of public officials, the reducing of the corruption phenomenon in the public area, the ability growth and the consecration of the creative
14 manager’s professionalism, the development of abilities and the professional perfecting at all levels etc. The support of these effects in the public institutions practice was created through the management mechanism of the manager function, regulated by O.U.G. no. 56 from 2004, where it should develop on the basis of a rigorous selection, training programs and specialized professional development, continuous, lead by mentors – to which we must attribute this quality by an individual work contract in the specialty domain and through institutional agreements.
3. CONCLUSIONS
The initiation and the acceleration of public management professionalizing in the public area from our country has represented and still represents one of the necessary premises in the radical reform process which waits to be implemented in the authorities and in the public institutions from a central level to a local level in our country. Without a professionalizing of the public management it is hard to believe that the public institutions and the administrative authorities from Romania will reach levels of performance compatible to that of similar organization in the developed countries. Only on the basis of experience, intuition, politic orientation and an elementary level of general preparation, we can not obtain special results in the reform process and it is very hard to imagine that the Romanian public institutions will come any nearer to the performances of the public domain of eastern democracies. This is why I recommend the following of stages of the public management professionalizing process and the continuous research in the domain, on the basis of instruments identified as being compatible to the managerial practice, received easily by the selected subjects, considered practices which determined an introspection, in such a way that the managers of public institutions to contribute on bases practice to the improvement of the specific law frame and also to the insurance of efficiency and continuity of a reform in administration, from strategic levels to operational ones, and implicit to the integration in the European Union structures through the adaptation and implementation, where it is needed, of the European acquis in the are of public authorities and institution where they deploy their activity.
REFERENCES
Andres S.,(2006), “Evaluarea si perfectionarea stilului de management in institutiile financiare” Mirton Publishing, Timisoara; Andre S., (2005), “Managementul serviciilor publice” – course notes, “Eftimie Murgu” University, Re iŃa; Alexandru I., (1996), “Structuri mecanisme i institu Ńii administrative”, Sylvi Publishing, Bucharest; Bădescu C, Alexandru I., (1996), “Introducere în studiul procesului de cooperare interregional ă”, Allfa publishing, Bucharest. Laz ăr I., (1997), “Management General”, Edit. Dacia, Bucure ti,; Nicolescu O., (1996), “Management”, Economic Publishing, Bucharest,; H.G. no. 783 din 14 July 2005 regarding the approach of the Methodological rules for the application of OUG no. 56 din 2004 regarding the creation of the special status for the public official called public manager, M. Of. No. 717 from 09 August 2005;
15 ARGUMENTS IN FAVOUR OF THE RECEPTION OF THE RHETORIC INTERPRETATION
Claudia ANDRI łOI Lecturer Phd Faculty of Economic and Administrative Sciences, Eftimie Murgu University Resita Romania
ABSTRACT In the course of the judicial trial, the formal structure of the procedure obliges the parties to elaborate their own points of view for which one develops an argumentative discourse, correctly built from the formal perspective, from which the intention to persuade emerges. The persuasion means are either from the sphere of rationality, or from the sphere of affectivity, in variable weights according to the topic, receiver and situation. In the attorney’ plea we can identify both the rational argumentative component and the oratoric one, through the use of the so-called rhetoric figures of speech, The proving argumentation transfers, through reasoning schemes, an opinion from a person to another; the opinion is the informational content of the argument comprised in a model that can be a pari, a fortiori, a majori ad minus, a contrario etc. In order to avoid arbitrary one takes into consideration both the principles of interpretation and the argumentative criteria of grammatical, teleologic, systematic order, all subjected to the rules of formal logic. The common note of interpretation methods is the relatively numerous attempts to analyse the main structural-phenomenology ideas, even sometimes on a comparison line with other law systems, for detaching the main directions and meanings of what they emit. It was stressed out the importance of the advanced hypotheses having relevance the innovative, semantic, conceptual, the integration of contemporary sciences data in the construction of the ontological principles of interpretation.
KEY WORDS : argumentation, interpretation, “the engine of law”, epistemology. JEL: K 10
1. THE DIVERSITY OF THE INTERPRETATION
The diversity of the interpretation techniques and the contradictory structure of the revealed hypotheses bring forward all the possible significances of the interpreted text. In the case of the interpretation of a juridical norm one always starts from a singular case, and then one approaches the issues from the perspective of disputatio in utramque partem , and eventually one discusses the resulted significances. For instance, art.204 par.1 of the Civil Procedure Code: “ the experts can be challenged for the same reasons as the judges”. We interpret this norm text starting from a singular case, that of an expert, and we remark that the major premise does not contain a true sentence, but a permissive norm, the minor premise being a ascertaining one, and the conclusion is not a true sentence, but a normatively modalised one. Consequently, we reach, after having pointed out all the contradictory hypotheses, the conclusion that the expert can be challenged, for the same reasons as the judges. But a norm text usually contains two or more contradictory meanings, consequence of the plurality of interpretation, which leads to a multitude of possible significances. The development of a theory of legal interpretation involves the building of a system of statements that constitute an explanatory model about something from exterior, i.e. to explain the field. This system includes basic concepts and principles of
16 interpretation, on the one hand, and on the other hand, sentences and concepts derived. Legal theories have a specific component that shows a direct observational and a dual significance, factual and normative. The problem of legal theories terms is one relating to the meanings production and fixation derived from interpreting the legal, regulatory, and their exterior. These meanings can be thought as not only regarding the functions of terms within the deductive and inductive organization of such theories but also that of their participation in legislation and case law. A characteristic feature of contemporary scientific knowledge is focused on construction, testing and application of scientific theories. The problems are formulated within the framework of theories in which are developed or summarized assumptions, that can only be validated through the test of theory and then as a following within their framework it is incorporated the significance of rules and their analysis. The main meta theoretical categories are such defined as being in relation to the overall ordered assumptions that constitute a theory. Action itself as far as it is based on rational it is built up upon a scientific theory (I.Pârvu (1981)). Starting from simple to complex it was observed that the legal standards as a common regulation, meet in the branches of law. In turn, branches of law are constituted as elements of the integrative system of law, component of the society (Gh. Mihai(2003)). Giving a particular importance to the relationship between law and value, we must underlined the bivalent and reciprocal determinate links that are established during the historic old ages between these two essential concepts that are completing each other in a logical manner with the position analysis, role and functions of law in the finality of relations that are governed by them, relations which, necessarily, fall under the regulatory scope of other social rules (moral, religious, common, etc.). Rhetoric aspires to outline the optimum path to convince a concrete receiver through logic argumentation, by a concrete rhetor, that it is good, useful and coherent to assumatively adhere to an idea in view of an action. The issue of assuming the truth seems secondary to the rhetorician, because he operates with probable sentences in the sense of their definition given by Aristotle. Everybody manipulates with the legal or non-legal axio-pragmatic probability. For example, I, attorney A, aim at convincing the court that my statement – the contract x was executed in accordance to the clauses established by the parties in good faith – corresponds to the stipulations in vigour and is coherent, being verisimilar, although expressis verbis I say true. I, attorney B, aim at convincing the court that my statement – Ion is wrong – is good, useful and just, it corresponds to the stipulations in vigour and is coherent, being verisimilar, essentially true. I, the prosecutor, aim at convincing the court that one of those affirmations is verisimilar. The evidence means are at the disposal of all, however the information extracted from it is interpretatively presented differently, through persuasive reasonings, supposedly correct from the formal logic perspective, through reasoning of law interpretation, supposedly correct from the formal logic perspective, and with the observance of the interpretation principles. Nevertheless, the judge will not adopt a radical solution regarding both parties in contradiction, irrespective of the fact that one or both are organisms of the state. He / she is blocked by the logic-formal principle of non-contradiction and by the principle of interpretation consistency that guarantee the observance of all the requirements of the thinking correctness: it is impossible that
17 something and its opposite be both verisimilar in the same degree, at the same time and in the same ratio. Each party strives to give coherence to their speech, i.e. to be subordinated to the law of correct thinking, to the logic formalism. Similarly, in debates, the partners, being at the same time adversaries, attempt to argue and counter-argue in order to convince each instance, using the formal-logic rules of thinking, but without being limited to the latter. The final unity of significances results from the recourse to the just, honest and useful without questioning the rules governing the interpretation of the norm exemplified above. The issue of choosing from among several meanings highlights neither the method of interpretation used, nor its technique. It remains to the latitude of the judges, denoting their prudence in obtaining the just-legal sense. The rhetoric model of interpretation, does not make the distinction according to the criterion of the nature of the act subjected to interpretation, that may be a law, decree, contract of testament (Vonglis(1969)). From this perspective the judiciary interpretation is seen by the adepts of the rhetoric model as a paradigm of interpretation of acts in general, having the capacity to import concepts even from other sciences, such as semantics, literature, hermeneutics etc. It is equally interesting to know if rhetoricians have taken their interpretation formulas from juristconsults or, on the contrary, if the latter have been influenced by rhetoricians. Vonglis considers that this influence of rhetoric is incontestable, although it is not about the proper assimilation or the pure reception by the jurists through the adaptation of oratory and of its useful character to the specifically legal techniques (Vonglis(1969)). Nevertheless, if controversies occur around the mutual influences, it is obvious that there is a great similitude between the sources of rhetoric and the legal sources as regards content. The jurists, observers of the system, often neglect the capital difference between the two types of their formal sources. They appear through the legal interpretation of a particular situation, but equally if we concentrate on the history of hermeneutics in general. Rhetoric englobes hermeneutic elements, and interpretation contains them both.
Table 1 The clear and the obscure meaning obtained as a result of interpretation Levels of significances Initial meaning Second meaning Theoretic interpretation Clarity (+) Ambiguous (-) model The meaning of legal norm The meaning of words (the Legal (one interprets the sentences words of the text are interpretation constituting the text of the interpreted) norm)
Once the interpretative process begun, the interpreter must identify the techniques enabling him / her to discover the authentic meaning of the legal norm, passing thus through several stages, from the initial meaning to the meaning revealed through the method of interpretation, which must eventually coincide with the meaning intended by the legislator at the moment of edicting the norm. The legal hermeneutics
18 considers that there are certain affinities between the two significances, due to the fact the initial meaning offers an access path towards the second meaning. There is no hierarchy between these two significances, the situation being somewhat similar to that referring to the “ letter and spirit of the law ”, two poles, theoretically equal, but between which one cannot choose.
2. THE LEGAL INTERPRETATION THROUGH THE PRISM OF THE TEXTUAL CONTRADICTION IN ACCORDANCE WITH THE RHETORIC MODEL
As early as the Ancient Times a general theory of legal interpretation was developed, which was not reduced only to a presentation of the issues occurred in the positive law referring to the matter of interpretation, but also contained a rhetoric of interpretation conceived as a topic of legal aspects., orders in a system and supported by legal arguments (M.Villey (2000)) . In the Ancient Times also interpretation was considered to “the engine of law” without granting a special attention to theorisation, codification or inclusion of interpretation into a precise methodology (Vonglis(1969)). It constituted a variety specific to argumentation, the latter being a chapter of rhetoric. The analysis made for of the concept of law brings its contribution to the completion of positive emptiness law through a continuous process of adapting the law to the reality of social phenomenon. Along with the domestic law, the international law is conditioned and is a subject of interpretation of law by various members of international society. Contemporary system of international law produce sensitiveness on the view of civilized nations regarding the universal eternal values: equality of states, people freedom, unity and responsibility of the states for the future of humanity, righteousness (justice) etc. between peoples. International legal consciousness is deeply marked by the general principles of law, pre-existing to the fundamental principles of public international law. Around the law idea the internal and international juridical life is developing. The concept of law is a matter of extreme resonance in legal thinking the rebirth of natural law is both a revival of the concept of law, major part of human nature (conscience). Regarding the configuration we uncounted the natural environment in a broad sense, the socio-political frame (M.Villey (2000)) including the economic component, ideology or all prevailing beliefs and fundamental values in a society (in this category is included also religion), other social structures, the human factor and not at least the phenomenon of globalisation, which, because its scale and complexity effects may be considered as an important factor of the current configuration of the existing law. From this incorporation of rhetoric into interpretation one identifies a complex model, adaptable to its transposition into the practice of law. We may thus examine the relations uniting the old rhetoric to the practice of law, so that the distribution of tasks between orator and juristconsult might take place in an efficient manner. This special character of interpretation (incorporation of interpretation into rhetoric) makes the interpretation of legal texts a favourite domain of rhetoric, on the one hand, and on the other hand of the legal codification, granting a special status to the spirit of the law that took a considerable advance in the history of western hermeneutics. The reception of this interpretative model including both hermeneutic and rhetoric elements is
19 complicated, and the doctrine debates regarding it have been continuing up to the present. Aristotle’s epistemology confers us a first lead for the understanding of the influence of rhetoric on the legal interpretation. Aristotle appreciates reasoning (for instance Ion is a perpetrator ) as a mediation between the general ( perpetrator ) and the particular ( Ion ), so that in order to solve a litigation in accordance with the law we need to apply a general norm ( definition of the crime ) to a particular situation ( Ion’s situation ) and thus an interpretation principle occurs, necessary to be applied to a contingent phenomenon ( in situation X Ion committed crime Y ). Theoretical guidelines of explanation are noticed in time and concentrated on the major current an schools of legal thought (natural law, the German historical school of law, positivism, Marxism), in addition to any such legal thinking and thinking have had over the old ages and all over the world, an effervescent dialectics. In an attempt to establish a clear picture of how the right was set up and imposed we should referee to modern trends, which have exerted strong influence on the evolution of legal thought and philosophy of focusing on the idea of law oscillation between two current with all their variants: idealism and positivism. Law is regarded as a system along with the applications structuralist method - the systematic regularity of knowing the organization and operation of the right as a system of social organization. Hereby it should be noted that the elucidation of this concept is particularly important in surprising the law substance. It can not exist but only as a system because legal standards as the basic cells, are set up in structures more and more complex in order to give the right configuration, which generates such order. The rules of interpretation are outlined along the reconstitution of the rhetoric forms, returning thus, in the most rigorous manner possible, to its internal legality. The freedom of interpretation is an entirely different thing than the arbitrary principle, it involves risk and liability. There is, in this attempt of interlacing rhetoric and interpretation, no claim to find authenticity again, or to affirm an exclusive right with name and mark, or to correspond in a more faithful manner to the original intention of authors. It is only about not renouncing too hastily to a patrimony of ideas that – obviously, also on the basis of a certain interpretation of what we think to have found in it – seems to bring profit above its value. The interpretation we propose will be the legal, juridical one, with rhetoric and hermeneutic significances, which do not alter its sense, but complete it in a unitary way. What we should point out is that right, not concept nor operational, it is not the amount or the rules system caught by the hierarchy of normative acts, but much more - it is the justice that the legislative authority seeks volitional and interested to catch, to capture and to determine it in some way. Being the first structural element of positive legal order, the legal rules defined through the entire as a public rule of conduct, general and impersonal, aimed to inter subjective exteriorisation of private conscience erected in its universality, creating ultimately a typical behaviour on individuals in agreement with the followed social model, required under the legitimacy of its collective consciousness level and that on need may be brought out by coercion. The hermeneutic ontology developed by Gadamer insists upon taking into consideration this Aristotelian reasoning, not only because the idea prevailed that the theory of interpretation could be only general, i.e. not specialised by domains and
20 territories, but rather because hermeneutics itself has lost its relation with a certain limited and specific domain of phenomena – as though besides the interpretative activities there were also another sector of activity characterised otherwise, for instance the scientific knowledge (G. Vattimo (2003)) . Consequently, only the juridical norm has a determined character, and not its applicability, in which one brings into debate random and unpredictable particular circumstances. The result of a social process is never certain, nor can it be determined in advance, it functions and evolves in accordance with the time, place and opportunity circumstances. The activities of the judges, that in the Ancient Times was more often exercised by citizens without legal training, was based especially on the truth and virtues (B. Frydman (2007)) . Is important to achieve a right image and the significance thereof, beyond the blocks with which we are accustomed to, finding that due to its complexity, right may not be reduced to a single and unique representation. This was literary understood by ancient Greeks, when, to describe the phenomenon of law, they have recourse to personify it. Thus, in Greek mythology, we meet on the one hand, Themis , which symbolizes the law dictated by a power, and on the other hand, one of his daughters as a result of union with Zeus, Dike, which is embodying that law in action, concrete justice, implemented by people. As a follow of this approach for a better understanding of the concept of law an analysis should be done for those elements or features essentially common to law and e.g. the law constants, giving great importance to the substance, content and form of law. The legal issues are not proved through demonstrative reasoning, but are discussed, as they do not reveal a formal logic character, but the legal technique adapted to the given solution. Rhetoric represents this very technique of the contingent legal discussions, being conceived to allow the triumph of the truth through a useful and just solution obtained. The reasoning of the court relies on a neutral choice based on numerous normative acts in vigour that, although hierarchically disposed, allow, each of them, an interpretation margin. That is why it is said that each judge has the legal availability to apply the law to the cases he / she enquires. It is so because we can not identify with certainty the valid norm for the concretely proven case, not even through debates; the debates lead us to subjectual probabilities, and not to certainties. Nevertheless the principles of interpretation lead us to the obtaining of the correct meaning.
REFERENCES
Frydman, B. (2007) “Le sens des lois, Penser le droit”, Deuxième Edition, Ed.Bruylant, LGDJ Giuliani, A. (1966) “La logique juridique comme théorie de controverse, în La Logique du droit “, Archives de philosophie du droit, tome 11, Paris, Sirey, Mihai, Gh. (2003) “ Fundamentele dreptului I-II”, Editura All Beck, Bucharest. Pârvu, I. (1981) “Semantica logicii propozi Ńiilor. Reguli de interpretare” , Editura tiin Ńific ă i Enciclopedic ă, Bucharest. Vattimo, G. (2003) “Beyond interpretation, Significance of hermeneutics for philosophy”, Pontica Editions, Constan Ńa. Villey, M. (2000) “Modes classiques d’interprétation du droit”, în „L’interprétation dans le droit “, Archives de philosophie du droit, T.XVII, Paris, Sirey. Vonglis, D. (1969) „La lettre et l’esprit de la loi dans la jurisprudence classique et la rhétorique ”, Paris, Sirey, 1969.
21
A MODALITY OF ECONOMIC IMPROVEMENT BASED ON DIRECT FOREIGN INVESTMENT
Ionel D ănu Ń B ĂNU ł Assistant Phd Candidate Faculty of Engineering, Eftimie Murgu University Resita Romania
ABSTRACT In a contemporary society, modernizing the structure of national economy is unconceivable because the direct foreign investment represents the material support of economic improvement. Only on the basis of calculation, the available material and human resources can be oriented towards the fields of maximal efficiency towards the branches which determine the economic advance of the whole national economy. The motivation of economic improvement, without attracting direct foreign investment, without the existence of some well designed investment programs and without the help of political- economical and social factors, is in the detriment of over-passing the moment of world economic crisis.
KEY WORDS : direct foreign investment, attracting direct foreign investment, investment climate, investment process, investment flows, horizontal foreign investment, vertical foreign investment. JEL: E12, E22, E24
1. INTRODUCTION
After the adherence moment, Romania is more and more integrated on the international investment market. The investment flows in Romania take the form of direct foreign investment. The international direct foreign investment flows have recorded a diminution trend by the end of 2008 due to the effects of the international economic crisis, as compared to 2004 – 2007, when an ascending trend was recorded. In conclusion, the aim of the analysis is to highlight the dynamics and peculiarities of direct foreign investment in Romania in the context of the international financial crisis. Since the oldest times and up to now, the investment represents a component part of the economic activity which allots important parts from the obtained income to the extension and updating of the production means.
2. THE CONCEPT OF DIRECT FOREIGN INVESTMENT IN THE CONTEMPORARY ECONOMIC DOCTRINES
Along its historical evolution, the economic science has tried to analyse complex phenomena with the help of abstract models. The human nature and the variation of relationships which are established in a society form a vast and passionate research field. There is no exaggeration if we state that the problem of economic balance preoccupies the theory of economy from its beginnings, more precisely since the economic thinking was constituted as an independent science. The classical vision
22 regarding the economic balance is already found in the works of Adam Smith, Malthus, Karl Marx, John Maynard Keynes. The physiocrats have examined the investment process. Francois Quesnay (1694-1774), the author of the “Economic Table” has elaborated the structure of investment, classifying them into “annual advances” and “initial advances”, he supposed that the annual advances constituted 1/10 of the initial advances. The investment activity is represented as a production process in the economic sector and has as aim the increase of the nation’s wealth. At the level of economic agent (farmer), the investment supposes the allotment of means to procure the production means (annual advances) and at national level – material factors of production. Generalising, we can conclude that the physiocrats’ doctrine uses for the first time the notion of “capital”. Physiocrats like Adam Smith, associate the notion of capital to that of national wealth. In achieving these factors, the capital must be increased either for the updating of fixed means or for the creation of new jobs. Adam Smith analyses the investment process in a dualist form, connected to the meaning of investment object, which is the capital, the notion of capital to the wealth and the individual’s money, which insure the income, and from another point of view – to the production factors, which have the capacity to increase the nation’s wealth. The representative of the Marxist doctrine is Karl Marx (1818-1883), who develops the investment theory by his conception about the capital and the plus-value theory. Examining the process of capital circulation, Karl Marx states that the market is plentiful both with labour force and with raw materials and the volume of investment depend only on the size of the monetary capital. One of the representatives of neo-classical doctrine, Alfred Mar hall (1842- 1942), analyses the investment process as a part of the mechanism of the functioning of capital market. The market of capitals is presented by the dependence of demand and offer, by the highlight of factors which influences the formation of each separate element. John Maynard Keynes (1883-1946) in his paper “The general theory of using the force work, of interest and of money” highlights the research of the investment process at macro-economic level. The logics of John Maynard Keynes’s idea is the following: at a given level of the technical-scientifical advance, of the resource and expenses volume, the volume of the national product depends on the occupation of the work force; the correlation between the production volume and the size of consumption expenses depend on the psychological characteristic of the society, called inclination towards consumption. It depends on the level of occupation of labour force; the volume of work expenses is reported by the consumption expenses and the necessary investment; the balance of the occupation of work force depends on the function of global offer/supply, on the inclination towards consumption and on the investment volume. The actual investment demand is a function from the consumers’ expenses on the previous periods. On the path of its evolution, the existent investment up to the 19 century prevailed as investment agreements and have as aim the protection against the sequestration, in the account of debts, of the property of foreign commerciant-resident, in the country where these ones were importing goods from abroad, and in some cases – the protection of concrete goods and the ships against expropriation. The Romanian researcher Anda Mazilu recommends the following definition: “The direct foreign investments are complex international flows which include
23 technological financial resources, of managerial and organisational expertise. The definition highlights that on these flows is based the control of the investor’ flow use, named with the aim of developing some productive activities. The performance of the direct control of the firm’s activity as direct foreign investment from the part of the investor and the participation in the management of the company constitutes the fundamental difference between the foreign investment and the portfolio investment. The portfolio investment represents the capital flow which are materialised in financial placements having the aim of acquiring some value titles. The portfolio investment attributes the investor the right to receive the dividends without any right of control in the company where he invested. The direct foreign investment can be performed in different ways – as foreign investment on the horizontal and as foreign investments on the vertical. The foreign investments on the horizontal are those performed by the trans- national firms in other countries in which the same products are manufactured as the ones they produce in their native countries. The direct foreign investments on the horizontal represent a geographical diversification of the economic activity of trans- national firms. Foreign investments on the vertical – if the trans-national company invests in other countries with the aim of creating a production capacity for some intermediate products, necessary for the production of its basic products in its native country. Likewise, the investments used in foreign countries for the production of the same product as in the native country, but in a more advanced stage, belong to the foreign investments on the vertical. The direct foreign investments are defined according to the laws regarding the foreign investments elaborated and adopted in several countries by the legislative bodies, first of all in the countries in transition towards the market economy. . In the 19 century, due to the difficulty to control the companies abroad, the prevailing form of investment was the portfolio. Towards the middle of the 20 century, the development of communications led to over passing the direct foreign investments on those of the portfolio and the protection of the foreign investors’ interests in the invested capital has become the object of the investment right. By the end of the 20 century, the forms of direct foreign investments have become more diverse, their execution was extended towards the production sector where the basic interest was the protection of intellectual property of the foreign investor and of services. As strategy, the direct foreign investments mean the improvement of the competition position of the company, the durable increase of the firm’s value. In economy, through investment, in a broad sense, we understand any monetary expenses, made with the aim of getting profit. In a narrow sense, through investment we understand the expenses made in the construction of buildings, the acquisition of equipments, etc. At the level of the firm, the investments aim the increase of its patrimony. Thus, the investment represents the decisive elements of the economic increase, of the promotion of intensive and efficient factors . The contemporary world is stricken by big economic perturbations which in its totality is called international economic crisis. One of its consequences is the revision on the world plan of the direction of direct foreign investment (DFI- hereunder). The world flows of direct foreign investment at the moment know a descending tendency. In 2008 a decline process started which has changed the ascending trend which was noticed in 2008-2009 (Figure 1 and 2).
24
Figure 1 - The dynamics of foreign direct investment until 2008 Source: UNCTAD, Raportul Mondial al Investi Ńiilor 2009: Corpora Ńii transna Ńionale, Investi Ńiile Str ăine Directe.
25
Figure 2 - The dynamics of direct foreign investment in Romania in 2008 – 2009 Source: UNCTAD, Raportul Mondial al Investi Ńiilor 2009: Corpora Ńii transna Ńionale, Investi Ńiile Str ăine Directe.
3. CONCLUSIONS
In conclusion, we mention that the direct investment must be performed on long term, achieving the control from the part of the investor on the activity of the created object. The motivation of the investor was and still is to obtain a benefit. A report of UNCTD (The conference of the United Nations for Commerce and Development) which systematically organizes studies regarding the extension of direct foreign investment in different regions and their impact on the development of the economies receiving the investment. This report highlights:
26 “The direct foreign investment (DFI) represents a relation on long term, which reflects the interest on long term of the investor and his real possibility to control the entity placed in a foreign country, where he invests.” The foreign investments are performed by the trans-national (international) firms which represent the property of some firms in the countries receiving investment and constitute the property of foreign (trans-national) firms on some actives in other states. The foreign investments are performed with the aim of creating productive actives, able to create added values. The investor has the right to control the use of these actives. In any economy, the investments make the link between the present and the future, thus between generations. Gathering fixed capital, productive or non-productive, building new constructions, schools, theatres, etc ensure the increase of the population’s life standard: ensuring work places, the increase of the culture level, of the professional level and relaxation for youth, etc. The investment is characterised by the fact that it is achieved with the aim of creating new fixed means and its achieving needs a long time in the main phases: design, execution and then reaching the designed parameters. The investments are achieved in different economic branches and they do not form an independent branch of the national economy. In 2009 DFI in the developing countries will decrease with 180 billions $ or 31%, mostly due to the reduction of the expenses of multinational companies which is determined by the global recession.
REFERENCES
Bonciu, Florin (2003) Direct Foreign investments , Bucure ti, Lumina Lex Printing House; Constantinescu, N.N. (1995) Reform and world economic recovery , Bucure ti, vol.1; Ciublea ,T. (1996) Economic doctrines . Bucure ti; Cistelecan M. L. (1998) Investment process . Bucure ti, 1983; Dobrot ă, N. (1996) Economic Dictionary . Bucure ti; Keynes, J.M. (1977) The general theory of using the labour force, of interest and money Bucure ti; Mazilu, A. (1999) Trans-national and copmpetitiveness. An East-European perspective . Buc., Ed. Ec.; Negri Ńoiu, M. (1996) Leap. Development and direct foreign investment , Bucure ti; Popa, A. (1995) Malfunctions of the investment process in the transition period . Manual “Macro-economic processes and policies of transition”, Economic Printing House; Staicu, Fl. (coordonator) Pârvu, D. & et al. (1995) Economic efficiency of investment . Buc; Vasilescu, I. (1996) Investment and economic re-launch . Bucure ti; Vasilescu, L. (1995) Economic efficiency of investment . Bucure ti; *** World Investment Report UNTCTAD, Washington, 2006; *** www.discutii.mfinante.ro/static. // European Business Bulletin, iulie 2008; *** www.def.ro // European Bulletin, decembrie 2008; *** www.europa.eu/geninfo.Thematical informative bulletins, 2008; *** www.tribunaeconomica.ro
27 CONSIDERATIONS REGARDING THE ECONOMIC IMPACT OF TOURISM
Romina BARBU Assistant Dr ăgan European University Lugoj Romania
ABSTRACT Tourism is the world’s biggest and rapidly growing industry and that it has the potencial to encourage economic growth and development globally, is an indisputable claim. But despite the fact that, it might be strive for purely economic argue, the impacts of tourism cut across all sheres to include the economic, environmental, socio-cultural and insitutional aspects of evolution. And so, there is a pressing requirement to make certain that locally and globally, tourism develops in a maintanable mode by preserve the wealth that it depends on, respecting the democratic and socio-cultural justness of communities it affects and benefiting the territory in which it improves.
KEY WORDS: negative economic impacts, positive economic impacts, tourism development, economic improvement JEL: F5
1. INTRODUCTION
Tourism’s economic impacts are an significant compensation in community, regional and state planning and economic development. Economic benefits are also important factors in management and marketing decisions. Communities therefore need to comprehend the connected significans of tourism to their region involving tourism’s contribution to economic activity in the area. Tourism activity also includes economic costs, involving the direct costs acquired by tourism businesses, government costs for infrastructure to pleasant serve tourists as well as overcrowding and connected costs born by individuals in the community. Community determinations over tourism frequently entangle discussions between industry supporters touting tourism’s economic impacts and detractors emphasizing tourism’s costs.Sound decisions rest on a impartial and stable estimation of both costs and benefits and an comprehending of who reveives benefits from tourism and who pays for it. Tourism has a variaty of economic impacts. Tourist’s contribute to jobs, sales, profits, tax gains and income in an area. The most direct effects take place within the main tourism sectors: sleeping accomodations, restaurants, transportation, entertainment and retail trade. Through secondary effects, tourism affects most sectors of the economy. The tourism industry creates considerable economic benefits to both host countries and tourist’s home countries. Specifically in developing countries, one of the initial motivation for a region to further itself as a tourism destination, is the anticipated economic improvement. As with other impacts, this enormous economic development brings along both possitive and negative consequences.
28 2. NEGATIVE ECONOMIC IMPACTS OF TOURISM
There are numerous concealed costs to tourism, which can have negative economic effects on the host community (fig.1). In many cases, vivid countries are better talented to earn income from tourism than poor countries. While on the contrary, the least developed countries have the most pressing necesitty for revenues, employment and general rise of the typical of living by funds of tourism, they are least capable to understand these benefits. Among the sens for this, are large-scale convey of tourism incomes out of the host country and keeping out of local business and products. The key elements of the negative economic impacts of tourism : Leakage – the direct income for an area is the quantity of tourist disbursement that remains locally after taxes, profits and payments are paid outside the area and after imports are purchased, these deducted amounts are called leakage. In most all-inclusive package tours, about 80 % of travellers’ outlay’s go to the airlines, hotels and other international companies, and not to local businesses or workers.Also, considerable amounts of income truthfully retained at destination level, can leave again through leakage. There are two principal ways that leakage occurs: Import leakage This usually occurs when tourists require standards of equipment, food and other products that the host country cannot furnish. Specifically in LEDC’S (less economically developed countrys and in general, these are non-industrial nations), nourishment and drinks must often be imported, since local products are not up to the hotel’s standards or the country simply doesn’t have a supplzing industry. Much of the income from tourism spendings leaves the country again to pay for these imports. The average import-related leakage for most developing countries, today is between 40 % and 50 % of gross tourismearnings for small economies and between 10 % and 20 % for most progressive and variegated economies. Export leakage Transnational Corporations have a solid share in the export leakage. Often, particularly in poor developing destinations, they are the only ones that control the necessary capital to invest in the construction of tourism infrastructure and conveniences. As a outcome of this, an export leakage appears when foreign investors who raise money for the hotels and resorts take their profits back to their country of origin. Enclave tourism – local businesses frequently observe their opportunity to receive income from tourists seriously reduced by the invention of „all-inclusive” vacation packages. When tourists gon on for their whole stay at the same cruise ship or resort, which supplies everything they need and where they will make all their expenditurs, not much chance is left for local people to profit from tourism. On many ships, most of all in the Caribbean, guest are inspired with confidence to spend most of their time and money on board, and chances to spend in some ports are closely managed and constrained. Infrastructure cost Tourism progression can cost the local tax payers and local government, a huge deal of money. Developers may want the government to enhance the airport, roads and other infrastructure, and perhaps to supply tax
29 breaks and other financial benefits, which are highly priced activities for the government. Public resources spent on funded tax breaks or infrastructure, may diminish government investment in other critical areas such as health or education. Increase in prices Increasing requirement for fundamental goods and services from tourists will in many cases, bring about prices raises that negativelly affect local residents whose income does not enlarge in a proportional manner. Tourism development and the connected increase in real estate demand may dramatically heighten land values and building costs. This makes it more troublesome for local workers to meet their fundamental every day needs. Economic dependence of the local community on tourism Diversification in an economy is a symbol of health, only if a region or country becomes conditional for its economic survival upon one industry, it can put great stress upon this industry as well as the persons entangled to perform well. Numerous country, especially developing countries with slightly capacity to examine other resources, have accept tourism as a procedure to urge the economy. Over – relianceon turism carries hazard to tourism – dependent economies. Economic decline, the influence of natural catastrophe such as tropical storms and changing tourism samples can all have a destroying effect. Seasonal character of jobs Problems that seasonal workers face include: Job insecurity (and therefore income) No guarantee of employment from one season to the next Troubles in getting training, employment – related medical benefits and recognition of their experience Unsatisfactory housing and working conditions
3. POSITIVE ECONOMIC IMPACTS OF TOURISM
The key elements of the positive economic impacts of tourism : Foreign exchange earnings Tourism expenditures produce income to the host economy and can arouse the investment essential to finance growth in other economic sectors. Some countries attempt to accelerate this development by claiming visitors to bring in a specific amount of foreign currency for every day of their stay.An relevant indicator of the function of international tourism is its generation of foreign conversion earnings. Tourism is one of the top five export divisions for as many as 83 % of countries and is a head origin of foreign exchange earnings for at least 38 % of countries. Contribution to government revenues Direct contributions are generated by procedeeds on incomes from tourism employment and tourism businesses and by direct levies on tourists such as departure taxes. Indirect contributions come from taxes and duties levied on services and goods supplied to tourists.
30 The WTO (World Trade Organization) estimates that travel and tourism’s direct, indirect and personal tax contribution worldwide was over 900 bilion US$ in 2004, a figure it expects to double by 2010. Employment generation The fast enlargement of international tourism has led to important employment creation. Tourism can creat jobs directly throught restaurants, hotels, nightclubs, taxis and souvenir sales and indirectly throught the supply of services and goods needed by tourism related business. Tourism supports some 7 % of the world’s workers. Stimulation of infrastructure investment Tourism can influence the local government to make infrastructure improvement, such as sewage sistems and better water, electricity, roads, public transport networks and telephone. This can improve the quality of life for residents as well as promoted tourism. Contribution to local economies As the environment is a fundamental part of the tourism industry’s assets, tourism incom is often used to evaluate the economic esteem of defended areas. Other local revenues that are not easily quantified, as not all tourist disbursements are formally registered.Money is earned from tourism direct from informal employment (e.g. street salesmen, informal guides, rickshaw drivers). The positive part of informal employment is that the money is given back to the local economy, and has a great multiplier effect as it is spent over and over again. The WTO (World Tourism Organization) appraises that tourism creates an indirect contribution equal to 100 % of direct tourism financial spendings.
Figure 1 – Schedule regardind the positive- and negative impacts of tourism (The Impact of Tourism, Glenn Kreag, 2001, p.6)
31 4. CONCLUSIONS
The tourism industry as a entirety, is very fragmented and its economic impacts stream across many aspects of tourism, employment, transport, construction, regional development, infrastructure and the environment. As with any economic action, tourism can have negative impacts on communities. These must be reduced and calculated against the benefits that tourism brings. On the other hand, tourism has the possibility to produce beneficial effects on the environment by contributing to environmental conservation and protection. It is a source to grow consciousness of environmental values and it can serve as a tool to provide with funds protection of natural areas and multiply their economic significance. In addition, the impacts of tourism to a community are not greatly understood, even where tourism is growing in a dramatic manner and should be of the greatest interest or concern. Most people think of tourism in terms of economic impacts, jobs and taxes. Anyway, the scope of impacts from tourism is broad and in many cases influences areas beyond those usually associated with tourism. Leaders as well as residents who comprehend the potential impacts of tourism can merge this industry into their community in the most positive direction. Precise plans and activities can raise tourism’s benefits or reduce the seriousness of negative impact. It is consequential for communities to understand the completely range of impacts and effort to suit on what positive impacts to emphasize. It is wise to recognize and relate possible negative impacts so actions can be taken to minimize or prevent them. Creating a prosper and maintainable tourism industry is like creating any prosper and maintainable economic activity – it takes vision, planning , and work . Tourism is a goose that not only lays a golden egg, but also fouls its own nest. (Hawkins, 1982)
REFERENCES
Lohmann M. (2004) “New Demand Factors in Tourism”, European Forum for Tourism, Budapest; Neagu, V. (2000) “Servicii i turism”, Editura Expert i Universitatea Româno- American ă, Bucure ti; Snak O. (Cole), (2001) „Economia turismului”, Editura Expert, Bucure ti; Stynes, D.J. (1997) “Economic impacts of Tourism: A handbook for tourism professionals.” Urbana, IL: University of Illinois, Tourism Research Laboratory; Kreag, G. (2001) „The Impact Of Tourism”, disponibil online la http://www.seagrant.umn.edu/tourism/pdfs/ImpactsTourism.pdf
32 SUSTAINABLE RURAL DEVELOPMENT IN ROMANIA – NECESSITY AND PRIORITY GOAL OF STRATEGIC MANAGEMENT
Marin BR ĂTULESCU Phd Candidate University of Banat’s Agricultural Sciences and Veterinary Medicine of Timi oara Romania
ABSTRACT This paper attempts to support the necessity of establishing a managerial strategy by the decision factors in view of turning certain rural spaces into spaces with preponderant tourism activity, assuring a sustainable development of the rural area. Human society in continuous transformation and more and more concerned with the ecological aspects of environment put the bases of the tourism rebirth in rural areas. Grace to the variety of landscape, the richness of the natural patrimony, the specific features of different ethnographic regions, the vivacity of traditions and people’s hospitality, the rural environment fascinates all who adore travelling., having at the same time the opportunity to discover the culture of those zones.
KEY WORDS : management, strategy, development, agrotourism, rural. JEL: Q0, Q2
1. INTRODUCTION The return to nature is the result of the need for relaxation, health, physical and spiritual comfort and it is a valid motivation for all categories of ages, genders and social status. The modern man is not disconnected from the natural lifestyle, and his contact with the rustic environment has a beneficial effect on balance keeping. The farm tourism, as component of rural tourism, has the highest implications in the putting to good use of local tourism resources and in raising the living standard of inhabitants, in the social and economic development of the rural locality and community in general, and, last but not least, in protecting and preserving the natural and built environment, in the context of an economic activity based on ecological principles.
2. RESULTS AND DISCUSSIONS
2.1. Strategic management in rural
2.1.1 Defining the object of strategic management
Management is a complex activity with deep implications in the economic, social, political life and has exhibited many meanings and approaches along its evolution. The development of management as subjectmatter has not known a sequence of distinct steps. The model of development was a model with a diversity of approaches, which were often superposed in time, and have not succeeded each other in development. The main cause of this development is constituted by the fact that the
33 management is extremely eclectic because the manager deals with both technology and persons. In the world one forwarded and launched a diversified multitude of changes. The technologic innovations become more frequent and revolutionary, even the government begins to fell more powerful and gain in importance. The strategic planning is a continuous process, used in the local communities, in order to make sure that the existing policies and programmes match the necessities of economic development of the community, within the limitations imposed by the available local resources. In terms of importance, the strategic planning provides a frame uniting a series of smaller projects in order to reach more extended goals and purposes. Consequently the strategic planning helps communities to direct the economic development toward the reaching of feasible long-term goals. What is important is the fact that this approach relies on short-term feasible initiatives. One establishes realistic purposes that the community can fulfil. One of the often encountered problems of the strategic planning is the desire of many communities to realise more than they can, in the context of the available resources. But at the same time one includes programmes that are disconnected from the purposes of a wider economic development or do not have direct value for these communities. The process of strategic planning comes to the assistance of communities for a better management of these problems. The stimulation of participation, under the form of a local partnership, of a high number of representative institution, from the sphere of economic milieu, administration and social environment, of civil organisations and economic companies, during the elaboration stages; The application of a modern methodology, from the technical viewpoint, i.e. the passing through the specific stages of strategic planning and the observance of their conceptual content; The communes / villages have become essential elements of the process of economic and social development, and their areas of influence constitute landmarks in the ensemble of the development at the national level. The harmonious and sustainable development of a certain area implies the necessity of a partnership between the local public administration and citizens, among all the local actors who can contribute to its realisation. The objective basis of management is constituted by the human activity, management being a process of guiding and orientation of the activity of human resources with the purpose of reaching certain goals. “Management is the ensemble of the techniques of organisation and administration, of prediction and modernisation of organisational structures, embracing the new challenges regarding competitiveness, regulations, social requirements, the multiple needs of users, the restrictions regarding the means” Management implies : Obtaining results through others, assuming the personal responsibility for these results Being oriented towards the environment Making decisions regarding the finality of the organisation Trusting the personnel, assigning them liabilities for the intended results
34 Decentralising the organisation system and appreciating the employees in accordance with the results obtained. Management represents the ensemble of the interventions, methods and techniques of programming, organisation, resource allotment, control and activation through which one assures the reaching of the set goals. The definition of management from the manager’s viewpoint: The process of co-ordinating human, physical and informational resources in view of reaching the organisation’s goals The process of obtaining and combining human, physical and financial resources with the purpose of reaching the primary goals of the organisation: products and services wished by a certain segment of society Success in the management of an organisation, irrespective of its profile and activity, is shaped and supported by the promotion of strategic management.
2.1.2. The concept of strategy
It is a concept with a long history, encountered for the fist time in Ancient Greece. “Strategy is determining the long-term purposes and goals of the organisation, the adoption of the established policies and the allotment of resources for reaching these goals.” (Chandler, 1989). This definition practically indicates the major problems to which the strategic process should respond: ♦ Where is the organisation headed? ♦ What parameters can explain the purposes of the organisation? ♦ What particular policies will these goals imply? ♦ What human and financial means will have to be engaged? The strategic approach in the managerial domain originates in the domain of military strategy and attempts to counterweigh the image of a chaotic decisional process at the organisational level. Strategic management is attractive due to the focus on the establishment of goals, on the identification of strengths and weaknesses, on the importance of external threats and opportunities, from the perspective of the optimum deployment of forces or the reaching of the set goals.
2.1.3. The stages of strategic management
With the help of strategic management, the top executives of the organisation determine its long-term evolution and performances, assuring the rigorous formulation, adequate application and continual assessment of the set strategy. The difference between having a strategy and truly practising strategic management is as great as the difference between failure and success. According to some reputed specialists in the domain, strategic management can be defined as follows: “The process by which the leaders determine the long-term direction and the organisation's performances, assuring the realisation of an attentive formulation, of a correct implementation and of a continuous assessment of strategy” (Rue&Holland, 1986).
35 “The art and science of formulation, implementation and assessment of correlated functional decisions allowing an organisation to reach its goals”(David, 1989).
The stages of strategic management The process of strategic management has three main stages: 1. Strategy formulation: Defining the activity of the organisation and its vision / mission Identifying the opportunities and threats external to the organisation Determining the strength and weaknesses from the interior of the organisation Setting the long-term goals of the organisation (strategic goals) Elaborating alternative strategies and choosing the strategy to follow As no organisation disposes of unlimited resources, the strategic managers must decide which alternative strategy will bring the highest benefits to the organisation. As a rule, the top management of the organisation posses the best perspective in the effort to understand the complexity of decision, in view of formulating some successful strategies. They have the authority to make the implementation of the chosen strategy possible. 2. Strategy implementation The implementation of strategy implies: Setting the annual goals of the organisation Motivating the staff Allotting resources in view of executing the formulated strategies and it may include: the development of a culture and a policy of the organisation in the support of the strategy realisation; the development of an efficient organisational structure, the redirecting of certain efforts of the functional department, the preparation of the budget; the development and use of the informatic systems of the organisation. The implementation stage is often called the action stage in the strategic management, being the most difficult to realise, as it implies the discipline of the members of the organisation, of the personnel, sacrifice, and loyalty from their part. The success of this stage largely depends on the managers’ ability of motivating their employees. 3. Strategy assessment It is the final stage in strategic management. Managers must know the manner in which the strategies are implemented. This is done through periodical assessments of strategy and through the use of feedback. The strategy assessment constitutes the means through which they get the feedback. All strategies will suffer ulterior modifications and thus the external and internal factors of the organisation are in permanent change. There are 3 fundamental activities characteristic to the stage of assessment of strategic stage: The re-assessment of the internal and external factors which constituted the fundament for the choice of the current strategy;
36 Measurement of performances; Correcting and adjustment actions. In a large organisation, the three stages of strategic management – formulation, implementation and assessment – are found at each hierarchic level.
2.2. Conceptual aspects regarding the sustainable rural development
In the National Plan for Agriculture and Rural Development (PNADR) elaborated in our country as an instrument of EU pre-joining one has set the following strategic goals: The sustainable development of a competitive agro-food sector through modernisation and improvement of processing and marketing of agricultural and fishery products; Increase of the living standard in the rural area through the improvement of social infrastructures and definition of adequate agricultural practices for a sustainable rural development; The development of rural economy through the establishment and modernisation of fixed assets for the private agricultural and forestry exploitations, diversification of economic activities in order to obtain alternative / additional revenues and to create of new jobs; Development of human resources thorough the improvement of professional training of agricultural producers and of the forestry land owners. An important part in the application of programmes regarding the sustainable rural development in our country is played by the reform of the central, regional and local public administration, by which one transfers to the local communities the development programmes and the liability for their application. In a generic sense, by development one understands a category defining a complex oriented movement, with reversible character, carried along an ascendant line, from the inferior to the superior, from the old to the new. It is done through a sequence of changes, of quantitative and qualitative transformations, of the evolution and revolution, of progress and regress. Moreover, development means the action to pass from an old qualitative state to a new one, the effect of any such a process being materialised in the general level of civilisation of population, which occupies a certain territory. Civilisation reflects the general level of civilisation of the population that occupies a certain territory. Civilisation reflects the level of material and spiritual development of society in a given era, of a state, a people, a social category. The Rio de Janeiro Conference was the greatest meeting of all times, reuniting the leaders of the world, attended by 182 heads of states and government. It took place in two stages: between 3 and 12 June 1992 the working meeting of the ministers of environment and the representatives of national or international NGOs took place, and between 12 and 13 June The “Earth Summit” took place. At the Rio conference one presented five documents of remarkable importance for the entire mankind, of which only two were signed, i.e.: The Declaration of Rio, comprising the principles that should guide mankind in the future within the relations of man-environment interactions; Agenda 21, document analysing the possibilities to apply the principles comprised in the declaration, the social and economic dimensions of the
37 environment issues, preservation and management of resources with the purpose of sustainable development etc. The basic elements of Agenda 21 are: A prosperous world in which the development and preservation of the environment must be conducted according to other development plans than the traditional ones; A just world, meant to offer all its inhabitants a decent and civilised life; A inhabitable world in all areas, in the sense that at present around 3 billion people live in urban agglomeration in permanent expansion. A fertile world, where the issues of agriculture, drinking water, energy, woods, biologic diversity, bio-technologies, maximum pollution, mountain areas, are approached under an ecological conception; A clean world, idea comprising the concern especially for the pollution with domestic, industrial and radioactive waste. The other documents approached at the Rio Conference were: the convention regarding the global environment changes, the convention regarding the biologic diversity and the declaration of principles on the preservation and exploitation of woods. Moreover, at the Rio Conference one rediscussed the ideas presented in 1987, regarding the notion of sustainable development, which represents in fact the basic necessary and objective element in the evolution of human society. Sustainable development is a process of changes allowing the long-term use of environment so that the economic development remains possible along with the preservation of the environment quality at an acceptable level. The principles of sustainable development in ecological conditions are: Regeneration of natural resources and preservation of their natural stock at an acceptable level; Reduction of pollution to a “minimum safety level "; The observance of the limits for the biodiversity conservation; The avoidance of irreversibility of the effects of economic processes by: Strategies oriented toward the risk prevention; Orientation of the technologic development towards environment protection; Orientation of institutional changes and of economic decision towards environment protection; Efficient distribution of revenues, in an equitable and reasonable manner. Sustainable development is a long-term process and it cannot be reached during one generation, which means that efforts should be made for the start of this process. The long duration of the sustainable development process is generated by the following factors : Increase of the Earth’s population; Constant decrease of global resources; Lack of international agreements in the matter of the excessive exploitation of natural resources; Existence of a long gap within the processes from ecosystems; Existence of certain aspects of the environment-economy relation that are not yet understood;
38 The implications of the human factor: people must see their basic needs satisfied in order to be interested in an altruistic purpose like the sustainable development; All nations should be willing to co-operate and financially contribute to this process; The existence of additional ethical issues. The sustainable development must be applied in accordance with the principle of concentration and differentiation in favour of the areas with the greatest necessities. This process is based on an integrated approach reuniting within the same legal and instrumental framework: Adaptation and development of agriculture, economic diversification, management of natural resources, improvement of activities related to the environment, putting to good us the cultural patrimony and tourism; Diversification of economic and social activities must favour the development of the private sector through: investments, technical assistance, adequate services, education-training; Assuring the sustainable character for all activities, application of the principle of subsidiarity. Subsidiarity is a fundamental principle of social decision through which the maximum decisional effects are obtained only when the decisional act gets closer to the object of decision. Sustainable rural development must be local, led by the local communities, in a coherent general frame, by means of: • Application of the simplification principle. Rural policy, especially in the agricultural domain, must be simplified in order to assure a better coherence of activities (decentralisation, limitation of regulations to general rules and procedures, etc.); • Elaboration of unique programmes for rural development or areas, characterised by coherence and transparency, meant to constitute a single instrument for the rural development of the area; • The financing of the rural development programmes. One cannot conceive an effective local administration without adequate financial means. The resources for the financing of local projects are based on local resources and rural credits, for a better mobilisation of public and private finances; • Increase of the management capacity and efficiency of regional and local authorities as well as of the groups of local communities; • Assessment and research. The partial and stage results obtained during the application of projects of rural development must be assessed and analysed, in order to assure the transparency of procedures, for the guarantee of the good use of public credits, for the stimulation of research.. The notion of “sustainable” used in the development of agriculture implies the following: ⇒ Protection of the environment and natural resources with the preservation of the manufacturing potential, without the destruction of the other species; ⇒ The possibility to execute long-term farming activities that are profitable for farmers; ⇒ Providing the population with a sufficient and quality food volume; ⇒ The farming activities should have an equitable and human character;
39 ⇒ To be socially acceptable and to promote ethics. The genesis of the concept of sustainable development has its roots in the recognition from the part of other social sciences of the necessity to raise the problem of the “unlimited” development in national economies; later on, this problem was extended also to the tourism domain, where the concept of globalisation implies the standardisation of services in tourism.. According to the specialists’ option, agrotourism, as contemporary economic and social activity, with acknowledged development perspectives, must become a component part of sustainable tourism developed in the rural area. In this respect, one identified the principles of the sustainable development of tourism that can be adapted to agrotourism also, i.e.: 1. The sustainable use of touristic resources, in the sense of their optimum exploitation, preservation and protection. 2. The reduction of over-consumption and waste of touristic, natural and anthropic resources. 3. Unaltered preservation of natural, cultural and social diversity of the rural area. 4. Integration of agrotourism into the programmes and strategies of national, regional and especially local development, in the sense of the development and diversification of the supply of agrotourism products, promotion of the values of the rural area, development of general, tourists’ and technical-community infrastructure. 5. Support for local economies for the social and economic development of rural communities, as well as for the protection and presentation of the environment. 6. Involvement of local communities in the agrotourism sector, as well as in the development of all the other sectors adjacent to agriculture (micro processing industries for farm and non-farm product, crafts etc.) through the support granted to the initiative groups and creation of local organisations of agrotourism services providers (for instance: The Village Association of Rural Tourism). 7. Consulting the specialists and public opinion in matters related to the development of agrotourism and of local economy in order to avoid conflicts of interest between the governmental and local policy, between the interests of the agrotourism entrepreneurs and of the local population. Moreover, it is necessary to apply in situ the development solutions and models elaborated by scientific researchers, as well as the dissemination of information about the research institutions and the inhabitants of the rural areas. 8. Support for the sustainable development of agrotourism through professional training (civic, sociologic, economic and ecological), qualification and improvement of inhabitants.. 9. Promotion of marketing in agrotourism, through the study of the agrotourism market at the local, regional and national level. 10. Research and monitoring of the tourism activity in the rural environment and of the actions of protection and preservation of the environment, as well as the efficient and rational use of touristic and agrotouristic resources. The necessity to treat the issues of the economic development in correlation and within the context of their natural, technological, social, political and cultural environment has imposed itself in these past decades as a desideratum of the studies regarding the human evolution on earth. One found that different models of economic
40 growth may have negative consequences as regards the long-term satisfaction of human needs. Along time, more and more specialists have drawn the attention upon the danger of an exponential economic growth, of the application of certain techniques and technologies without the care of preserving the balance with the environmental factors and implicitly of the preservation of life on earth. Sustainable development of agrotourism in Romania is in the public eye and it means facing the fact that the research regarding the improvement of life quality of the rural population represents an inherent constant of modern society and produces certain modifications an unique opportunities for the industry of the Romanian agrotourism, such as: The agrotouristic demand is proportional with the quality of the environment of agrotouristic destination; Agrotourism is often the activity which protects the rural environment more than the resource-consuming industries; Agrotourism leads to the increase of the population number in the tourists’ destination areas; Managed in an appropriate manner, the agrotourism activity can be a powerful force as regards the conservation of the environment and the cultural heritage of the rural areas; Sustainable agrotourism has become a true cult for certain service providers, inhabitants of the rural area and even tourists. Agrotourism can have a positive and a negative impact, either direct or indirect, tangible or intangible, upon the environment. Hence the effort to define and measure what limits the involvement of certain domains, scientific and professional subjectmatters in the development of agrotourism. When approaching this expertise and when attempting to comprehend its impacts, it is necessary to proceed to a grouping of the involved factors into categories corresponding to those scientific and professional subjectmatter, as follows: Physical factors, such as: natural resources, rural space and all the existing facilities; Ecological factors, i.e. flora, fauna and ecosystems; Social factors, regarded form two viewpoints: From the hosts’ perspective, they comprise all the factors corresponding to their living standard; From the visitors’ perspective, they comprise all the factors defining their living standard and their experience; Cultural factors such as: traditions, language, religions, customs etc. The maintenance of the touristic and agrotouristic capacity marks the limit beyond which the touristic activity of the rural areas cannot be sustainable. Those who plan and manage the tourism and agrotourism activities must be able to become aware of this limit, to measure and observe it, if they wish to realise a sustainable rural touristic development.
3. CONCLUSIONS
Tourism is, in our country, a distinct component, with a well-delimited content compared to the other branches, with precise role and goals. Consequently, it benefits
41 from its own organisation, of a system of specialised links, whose purpose is represented by the assurance of conditions for the efficient development of the activity. Tourism represents an important component of national economy; its evolution is determined, to a great extent, by its development level; in its turn, tourism stimulates the economic and social growth. Under these circumstances the State is directly interested in the development of tourism. The integration of the touristic activity, as well as of the service providers, has a series of advantages, specific to scale economies, essential for surviving in the context of competition; among them one can list: granting certain payment facilities to tourists, as a result of lower costs of production, assuring the permanent improvement of the labour force, organisation of marketing and sales departments led by specialists in the domain, supporting large-scale promotional campaigns, realisation of market studies etc. Considering that the farm touristic product as a product like any other, meant to satisfy first of all a series of needs and requirements of consumers (tourists), and then bring profit for producers (hosts), one considers that it can be measured, tested and identified. An important and imperative condition for attracting foreign tourists is that the Romanian farm tourism should be connected to the international touristic circuit
REFERENCES
Buianu, V. (2006) “Economy of agrotourism”, Terra Nostra Editions, Ia i; Gl ăvan, V. (2003) “Rural tourism. Agrotourism. Sustainable tourism. Ecotourism”, Economic Publishing House, Bucharest.
42 GAME THEORY BUSINESS
Oana Nicoleta BUCUR Phd Candidate Faculty of Economics and Business Administration, West University of Timisoara Romania
ABSTRACT The game theory is still important today because it is a branch that aims to determine the best decisions in conflict situations in which more rational factors operate aiming at opposing interests. Conflict situations are not found only in business, or only in economics but in all areas and industries, and hence the importance of the game theory. In today's business world, the game theory is particularly important because it provides an opportunity for analysis of the impact of other people’s decisions on their own ones and the related results. The game theory is often characterized by the phrase of ' flexible rigor’ regarding the models they make available for analysts. In practice starting from the simplest to most complex models, the conclusions reached after interpretation are that game theory is based on balance, "the sum of all losses is the sum of all earnings”.
KEY WORDS: Game, competitive strategy, competition, decision makers, cooperative game. JEL: A10, A12
1. Introduction 2. The concept of business game 3. Classification of business games 3.1 According to the scope. 3.2 According to the competitive element. 3.3 According to the purpose. 3.4 According to the awareness of other participating parties’ situation. 4. Conclusions 5. References
1. Introduction
The game theory is one of great current theories that developed in the last 60 years, in the mid-twentieth century, which led to new vision and enabled researchers to examine the subject in depth. The game theory has emerged with the publication in 1943 of the paper "The Theory of Games and Economic Behaviour" by John von Neumann and Oskar Morgenstern. They have defined the game as “any interaction between different agents, governed by a set of specific rules which determine the possible moves of each participant and earnings for each combination of moves”. The game theory occurs whenever two or more persons have conflicting interests. Thus, if more businesses aim the same purpose, it is obvious that each one of them wants to maximize the profit of his actions.
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2. The concept of business game
The game means a situation involving two or more decision makers, called players who are faced with the situation to choose a strategy in order to maximize the rewards received as a result of their actions in relation to other people’s moves. By playing the game means all the economic rivalry relationships between the firms, either producers or consumers, resulting in maximizing the economic efficiency and satisfaction felt by the performers of the competitive game, more precisely, the utility maximization felt by the consumer, that is, the profit obtained by the manufacturer. A game is a contest involving two or more participants, called players, each one’s objective being to win. In the game theory, a game describes a situation in which interact individuals whose interests are often opposite. The game theory offers the possibility to analyse the impact of other people’s decisions on our own decision and the related results.
The game theory uses three fundamental aspects: - Players behave rationally; - Everyone knows that others are rational; - All players know the rules.
In order to understand any game, first of all it is necessary to know its rules, then it is necessary to know how the players choose an action from the set of possible actions.The rules of a game show how decisions are taken by players and their order. A player is rational if it will seek to maximize satisfaction in relation to other players. Business games organization are rooted on war games through which the military training is aimed at, by creating conflict situations and establishing a strategy to fight. Business games are simulation models that include more participants engaged in an information-decision process that simulates a real competition situation. The main aims of using business games are: - training the leading staff’s skills to solve practical situations, they always meet in practice. -Developing the skills of complex approach of the simulated process. -As a method of self-instruction, of stimulating creativity. -With the help of business games, the professionals can test a number of assumptions about the nature of decisions they are about to take, to identify the possible effects of various decisions. - games have psychological effects on the participants as they may fully express their personality, to verify the acquired knowledge, the power of generalization, ability to reason correctly, all these directed towards the development of the responsibility sense for the decision, its proper economic-financial course.
3. Classification of business games:
The number of criteria according to which we can classify business games is very large, further we will present the most significant criteria.
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3.1 According to the scope, the games are classified into: a) Games for the whole enterprise - simulating the main functions of the enterprise so that the participants in the game to understand the various legitimacy of the economic unit as a whole, in terms of mutual influence between the internal subsystems or between internal and external subsystems. b) Functional game - refers to a specific function of the enterprise, the participants can experiment different decisions in the compartment which shall fulfil the simulated function and estimate the possible consequences for other departments that they work closely with. c) Complex games-examine more business functions and key relationships with other departments or even outside the enterprise. In this case players must assess the implications of a decision taken in a particular compartment, on other compartments of the company. d) Games for other specialized areas, they allow the testing of political, economic, technical-organizational strategies regarding a branch of economic activity in a city, county.
3.2 According to the competitive element, games can be:
a) competitive games are games in which each participant makes decisions in order to overcome their opponents. They can be interdependent and independent games. Interdependent games are those games in which a participant's success is influenced both by their own choices and decisions of competitors, in this case the function of economic performance of a player depends on his own actions, but also on the adversary’s or adversaries’ actions. The interdependent games are games specific for the market economy. Independent games are games in which each player achieves the improvement of their economic performance. b) cooperative games are those games in which two or more partners agree at least on certain decisions and actions which should not be directed against the other partner’s interests. c) Games against nature - are those games where at least a real decision-maker is taking action against a partner who represents the environment. This partner can act in some cases for those who decide and sometimes even against them. The difference between the nature and the way in which the partner consciously acts, consists in the fact that the environment acts unintentionally.
3.3 According to the purpose, the games may be: a) Training games - are those games that allow participants to learn to take optimal decisions in terms of hypothetical situations, but very likely to be found in the practice of economic units. b) Business games in order to base operational decisions - are games that allow specialists to make better decisions in the actual conditions of the business they run and
45 organize.
3.4 According to the awareness of other participating parties’ situation, games can be: a) Games with incomplete information - they are usually competitive games in which information is not available, or there is very little information about the economic situation of the opponents. b) games with complete information - all participants in the game have information about their competitors and develop their own decisions according to the resources available of the other participating parties.
Conclusions:
The game theory approaches the problem of optimal behaviour in games with two or more persons, represents a model for making a decision, taking into account certain rational behaviour of individuals. The game theory studies the way rational decision are made by individuals when the results of their action directly depend on the actions of others. Coordination of individual actions is regulated by competition, each trader named player in terms of game theory, should foresee which are and will be the actions of other competitors. The game theory studies the way rational people act in conflict situations. It marks the significance of rationality hypothesis when individual’s satisfaction is directly affected by the decisions of other agents and defines the solutions for different conflict situations. That is why, the knowledge of analytical tools of this theory is essential today, the game theory constitutes a real array of contemporary economic theory. Any complex economic process imposes both quantitative and qualitative factors in the considered decision-making moment.
References:
BăbăiŃă I.,Alexandrina Du Ńă , Imbrescu I, (2001) „ Microeconomie” (Micro-economy) – Editura Mirton, Timi oara; Bădulescu, Alina, (2005), ”M icroeconomie” (Micro-economy). Editura Expert, Bucuresti; Berenson Levile, (1996), ” Basic business statistics ”, Prentice hall; Binmore K. (1999) , ” Jeux et theorie des jeux ” Ed. De Boeck Universite, Bruxelles; Ciucu, G., Iosifescu, M. .a. (1965), ” Teoria jocurilor” (Games Theory), Bucure ti, Editura Tehnic ă; Dani, E . ( 1983), ”Metode numerice în teoria jocurilor ” (Numerical methods in the games theory), Cluj – Napoca, Editura Dacia; Jhele G. A., Reny P. J.( 2001), ” Advanced Microeconomic Theory ”, Ed. Addison Wesley, New-York; Kreps D. (1999), ” Theorie des jeux et modelisation economique ”, Ed.Dunod, Paris; Milton Friedman, (2009), „ Libertatea de a alege ” (Freedom to choose), Bucuresti,
46 Publica; Sîrghi Nicoleta, (2008), ” Microeconomie Aprofundat ă - Teorie i aplica Ńii ” (Profound Micro-economy – Theory and Applications) Editura Mirton, Timi oara; Sîrghi Nicoleta ( 2004) ” Jocurile in Microeconomie ” (Games in Microeconomy) – Editura Mirton, Timi oara; Sorin T. (2003), ,, Comunicarea în afaceri’’ (Business Communication), Editura Image Univers; Voiculescu D. (2001), ,, Competi Ńie i competitivitate ” (Competition and Competitiveness), Ed. Economic ă, Bucure ti.
47 THE EXTENSION AND DIVERSIFICATION OF BANKING SERVICES THE BANK ACCORDING TO THE NEEDS OF THE CUSTOMERS Persida CECHIN – CRISTA Professor Phd Timeea – Maria DUMESCU Assistant Loredana – Mihaela BRANGA Assistant Dr ăgan European University Lugoj Romania
ABSTRACT This dissertation proposes the presentation of the importance of the extension and diversification of banking services according to the necessities of its customers. The evolution of the banking activity lead to the increase of the competition and to a real banking specialization which depends on the nature and size of the unfolded operations, on the categories of customers to whom each bank addresses to and not the least on the quality and diversification of services. The banking competition represents the main cause the extension and the diversification of the banking services on the basis of which stands, in fact, the relationship between the bank and the customer. This relationship is one-to-one and must be looked upon simultaneously as well as from the bank and from the customer position that is an important element of the banking activity.
KEY WORDS : banking system, banking services, current account, deposit accounts, loan accounts, tarrif. JEL: G21
1. INTRODUCTION
The banking system has an important position in the progress of the human society and in its whole. The relationship between the banking system, the economy and the real society is, practically, in the final analysis a relation ship between the bank and the customer. The banking industry became a powerful and competitive field where the participants on the market must permanently innovate and give their customers new products and services. In their rush for profit, the banks shouldn’t forget their ethic obligations towards their customers and the whole society, and they have a privileged position by the fact that the members need a lot their services and that’s why they appeal to them. We cannot promote the idea that one wins and the other looses because that in the end both loose. A healthy banking system should assure, in normal conditions from the opportunity, the legality and efficiency point of view the gain is expected on both sides.
2. BANKING FINANCIAL SERVICES
The banking financial services are made for all the categories of customers in order to fulfill the demands imposed by the customers in a strong competition, these services should permanently change and be fitted to.
48 One of the most frequent service is the opening of different sorts of accounts that allow payments by banking transfer or debiting as well as direct withdrawing cash from the bank or money cards. The relationship between the customer and the bank is made by means of a contract out of which result the rights and the obligations concerning the banking transactions. Normally, the banking contracts are membership contracts: the customer subscribes to a type of contract established by the bank. Yet, the contract is not completely concluded by the simple manifestation of wish, and membership of the customer, because the bank reserves its right to conclude the contract according to the appreciation of the customer’s “value” given by his morality and solvability. The banking contract is a long lasting one, its execution being extended in time. So, the time factor is an essential element of the banking contract. When the contract doesn’t anticipate a deadline, the principle that each part is free to run out the relationship resulted from the contract by a will statement. One of the ways to contact a bank is that of opening an account there. The bank can open three types of accounts for its customers: current accounts, deposit accounts and a loan account. In fact the banking account is an accounting document that notices the legal situation of the customer towards the bank. A credit of the account represents a debt of the bank. The current account can operate on the credit balance but also on the debit balance when the customer is allowed to withdraw more money than he has in his account (overdraft account). This facility could be given by the banks only to the trustworthy customers and only for short periods of credit. The limited amount for overdraft account is established between the bank and the customer. In case that the current account is overdraft, the customer pays an interest established by a mutual arrangement. In order to give the customers the right of using an account that could have debit balance, the banks can perceive a commission but because of the competition they give this commission up. The opening of a current account supposes for the natural person the filling of an opening demand, current account and the payment of an opening commission. For the artificial persons the demand must be accompanied by other documents concerning the activity of the company, the definitive law sentence by which the company is authorized as artificial person, the fiscal code, etc. In both cases the customers must fill a paper containing their signature specimen. The advantages of having a current account are: The customer has permanent access to the money in the account; He can use a checkbook in order to withdraw checks from the amount in the account; He can make several payments for salaries and other services acquired by the customer; The interest is paid directly in the account; The account owners get regularly the abstract of the account where all the transactions in the account and its sold are kept. The deposit account can be opened for customers on demand and on completion. The bank deposit represents the amount of money put in the bank with the obligation of the bank to return the initial amount and the agreed interest on the due date. The deposit on demand is the most frequent. The deposit on completion includes several categories, according to the due date established that could be one week, one year or more. These deposit accounts are also called economy accounts.
49 For the customers that want to yield a profit their funds, the banks offer the so- called investment funds. Another type of account that customer can use when they ask for credits are the loan accounts. In order to develop its specific activity, any economic agent, should have a bank account through which he can do transfers of transaction costs and payments. Thus, the company must show the bank the following documents: The demand for opening an account; The contract of association/ the functioning statute of the company; Definitive law sentence; The registration at the General Management of the Public Finances and State Financial Control; The authorization of functioning / certificate of registration of being a registered company; Excerpt of minutes of the General Assembly of the Associated concerning the nominal accord for the persons with signature right; The document containing the specimens of signatures of persons authorized to dispose transactions in the open account in the bank and the print of the company seal; The fiscal account and print of the seal; The proof of the fact that the company disposes of a space for its activity. Among the categories of banking services we can quote: Credit grants . The banks give loans to their customers amounts of money in order to finance their business. Generally, the banks offer loans to the natural and to the artificial persons, the customer having to pay a commission for the bank to analyze the opportunity of according the credit and an interest of the given credit. Services concerning funds transfer . The banks also provide services concerning payments throughout funds transfer in the name and on the demand of their customers. The bank perceives a commission for this service, commission that depends on the amount and the money transfer. Most of the artificial persons use a part or even all these services, at a given moment, as well as the natural persons can use them, occasionally. The cards were introduced in order to promote the transactions from the current account. The creation of the ATM and POS enabled the use of cards for the payment of several products and services without cash, bank deposits and cash withdrawing from the current account. The most important card companies of Europe are: EuroCard, VISA, MasterCard, Europay and Access. In the USA the main card companies are: VISA, MasterCard, Dinners Club. Another modern service offered by the bank to its customers is home banking activity. This projection service is intensely promoted by the big banks, being also known under the name of electronic banking . The home banking activity represents an automatic facility to ask details of the bank account, giving instructions to make payments and use other services with the help of a computer, a modem and the telephone line. If, at the end of the line of the bank there is a natural person that solves its problems with the bank from his home, the service is called home banking. In case that the used support to send data for the bank and the customer is the Internet, then we can speak about the Internet Banking.
50 The receipt and payment services are done by the banks through putting at the customers’ disposal several means of payment and processing by means of payment systems. Cash payments represent a service of great interest for the customers, especially, for the payment of the salaries, cash being put at disposal by the bank according to an uncrossed check issued from the economic agent. Another service that the banks put at the disposal of the customers, especially that one having an import – export activity is represented by the letters of credit . The letter of credit is an order given by the customer to his bank in order to put at his disposal or to that of a third party by the bank or by another financial institution, an amount of money and to do the transfer of this amount. The issue of guarantees is another service accorded by the banks. By a guarantee letter the bank takes the obligation to pay the guaranteed amount in case that its customer doesn’t fulfill the guaranteed obligations. Before taking this obligation, the bank will insure that the customer who asks for the guarantee letter enjoys a good reputation and that he will make the payments even in unexpected conditions. The bank will ask its customers material guarantees that can support the guarantee letter. The main types of guarantee letters that can be issued by the banks concern the guarantee of: payment of the supplier, customs taxes payments, good accomplishments of several commercial contracts, participations in auctions and for the credit guarantee. In certain cases the banks are asked to give information about the economic situation of some customers to other economic entities under the form of the solvency letters. The banks have a certain number of standards that are calculated according to the financial situations of their own customers and are sent as answers to the questions concerning the financial stability of the customers. The letters are written carefully and providing this kind of information doesn’t break the banking secret because the given information show only public data and not information concerning the partners or the nature of the transactions. The operations with securities are another banking service made by banks. The securities are documents or titles that concretize a private right and confer to the persons that own them the faculty to claim this right. They are called securities because the represent debts and participations that can be easily transmitted by their negotiation on an expressly organized market. All over the world the banks do transactions in their own name and also as commissioner. In case of title transactions done by the bank as commissioner, the customer and the bank are bound by a commission contract and sale contract. In our country the bank law authorizes the banks to do such transactions throughout certain distinct securities societies that they control entirely. The securities transactions imply the first for sale of the companies’ securities, and also the transaction of other securities already drawn. The securities issues mean the creation of titles by an issuing bank, that sale them to buyers. This concept simultaneously involves the economic process of the creation of titles and that of their investment to the last investor. Most of emission transactions are not done by a single bank, but, also, by several financial institutions. The services concerning securities concern the consultancy given to the join stock companies and to the administration of their portfolios.
51 Consultancy is granted to the investors who want to make a join stock portfolio, but also to those who want to buy or to sell certain assets. In order to administrate the portfolio, the bank must conclude several conventions with the company, who enlarge the prerogatives and the obligations of the bank. Another service that the customers of a bank can take is deposit bank account . Among the offered services, several banks have special departments that offer fiscal services, which include: - Personal fiscal services that do: clarification and the drawing up of an inventory of all the details concerning any taxable income; the declaration of the income and the transmission of the declaration to the fiscal authorities; the mail with these fiscal authorities; - Fiscal consultancy services with the difference of the first that are paid as annual tax, are cleared based on hourly rates. Traveler’s checks are the most known banking services offered to travelers. A traveler check comprises the promise of a bank to pay an amount of money to any person owning the check page of the person on whose name the check was made. The traveler’s checks can be taken from any bank. Some banks offer to their customer’s executor services . This is a specialized service, in connection with the inheritances and the properties of the deceased customers. For these services, the bank perceives a commission according the value of the property. One night deposits represent a facility accorded by the banks to the customers who want to deposit funds, while the bank is closed. Those who take this service are the administrators and the cashers of stores who want to deposit their daily cashing at the bank. Another service is represented by eurochecks . An eurocheck is a credit card that allows the customer to change checks in cash at the banks affiliated at the eurocheck system in any country in Europe. The eurocheck credit cards are used with identification systems. Unit trust is a banking service that refers to investment transactions, investments that allow an investor, customer of the bank, invest in a share portfolio, reducing the risk of the investment. The term “Unit trust” means the position of the bank as a trust entity in the administration of the investments of the customers. The customers having limited investment funds and those who don’t know the way of working of the Stock Exchange take such services. The commission perceived by the banks is given according to the invested amount. In intense competitive context, the banks try to develop and diversify as much as they can their products and Trier banking services, as well as their quality degree.
3. FIXING THE PRICE
Now, a number of banking services are either free of tax either charged with an established commission according to the cost of the service. The inconveniences of this situation are well known and were analyzed several times. This because periodically, the conditions of charging of the banking services change. The bank having in view such changes should, before all, take information about the changing conditions.
52 The wanted objective is to improve the beneficiary’s margin, but especially, to make a net banking product the least depreciated by the interest rate. Secondly, the bank who introduces or changes its charge system tries to change the behaviour of its customers in the absence of charge; the customers take free services as in the case of the check, even if this way of payment is expensive for the banks. The charge, on the contrary, leads the customers to the cheapest services, so the less expensive for the banks. Finally, one last objective is to determine the customers change their decision to draw many low value checks. The charge penalizes this behaviour and obliges the customer, either to give up this type of check, or to close his account and in this hypothesis the bank gives up its not profitable customers. Introduce or change of the charges is a transaction difficult to do, the manager of the credit bank having to choose between several ways. It is important to follow: a) The position of the charge The determination of the position of the charge is meant to keep the customer that has to pay the commission. The commission can be charged either to the customer who initiates the action or to the two parts in view, that is, the initiator and the beneficiary. The question that follows is whether it is necessary to charge only the debits of the accounts or simultaneously the debits and the credits. On one side the supports of these transactions are either the open accounts or the saving account or even the title accounts. On the other side we should take into account the customer’s reaction. This is that the charge of the debits is easier to be explained to the customer (the deponent) than the simultaneous charge debit-credit. Otherwise this is the solution the banks have in view in the case of companies. b) The way of charge On one side the heterogeneity of the customers should be taken into account. The companies have a very diverse request of services and can weight the commissions and the benefits. An acceptable solution for them is represented by the inclusive charge, calculated every year on the services. On the contrary, for the artificial person, the inclusive charge is not satisfying because it doesn’t reflect the effective use of these services. On the other side, one can see that the demand for the asked banking services is very varied two components can be distinguished. One is represented by the demand for access to the paying systems administrated by the bank and the other one by the demand for services less standardized. This duality could lead to double way of charge: inclusive for the paying systems and a charge for the other type of demand. The distinction between fix cost – variable cost is given by the way of charge: the inclusive charge covers the fix costs while the commissions for services cover the variable costs. Many charge systems could be taken into account. The first, inclusive refers concerns perceiving a fix commission the same for all types of services, established to a level that the usual expenses of an account functioning should be covered. This system shows the advantage of being simple to apply and is accepted by the customers as long as the value of the commission is moderate and its payment divided up. In exchange it presents some inconvenient of which the most important is that between the profitable and non profitable customers no distinction is done. And the customers aren’t interest to change their behaviour concerning the use of the services.
53 The second system consists of establishing a connection between the middle sold of the open account, the number of registrations of this account and the charge of the commissions that should cover the unit costs. In other words if the customer leaves a middle sold at an enough high level in his open account he has the possibility to do an important number of transactions without commission. If, on the contrary, a small sold remains and he does an important number of transactions, the customer will have to pay commission. This system is considered to the most logical: it is discouraging for the wish to draw checks and takes into account the relationship customer-bank. His inconvenient comes out of its technical character that makes difficult the customer’s information. But the system penalizes the owners of accounts with small sold and thus those social classes with small income that could negatively influence the brand of the bank.
4. CONCLUSIONS
The banking system is a subsystem of the social economic microsystem behaving as an open system that sets itself by feed-back. With this microsystem and with the other subsystems that it serves. Thus the banking system is an open system that is permanently in relationship with the economy and the real life of the society in the sense of organizing and stimulating the process of saving and that of investments. The competition context that permanently follows the banking activity will lead to a development and diversification of the banking services and products. By extending the banking services and their diversification, the banks should have in view the increase of the banking profit but also the support of the customers making easier for them the access to the wanted services. The banks made developing programs of the business and promoted the banking marketing that supposes the evaluation of the actual and future needs of the customers as well as the realization of some products and offering some services that satisfy these needs. The bank promotes and orientates its products in order to answer to the requests of business. Computers and telecommunication influenced the creation and spread of funds, electronic transfer systems, on the development of the network of A.T.M. (automatic teller machine) In the same time were created automatic bank counters, compensation interbank companies that increased the speed of the transaction and diminished the costs of the banking services, etc. As a final conclusion we underline the idea that the services and their charge methods will suffer a continuous development permanently concerning the two parts of the system. On one side the bank that will follow the increase of the profit and on the other side the customers whose needs should be satisfied at a permanently higher level in order to finally the gain shall be one-to-one.
REFERENCES
Cechin - Crista D., Cechin-Crista P. (2008) "Elemente fundamentale ale activităŃ ii bancare", Editura Mirton, Timi oara; Ionescu Lucian, (2000)"Comunicare i tehnici de negociere", Institutul Bancar Român, Bucure ti;
54 Guvernul Romaniei i Oficiul Na Ńional de Prevenire i Combatere a Sp ălării Banilor, Ghidul de tranzac Ńii suspecte, Bucure ti 2003; Norma Nr. 3/26 februarie 2002 a B ăncii Na Ńionale a României privind standardele de cunoa tere a clientelei.
55 THE ADVERTISEMENT IMAGE – VISUAL MESSAGE, WAY OF EXPRESSION AND COMMUNICATION
Dorina CHI -TOIA, Lecturer PhD Alina VI AN, Lecturer PhD Candidate Faculty of Economic and Administrative Sciences, Eftimie Murgu University Resita Romania
ABSTRACT Although ephemeral, the advertising image must have both a punctual effect and a mass effect. It is an image which objectively informs about the existence of a product, but it excites the reader or the watcher to desire to have the product. There are two methods to distinguish the addressee and the function of a visual message. The first one places the different types of images in the communication scheme, the second one compares the way in which the visual message is used with the main human products meant to establish a relation between man and the world.
KEY WORDS : image, advertisement, communication, expression . JEL: M37
1. ABOUT ADVERTISEMENT
Advertisement is the presentation of a product, of a service, of a procedure, of an idea or a movement through other methods than personal action, having the aim of increasing the number of clients or of adepts. The objectives pursued and the means used by this peculiar way of communication and of selling have never stopped to diversify until their appearance (Dobrescu-Warodin, Marcu, Repe Ńeanu, p. 50). The advertising elements are present even in the world’s pre-history with the goods exchange and with the need to identify the source of these goods exchange and with the need to identify the source of goods and who produces them. The need to advertise, to announce “is part of the human nature and among the oldest vestiges of diverse ancient civilizations, we have found advertising types of announcements dated almost 5000 years ago” (Nicola, Petre, (2001), p. 16). Lately, the advertisement invaded everything: cinema, television, radio, newspapers, journals, stadiums, streets. It is almost impossible to take a step without observing an advertisement which surely influences our behaviour. Even if we despise it, we must admit that it imposed itself as an indispensable link of the economic chain and of our consumption system.
2. POSTER/IMAGE
The first studies about the consumer’s behaviour appeared in the 1960’s. Then, they were searching for more subtle ways to understand the consumer and his behaviour. After some motivation studies, they reached the conclusion that people’s decisions to buy are far from being so rational as they seemed to be, that they do not only buy a product but also an image. Even if today, it seems banal, this observation
56 was not the same at the beginning of the 60’s. The advertisement becomes more and more inciting and it searches for images and slogans to generate a climate which favourises the buyer’s decision to buy. Until the 19 th century, when Toulouse-Lautrec’s coloured litographies appeared on the streets of Paris, the display was imposed as an undeniable way of advertisement. The persuasion power of the poster, its capacity to get in touch with a wide public as a consequence of a language accessible to everyone have remained intact during the time. The success of posters is also linked to the simplicity of the slogan and of the visual message. Thus, some seconds are enough so that the message is read by many passers- by. That is why, the artistic team who has the task to conceive the poster must associate a short, percussive or even funny formula to an image which should draw attention. The advertisement images constitute a sort of prototype of the mediatic image, when the image is not the only issue in discussion. Thus, they insist, on the one hand on an apparent amnesia of our age but also on the magical and exemplar function attributed to the advertising image. It was one of the first observation objects for the semeiology of the debutant image at the beginning of the 60’s which at its turn brought a new theoretical corpus to advertisment” (Joly (2009), p. 57). Roland Barthes (1964) is among the first ones who chose to use the advertising image as a study terrain for the semeiology of the image which was then at its beginnings. The motivations he gave to this choice are operational: “if the image contains signs, surely in advertisement these signs are full, formed for a better reading: the advertising image is direct or even emphatic” (Joly (2009), p.58). He builds the reading model of the advertisement image on three levels: linguistic message, iconic denotative message and iconic connotative message. Adam and Bonhomme (2005, p. 93) present four essential characteristics of the advertisement image: - The low sequential dimension with few chronological brands (time) or syntactic (cause) and very tabular with spacing, synthetic organization and its para- tactical structure; - Its apparently codified nature (Benveniste considers it a « deficient system ») and largely idiolectal which transforms it before hand in a style chosen by the inspiration of the people who conceive it; - The inherent polysemy due to its status of correct writing and of source of interpretative ambiguities which the argumentation expressly exploits; - The meta-linguistic limitation, a consequence of the importance of its referential potential: in contrast with the text, the image encounters many difficulties in its self-evaluation and its detachment from itself. Communicative and destined to public reading, the advertisement image can be considered as an observation field of the production mechanisms of the meaning through image. Using numerous ways in order to advertise and diffuse a product, the advertisement is one of the engines of the consumption society; like other images, it tries to impose a product to a public who did not rightly need it up to now. As a consequence, it imposes an analysis as long as it proves to be ambiguous: it has an argumentative function and seduction power; it presents a double face both artistic and commercial. If at the beginning , the advertisement was content with the writing status, in time it became an illustrated writing so that finally changed into a global visual message in the form of poster which at once announces the spectator about the existence of the product, about its commercial brand and also about its slogan which identified it.
57 The interrelation of these three elements, examined in the framework of the socio- cultural context allows the establishment of the efficiency of advertisement. In the framework of advertisement, the analysis and interpretation are connected to the socio- cultural dimension. Those who achieve advertisement manipulate and combine with much skill the codes and stereotypes and they know most of the times to keep a certain distance, most of the times funny or ironic. The advertisement image is ephemeral, as a compensation it is met everywhere. It must have a punctual effect but in the same time a mass effect. The advertisement image is an image which objectively informs about the existence of a product but also it must incite the reader or the passer-by the desire to have the respective product. It is both objective and partial. But the present use of the word image often sends to the mediatic image. The invasive omnipresent image which we criticize and which in the same time is part of everyone’s daily life, is the mediatic image. Announced, commented, adulated by media, the image becomes in this way synonymous to television and to advertisement. But these words are not synonymous. There is advertisement on TV, but also in the newspapers, journals, on the Internet and on the walls of towns. But it is not only visual. There is also radio advertisement, for example. However, the mediatic image is mainly represented by television and the visual advertisement. Thus, in the newspaper Le Monde there is a column titled Images , which comments telecasts ; under the same title there are other columns in different newspapers which regularly comment advertisement but also the telecasts and broadcasts include commentaries about the press.
3. THE FUNCTIONS OF THE IMAGE
The study of the functions of the image is linked to each specific image and it is dependent on numerous parameters : there are very few common study points of a photography report and a politic caricature or a cartoon. However, we can easily remark the solicitation of some functions (NRP (2001), p. 12): a. The narrative function : an image tells a story (in fact, here is the origin of the cartoon or the redundant function of the illustration); therewith the image can suggest a before and an after of the represented scene; b. The information function : it can be said that the report photo fully undertakes this function but not only this one (for example, the humorous or caricature cartoons which illustrate the actual political state in newspapers); c. The documentary or historic function : the image presents characters, objects, places which are dated or typical for a region, for a continent or only for a neighbourhood; d. The argumentative function : we can immediately think of the advertisement which tries to persuade the spectator to buy one or another product, but the political drawing or the report photo can also present argumentative elements; e. The aesthetic function : is based on the study of plastic elements; f. The symbolic function : is a function ample enough to be presented in all types of images; g. The expressive or emotive function : certain advertisements in favor of the human rights or for the defense of the oppressed, certain report photos referring to wars represent this type, directly soliciting the spectator’s feelings ;
58 h. The humoristic or ironic function : often the cartoonist, the painter or the photographer does not hesitate to use this function which establishes an additional connivance with the spectator. Most of these functions can be combined, contributing to a better communication with the reader/looker-on/spectator. Martine Joly, talking about the functions of the image (2009, p. 44) (the image being considered as a visual message composed of different types of signs, language and as a consequence, a way of expression and communication), proposes two methods in order to distinguish the addressee and the function of such a visual message. The first one refers to the situation of different types of images in the communication scheme, the second one, to the comparison of the uses of the visual message with other human productions meant for the establishment of a report between the person and the world. Referring to the first one, the author ascertains as example title, on the basis of the verbal language functions acknowledged by Roman Jakobson (1963), a classification of different types of images starting from the communicative functions: a. The denotative or referential or cognitive function in identity images, road panels, press, etc. b. The expressive or emotive function: aesthetic, art; c. The poetic function: aesthetic, art, design; d. The connotative function: advertisement, propaganda, composition; e. The phatic function: decorations, clothes, furniture. As we can see, the meta-linguistic function does not appear because lacking the assertive capacity, the image cannot talk about its own codes by means of its codes.
4. CONCLUSIONS
The advertisement is considered one of the most important sectors of the communication industry (Dâncu, (1999), p. 39); the advertisement image, through the visual message sends most diverse information both at denotative and connotative level. In this way, it offers the looker-on the possibility of a decryption precisely through the connivance which intervenes between the two actants (image/looker-on), connivance largely established also by the functions of the advertisement image.
REFERENCES
Adam, Jean-Michel, Bonhomme, Marc, (2005), „Argumentarea publicitar ă. Retorica elogiului i a persuasiunii”, Traducere de Mihai-Eugen Av ădanei. Ia i : Institutul European. Barthes, Roland, “ Rhétorique de l’image” in Communications (1964), nr. 4. Paris : Seuil, in Martine Joly (2009), “Introduction à l’analyse de l’image”, 2-ème édition. Paris : Armand Colin. Dâncu, Vasile Sebastian, (1999) “Comunicarea simbolic ă. Arhitectura discursului publicitar”. Cluj-Napoca : Editura Dacia. Dobrescu-Warodin, Andreea ; Marcu, Rodica ; Repe Ńeanu, Liana (f.a.), “Langue, vie et civilisation françaises”. Bucure ti : Editura Didactic ă i Pedagogic ă. Giraudo, Lucien (2001), “L’analyse d’image”. Nouvelle Revue Pédagogique nr. 5: 12 (NRP) Jakobson, Iacob, (1963), “Essais de linguistique générale”. Paris : Seuil.
59 Joly, Martine, (2009), “Introduction à l’analyse de l’image”, 2-ème édition. Paris : Armand Colin. Nicola, Mihaela ; Petre, Dan (2001), “Publicitate”, Bucure ti : SNSPA – Facultatea de Comunicare i Rela Ńii publice.
60 ELABORATION OF THE CASH FLOW STATEMENTS
Adrian CIOMAGA Lecturer, PhD Faculty of Economic and Administrative Sciences, Eftimie Murgu University of Re iŃa Romania
ABSTRACT The treasury flow statement is a component of the annual financial statements which needs to be elaborated by the companies. According to the International Accounting Standard IAS 7., the elaboration of the cash flow is made through a direct method or through the indirect method. Analysing the examples of the cash flow elaboration presented in Annex A of IAS 7 and in The Guide Understand and Apply the International Accounting Standards – CASH FLOW STATEMENTS, published by the Body of Accounting Experts and Authorized Accountants in Romania, we noticed that they use the registered incomes and expenses in the Profit and Loss Account as equivalents of the exercise’s receipts and payments. For a proper elaboration of the cash flow we need to regroup the receipts and payments according to the flow structure. The facilitation of this regrouping can be obtained by including the cash flow in the accounting programmes.
KEY WORDS: cash flow, receipts, payments, incomes, expenses. JEL: M41
1. INTRODUCTION
The cash flow statement is a component of the enterprise’s annual financial statements, globally regulated by the International Accounting Standard IAS7 applicable from the 1st January 1994. It previously revised the International Accounting Standard IAS 7, approved in October 1977, which regulated the elaboration of the Statement of Changes in Financial Position. Being regarded as recommendations only, not all countries have taken over in the national accounting standards, the International Accounting Standards. Within the European Union, the IV European Directive from 1978 did not require the elaboration of financing cash flows. Only in 2003 did the European Accounting regulation Committee make a statement for the adoption of International Standards, except for the ones regarding financial instruments, their application being performed only in 2005.
2. THEORETICAL FRAMEWORK
In Romania, the Order no.1752/17 nov.2005 of the Public Finance Ministry for the approval of the accounting regulations complying with the European Directives, introduces for the first time, the obligatorily of elaborating, within the annual financing statements, the Treasury cash flow statements, starting with the financial exercise 2006. According to art.3, p.(1), this obligation pertains to judicial persons that, on the balance sheet date, overcome the limits of two of the following 3 size criteria as follows:
61 - total shares: 3.650.000 euro - net turnover: 7.300.000 euro; - average employee’s number: 50. Used together with the rest of the annual financial statements, the cash flow statement provides information that allows the users to evaluate the capacity of an enterprise to generate cash and cash equivalents and to compare the future cash flows of different enterprises. Also, the cash flows increase the comparability degree of the results from operating between enterprises, as it eliminates the effects of using some different accounting treatments for the same transactions and events. According to paragraph 14 of IAS7, the cash flows originated from the operating activities generally result from transactions and events that pertain to the result (profit or loss), such as: - cash receipts from the sale of goods and the rendering of services; - cash receipts from royalties, fees, commissions and other revenue; - cash payments to suppliers for goods and services; - cash payments to and in the name of employees, etc. Cash flows originated from the investing activities and the financing activities must be presented distinctively, so that cash flows contain three cumulated flows (from the operating activity, the investing activity and the financing activity). Just like in the case of the cash flow in the operating activity, the flows in the financing and investing activity are elaborated based on receipts and payments generated by these activities. The elaboration of the cash flow statement for the operating activities is stipulated in paragraph 18 of IAS 7, which allows the use of one of the following two methods: a) the direct method, whereby major classes of gross cash receipts and gross cash payments are disclosed; or b) the indirect method, whereby net profit or loss is adjusted for the effects of transactions of a non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments, and items of income or expense associated with investing or financing cash flows. The international standard encourages the enterprises to report cash flows from operating activities using the direct method, as it provides information which may be useful in estimating future cash flows and which is not available under the indirect method. Under the direct method, information about major classes of gross cash receipts and gross cash payments may be obtained either: a) from the accounting records of the enterprise; or b) by adjusting sales, cost of sales (interest and similar income and interest expense and similar charges for a financial institution) and other items in the income statement.
3. EMPIRICAL FRAMEWORK
If the elaboration of the cash flow statement, under the indirect method, does not raise any special technical problems, then the use of the direct method is much more difficult.
62 In Romania, according to the Order MFP no.1752/2005, the Cash Flow Statement is called the Treasury Flow Statement, and according to the model presented in the annex to this order, it is elaborated according to the direct method. Its structure resembles the one stipulated in IAS7, i.e. flows from operating, investing and financing activities. It is elaborated based on the receipts and payments performed by enterprises in the completed financial act. In the paper A Guide to Understand and Apply the International Accounting Standards – CASH FLOW STATEMENTS, published by the Body of Accounting Experts and Authorized Accountants in Romania, the information used in the elaboration of the cash flow under the direct method, are the BALANCE SHEET and the PROFIT and LOSS ACCOUNT. From here we take the registered incomes and the expenses, considering the incomes as receipts and the expenses as payments of the completed act. According to the definition, the incomes include the sums and the values received or receivable from current activities, as well as the revenues from any other sources. The receipt of incomes can be performed in advance, simultaneously with or subsequent to the moment of their registration. In most cases, the receipt of invoices issued to the customers is performed subsequently, at the deadline both parts agreed upon. The same thing happens with expenses, when the consumptions are very often delayed in time. The use of incomes and expenses as an equivalent of receipts and payments, at the elaboration of the cash flows is not correct, leading to results that differ from reality. The control of the cash flow consistency for a past period is made with the relation: available cash at the beginning of the act/exercise + receipts – payments = available cash at the end of the exercise/act. The available cash from the beginning of the exercise as well as the one from the end is calculated by adding the cash account balances from class 5, that keep a record of cash and cash equivalents. It is obvious that if the receipts and payments are not the real ones, but substituted with the incomes and expenses from the exercise, the available cash resulted from the flow will differ from the one existing in the treasury accounts. The information provided by the flows of the treasury accounts, the claims and debts accounts, as well as the ones from incomes and expenses, are useful only partially at the elaboration of the cash flow. For example the registration of a compensation of a claim with a debt towards the same partner, resulted as a consequence of mutual invoicing of goods and services, will increase the debtor turnover of the account 401 – SUPPLIERS, at the same time with the increase of the creditor turnover of the account, 411 – CUSTOMERS, without any cash receipt or cash payment. Also, if receiving from a customer a check or a promissory note, the account 411 – CUSTOMERS is credited, its value being registered in the account’s flow 511 – RECEIVABLE VALUES. VAT is not included in the income and expense accounts, but it is included in the value of the cash receipts and cash payments.
4. CONCLUSIONS
For these reasons, the elaboration of the correct cash flow, under the direct method, is possible only by regrouping the receipts and payments performed through the treasury accounts. It supposes the analysis and the accumulation of each receipt and
63 payment performed in a table with the structure of a cash flow which needs to be elaborated. In order to avoid the hard work of this regrouping, especially at the big companies, we need to adapt the accounting programmes on the computer, registering them in the Cash receipts and cash payments statement. This statement could be listed together with the other components of the annual financial statements, substantially reducing the accountant’s amount of work, at the same time with ensuring the correctness of the presented information.
REFERENCES
Pantea, I.P. & Deaconu, A.(2004) „Ghid pentru în Ńelegerea i aplicarea Standardelor Interna Ńionale de Contabilitate - SITUA łIILE FLUXURILOR DE NUMERAR”, Bucure ti, Editura CECCAR. *** Consiliul pentru standarde interna Ńionale de contabilitate (2006) „Standardele Interna Ńionale de Raportare Financiar ă (IFRSs) incluzînd Standardele Interna Ńionale de Contabilitate (IASs) i Interpret ările lor la 1 ianuarie 2006 “, Bucure ti, Editura CECCAR. *** Ministerul Finan Ńelor Publice (2005) „Ordinul nr.1752/2005 pentru aprobarea reglement ărilor contabile conforme cu directivele europene ”,Monitorul Oficial al Romaniei nr.1080/30 noviembrie 2005.
64 DIMENSIONS OF CORPORATE GOVERNANCE PRACTICES UNDER THE GLOBAL FINANCIAL CRISIS
Mariana CIUREL Phd Candidate Horatiu REGEP Phd Candidate Faculty of Economics and Business Administration, West University of Timisoara Cristian THEODORESCU Bucharest Stock Exchange Romania
ABSTRACT In a global age, the present financial crisis is a result of corporate governance failings (company boards ignored risk and accepted vicious practices in a field where confidence may evaporate in no time) and a disappointing management by regulators (they tolerated the capital market to operate with excessive risks and paid no attention on poor lending mechanism and mortgage market). The paper tries to identify the role of corporate governance and regulation agencies in the financial crisis set off and examines in detail what could go wrong in the present state of the crisis as well in its future stages. The paper concentrates on the board responsabilities and the errors occured in the remuneration policy. The reaction of the economic system to the crisis is analyzed as it evolved on global scale. The action plans for a safer financial environment should take into account the follwing co- ordinates: 1.Increasing the role of company owners depends, in the first place, on their willing and capacity to assume new responsibilities (starting with a “say on pay” attribute). 2.Over-regulating by central authorities seems the worst solution since it hinders the innovation capacity, flexibility and adaptability of the free market. 3.Companies that are active at a gobal level need a special approach, ensuring market transparency, sound reporting procedures and internationally endorsed risk management models. 4.Communication, dialogue and best practice dissemination are crucial in a period when trust must be reinstalled at the largest scale ever.
KEY WORDS: corporate governance, financial crisis, risk management, shareholders JEL: G30
1. INTRODUCTION OR HOW WE’VE GOT HERE?
The present global financial crisis proves once more that we are living in a global market. Perceived as a US originated problem, it has extended rapidly throughout the rest of the world, affecting all investors by important loses, mainly those exposed on mortgage backed securities, CDOs and structured products. The path followed by the financial crisis is still not clear, but some macro and microeconomic patterns have been determined. At macroeconomic level, it is important to note that on the US market the rise of the default interest rates started in 2006 and was followed by pertinent warnings from
65 the market authorities in this sense, but, unfortunately, with no echo from the banks and other financial corporate representatives, whom main interest was to go with the trend, in order to benefit at maximum from the present conditions. The ones which took into consideration the authorities warnings, reevaluated their risk management system, and concluded that was a sound one. The Northern Rock is one of these cases. Beginning with Q2, 2007, the credit crisis effects were already spread to the world’s most developed markets, through the multinationals acting in the financial environment. The first market reactions came from the credit rating agencies, which announced significant downgrades. What 2008 brought to the market was the incredible impact of the US subprime crisis over the major financial institutions and the liquidity contract suffered by all markets. JP Morgan has been taken over by Bear Stearns; Freddie Mac and Fanny Mae had to be nationalized, the same happening also to the UK Northern Rock, German IKB and Sachsen bank; important financial institutions started share capital increasing procedures which failed to respect some of the shareholders rights. The Q2 of 2008 was marked by the general loss of confidence in the markets and the financial institutions and, consequently, by a large number of collapses, starting with the astonishing Lehman Brothers. In terms of national policies, the expansive macroeconomic policies and the implied fall in the interest rates and the overvaluation of the stock prices for the listed companies were the main characteristics of the after 2001 era. In this market conditions, the investors searched in higher rate of returns and yield for their portfolios and, though, were faced to invest in riskier assets. Even though there are many macroeconomic models of what induced the crisis, how it propagated and how it can be solved, the most important aspect of the problem is the microeconomic one. This is mainly because, the processes that happen at corporate level have influenced in such a way the company’s behavior regarding their own governance and risk management that the corporate sustainability concept was diluted. The top management of the financial market institutions has struggled to balance the implementation of new business strategies in order to face the competition, with the one of taking into practice the changes over the regulatory framework. In terms of corporate governance failings, this was not the only cause, but was certainly the most important because boards and executives failed to assume their responsibilities regarding the corporate strategy, the risk management systems in place and the remuneration and incentives policy applied. Moreover the effectiveness of shareholders and regulators is still under question.
2. DIMENSIONS OF CORPORATE GOVERNANCE PRACTICES UNDER THE GLOBAL FINANCIAL CRISIS
No matter the various causes to the present financial situation, one thing is clear: the companies failed to apply the good corporate governance principles. But, at the end, what are the good corporate governance principles? Either we are talking about corporate governance as the organization of the control and the management of the company or to the set of relations between shareholders and management, and the operation of the company’s board, the corporate governance principles, rules and practices, are considered to be important factors in the creation of prosperous market economies.
66 Good corporate governance mainly refers to, without being limited to, the means of which top management answers effectively for the due and proper running and performance of the company, as a company represents the assets of its shareholders and in the long term the interests of the company converge with those of its shareholders. It is largely acknowledged that there is no standard model of good corporate governance; this is why there are so various codes of corporate governance in place. The codes represents, as a whole, a set of recommendations, thereby its implementation is on voluntary basis. For example, the Bucharest Stock Exchange Corporate Governance Code (BVB-CGC) consists of three sets of rules: the articles, which are the general principles to which a company has to “comply”, the recommendations, which suggest one framework to the implementation of each article to which the company has to “comply or explain”, and the guidelines, which offers non-exclusively suggestions for implementing the recommendations. The BVB-CGC is meant to provide a reference point for companies about their corporate governance structures and practices; it is complementary to the legislation in place to which it doesn’t offer any exemption. Like in the international practice, the BVB-CGC applies to companies whose shares are admitted to trading on a regulated market ('listed companies') on BVB. However, given its flexibility, the code could also serve as a reference framework for all other companies. But, compared to other codes, the BVB-CGC is based on the “comply or explain” principle, preferred due to the flexibility provided by it, which allows companies to take into account in designing their governance structure of the corporate specificities (size, business and field of activity, management structure, shareholders, risk management systems). The good corporate governance is promoted due to its long term advantages, stubbornly searched by investors, especially during this crisis period: investors will regain trust in companies, the stakeholders will be reassured, the companies will have access to low cost financing, and other macro advantages, like welfare and economic growth. For what the present financial crisis is, market participants have deeply criticized either the shareholders for not holding board accountable, either boards for not doing efficiently their work, either credit rating agencies for not forecasting in due time what was going to happen, either the regulators for not managing to impose the right regulations in order to keep everything under control, especially when they realized that markets were mispricing risk In the following pages, we will try to draft the role of each party criticized for the present financial crisis, but with focus on the board responsibilities and remuneration policy. In terms of shareholders and the protection of their rights, we would like to mention that their role cannot be corporate useful if their rights are limited. As we know shareholders have property rights derived from the fact that they own shares, which can be traded, and, they are entitled for a share of the company’s profit. Like we said earlier, on long term, the interests of the company converge with the interest of shareholders, all shareholders wanting to see their share value increased and to obtain good dividends. But what most investors have to know is that they have to get involve in the corporate business by exercising their rights, so that they can benefit of the above. For a shareholder to efficiently exercise his rights, he needs to have all necessary information about the company, mainly provided to the quarterly/semiannual/annual reports, and the right to influence the company’s activity through participating mainly at the shareholders general meeting.
67 The corporate governance codes in place remind us of the fact that all financial instruments holders, of the same series of a class, in the issuers must be treated equitably, and that the issuers shall use their best efforts to facilitate the participation of their shareholders to the shareholders general meetings, as well as the full exercise of their rights; the issuers shall use their best efforts to ensure their shareholders’ access to the relevant material information, so as to allow the same to fully exercise their rights in an equitable manner; the issuers shall also establish an adequate structure, responsible for handling the relationships with the investors, in general, and the companies’ shareholders, in particular. Concerning the risk management, there are two leverages under discussion: one concentrates upon the activity of the credit rating agencies and the other one upon the accounting standards and internal control systems. The problem with credit ratings evolved from the fact that investors were extremely reliant on credit ratings when taking the portfolio investment decision. This situation was negatively strengthened by the lack of competition existing in the credit rating market. Passing by to the other leverage, of the accounting standards, appeared the need of excluding the political influence in establishing the accounting standards. Many of the bad aspects derived from this influence, for example the controversy between the fair value approach used for reporting and the one used for the need for regulatory capital. From the various interpretations in the application of the accounting standards, appeared the problems related to the internal control of the companies, over influenced also by the negligence of the board in playing its role in this sense. To conclude upon this topic, risk management should be integrated into the company’s strategy, mainly for the purpose of searching new opportunities and not only for avoiding losses, and, ultimately, the strategy and risk policy stay under responsibility of the board. The companies’ failures in sound risk management leave room for systemic risk, externalities, cash outflow and ESG effects, mainly the social costs. The most important and visible aspect in analyzing the corporate governance failures is the one given by the board responsibility and remuneration policy . When talking about board responsibility, appears the need to ensure that the board is working effectively in the interest of the company and that it is responsible for the corporate management. In order to discharge of its obligations the board should meet as often as it is necessary. As per the international practice, it would be appropriate for the board to meet at least once a quarter, in order to monitor the development of the company’s activities. In order to facilitate this, the company should make use of the video, phone and internet applications for the meeting of the board. On the other side, the board members should assure that they have enough available time for completing their duties, and that they have to limit the number of positions held in various companies in order to efficient their activity as better as they can. For example, the international practice advises that an individual should have maximum a single president position in one company. In order for the company, its board members and employees not be found guilty of insider dealing or market manipulation of its securities, the board should adopt appropriate rules. Information and details on the provisions governing these areas should on regular basis be provided to board members by the audit committee and the
68 internal auditor. In this spirit, the board members shouldn’t use the information obtained though their position in a manner other that to exercise their rights. But, in exercising their rights, the board members should assure that their personal issues don’t interfere with or affect in any way the company’s interests. Regarding the company’s securities trading carried out for their own account by directors and other individuals bound by these obligations, it has to be added that the board should formulate a set of rules regarding the behavior, the notification obligations and type of information to be disclosed to the market participants in this sense. Further on the responsibilities side, the board is expected to examine and approve the company’s strategic, operational and financial plans and the corporate structure of the group it heads, if any. It also has to evaluate the adequacy of the organizational, administrative and accounting structure of the issuer and its subsidiaries, having strategic relevance. Moreover the board needs to evaluate the general performance of the company and periodically compare the results achieved with those planned and to examine and approve in advance transactions carried out by the issuer and its subsidiaries having a significant impact on the company’s profitability, assets and liabilities or financial position, paying particular attention to transactions involving related parties. Last, but the most important is the self evaluation that the board has to do at least once a year. All the information regarding the main strategy of the company, the board meetings, with the resolutions adopted, and the degree of participation of every member should be a point of disclosure for the company in its annual report and on the IR dedicated section of its webpage. In exercising its responsibilities, the board needs to permanently assure upon the corporate personnel policy and the business ethics code, the diversity in general and other CSG issues. As an example, in order to see where the Bucharest Stock Exchange is standing at present in terms of information dissemination regarding the recommendations of the corporate governance before the code becomes effective, the Canadian Business Association (CBA) released a business report for 2009. CBA analyzed the 101 companies listed on the BVB regulated and unlisted market(30 unlisted companies), and discovered that the corporate disclosure regarding an evaluation system for board and/or individual director performance was limited because only some of the listed companies stated that they review both the board and individual directors.
Figure 1 - Meetings and Self - Evaluation Source: CBA 2009 annual report on business
69 As the remuneration and incentive schemes are a key area focus for investors and have significant implications for risk exposure, there is a growing need for them to be influenced by the risk management system and to be closely monitored by the board, which has to ensure that their policies do not encourage employees to be overpaid and stimulated to take therefore excessive risks. It is important that there is a clear relationship between the performance of board members and executives and the remuneration, and that this policy is made available for investors. The common sense principle of corporate governance stipulates that a company will secure the services of good quality directors and executive managers by means of a suitable remuneration policy that is compatible with the long-term interests of the company. In order to optimize the remuneration related mechanisms, the board should establish a remuneration committee from among its members, to assist in formulating a remuneration policy for directors and managers and it should define the committee’s internal regulations. The charter of the remuneration committee should allow it to have access to appropriate internal and external resources, including a close cooperation with the CFO, for information in order to design the most appropriate remuneration policy. The remuneration policy shall be subject to AGM approval. An important aspect of the remuneration committee is its structure, as it should be composed exclusively of non-executive directors; it should contain a sufficient number of independent directors. By practice, remuneration committee should meet every time is necessary, but at least once a year. The meeting should be conducted by an independent director. The president of the remuneration committee should present an informative note to the board after every meeting, detailing the topics discussed and the decisions taken. The least, but not the last, the remuneration committee has to self evaluate and to make improvement recommendation to the board following this. One of the most sensitive aspects related to the remuneration policy is that the directors and employees shouldn’t be involved in the decision making process of their remuneration. The remuneration committee should have the right to submit proposals to the board regarding the remuneration of directors and managers, ensuring that these proposals are in accordance with the remuneration policy adopted by the company and the board should ensure that the exercise of this right is not infringed.
One key issue of corporate governance consists in the way that the company presents its remuneration policy in its CG Charter. The total amount of direct/indirect and fix/variable remuneration received by directors and executive managers by virtue of their position should be disclosed in the annual report and on the IR dedicated section on its website, so that investors can have access to it and can be informed when expressing their opinions and exercising their voting rights. For example, as per the Canadian Business Association report on Bucharest Stock Exchange corporate governance, it resulted that only few of the listed companies disclose information regarding their corporate remuneration policy.
70
Figure 2 - Compensation Source: CBA 2009 annual report on business
The recent history has showed us that the remuneration and incentive systems often failed because decisions and negotiations are not carried out at arm’s length. Managers and others have had too much influence over the level and conditions for performance based remuneration with the board unable or incapable of exercising objective, independent judgment, as presented by OECD. But, on the other way, the board is being seen both a cause of the present financial crisis, as well as a potential solution for over passing it. Another error in applying a sound remuneration policy is that the remuneration and incentives packages have always been a result of the bargaining between CEOs, directors, board members and the remuneration committee. This is why CEOs remuneration packages become so large. Figure 3 indicates the up going trend in the US of the ratio between the CEO remuneration package and the one of the average worker per day. Even though the up trend can have some economic explanations related to the increasing size of the company a CEO manages or the introduction of the performance- related pay of the 90s, the ratio still remains high. The same case is seen also in the EU countries, as presented by Figure 4.
Figure 3 - Ratio of CEO to average worker pay, 1965-2005
71
Figure 4 - Median CEO Total Remuneration
The most intriguing aspect of not complying with a sound remuneration policy, and in general with other principles of corporate governance, is the lack of dissemination from the side of the issuers of important corporate related information. What every corporate governance code tries to do is to stimulate companies to share with the investors, its shareholders, information regarding the sound business principles it applies. In particular, the remuneration schemes are often over complicated or obscure in ways that camouflage the reality and the dissemination regarding the remuneration policy is extremely weak.
3. CONCLUSIONS
This paper concludes that the present financial crisis can be greatly attributed to failures in the corporate governance practices of the companies. If we consider the inadequacy of the risk management systems, the board ineffectiveness and the poor use of the share-ownership rights by shareholders, than it can be concluded that corporate governance has an important role to play in overcoming of the present crisis, restoring confidence in the markets and preventing excessive regulatory that would negatively influence the business development, the creation of start-ups, the economic growth and sustainability. In order to achieve this, all the global market participants should together play their role best and with integrity, convinced by the fact that a sustainable macroeconomic environment and sound microeconomic climate shall benefit generations to come.
72 REFERENCES
Bebchuk, L. & Cohen, A. & A.Ferrell, (2004) „What matters in Corporate Governance”; BVB Corporate Governance Institute, (2009) Bucharest Stock Exchange Corporate Governance Code; Cremers, M. & V. Nair, (2005) „Journal of Finance”, Governance Mechanisms and Equity Prices; Dittmar, A. & J. Mahrt-Smith, (2007) „Journal of Financial Economics”, Corporate Governance and the Value of Cash Holdings; McConnell & J., H. Servaes, (1990) „Journal of Financial Economics”, Additional Evidence on Equity Ownership and Corporate Value; OECD, (2009), „Corporate Governance and the Financial Crisis”; OECD, (2009), „Corporate Governance Financial Crisis Key Findings and Main Messages”; OECD, (2009), „Corporate Governance Lessons from the Financial Crisis”; OECD, (2009), „Finance, Competition and Governance: Priorities for Reform and Strategies to Phase-Out Emergency Measures”; OECD, (2009), „G8 Summit discussed principles and standards for global business dealings”; OECD, (2009), „Publication of the Practical Guide to Corporate Governance”; OECD, (2009), „The Financial Crisis: Reform and Exit Strategies”; OECD, (2009), „The OECD Principles of Corporate Governance”; OECD, (2009), „Using the OECD principles of Corporate Governance: a Boardroom Perspective” Stulz, R., (1988), „Journal of Financial Economics”, Managerial Control of Voting Rights.
73 DEVELOPMENT OF FINANCIAL SECURITIZATION, OF DERIVATIVES MARKET AND OF HEDGE FUNDS, INTEGRATION OF CAPITAL MARKETS – FOUR MAJOR EFFECTS OF THE FINANCIAL GLOBALIZATION
Carmen CORDUNEANU Professor Phd Faculty of Economics and Business Administration, West University of Timisoara Laura Raisa MILO Assistant Phd Faculty of Economic and Administrative Sciences, Eftimie Murgu University Resita Romania
ABSTRACT As consequence of globalization, in the past two decades, the international financial markets have become more and more interdependent. The financial globalization brought significant benefits to the national economies and to investors, but altered at the same time the structure of markets, generating new risks and challenges for the market participants and for the surveillance and regulation institutions. In this paper the authors analyze the effects of financial globalization, aiming at providing a broader image on today’s financial markets, respectively of the dynamics of financial entities, of structural changes caused at their level and of the dynamics of financial instruments.
KEY WORDS: globalization, integration, financial crisis , financial markets, derivatives JEL: G01, G20
1. INTRODUCTION
In the past two or three decades, most countries proceeded to the elimination of the commercial barriers and the obstacles in the way of free circulation of capitals. Innovations in the technology area made access to information much easier, led to a better assessment of risks and to diminishing the risk of bank services at global level. Alongside these factors, there was also the expansion of international commerce, as well as the continuous growth registered by the foreign direct investment flows. All these led to supporting the development and the creation of integrated cross-nations networks meant to meet the demand of banking and non-banking financial services beyond borders. Of course, this assumed optimizing the knowledge in all these areas in order to reach an adequate expertise level. The credit institutions had to find additional income sources, because the increase of competition from the non-banking financial companies diminished the profit margin coming from the traditional bank businesses. This trend was manifested mainly in the Western European countries in which the phenomenon of consolidating the bank institutions was relatively diminished. By comparison, in countries such as United States of America and Great Britain, there was visible a phenomenon of banks merging with other banks or with insurance companies or with stockbrokers. These mergers were achieved in order to benefit of certain economies of scale, but also in order to remain competitive by maintaining or increasing the market share.
74 The non-banking financial institutions entered the competition with the credit institutions for taking over the savings of the population and the cash surplus of corporations, diminishing constantly the price for acting as intermediary and of financial instruments. Thus, they collected a higher and higher proportion of available money and their holders redirected their investment behavior towards high yield bonds issued by institutions – as the trust funds – having a better orientation towards advantages such as diversifying risks, diminishing the fiscal burden and increasing economies of scale. Institutional investors under the form of pension funds contributed to rendering efficient the capital markets by developing them and by creating some new financial instruments as asset-backed securities, derivatives, floating rate credit instruments, index-tracking funds and synthetic financial products. The development of non-banking financial companies’ activity took place especially in developing countries. As can be seen in Figure 1, during the analyzed period, the growth paces of assets of investment companies and of insurance companies increased by rates that surpassed 100% in most countries that accessed recently the European Union, while in old member states of the European Union they had a moderate increase under 50%. The same can be noticed also for the dynamics of pension funds and leasing companies. Only as regards factoring companies the situation was reversed.
152% Societati de investitii 8.43% UE-12 (1995-2007) 72% Fonduri de pensii 8% UE-15 (1995-2007)
100% Societati de asigurari 27%
EU-12 (2002-2007) EU-15 (2002-2007)
2% Factoring companies 44%
48% Leasing companies 11%
Figure 1 – Growth pace of assets of non-bank agents at the level of European Union old (EU-15) and new member states (EU-12) (%) Source: authors own calculation
75 2. FINANCIAL SECURITIZATION, CONSEQUENCE OF FINANCIAL INNOVATION
Diversifying the activity developed by bank institutions and the occurrence of some new non-banking financial companies on the market were possible also following the financial innovation that made available to these entities the adequate financial instruments for meeting the demand newly occurred on the market. Most times, the instruments that occurred were not totally new but represented the result of altering some traits of financial products already existent or of a combination of existent traits in a new manner (Pirtea et al., 2008). The line of financial innovation comprised also securitization. This may be defined mainly as a financial operation by which the receivables together with the cash flows they generate and their economic value are recovered by an institutional vehicle that purchases them (that may be a commercial company or an entity created as a securitization fund), in order to use them for guaranteeing the issued securities. The securities resulting following the securitization process are named “asset-backed securities”, term that may be translated by financial securities guaranteed by assets or bonds or loans guaranteed by assets. On the markets where securitization was introduced on a large scale, there have been noticed a series of social and economical benefits. It was noticed that a strong market of assets resulting from securitization facilitates and encourages allocating efficiently the capital by submitting the credit guarantee activity to the capital market discipline. From the point of view of the legislative power, securitization offers a useful mechanism by which financial institutions may control their loans, interest rate and market risk associated to their investment activities. This leads to a decrease of the individual risk of these institutions and thus, to a reduction of the systemic risk. Thus, securitization played a key role in developing the global characteristic of financial markets. By segmenting the large risks into a number of small risks and covering the latter by diversified financial products, the financial experts have considerably broaden the number of participants on the international markets and supplied access to the market segments and trading terms that were not available previously. The companies and governmental authorities used more intensely the capital markers for financing their own activities. Various and numerous investor groups became interested in holding in their portfolio innovation credit instruments or derivative securities that bear risks relatively controllable by complex systems (expert type) for decision making and mathematic modelling.
3. INCREASED IMPORTANCE OF HEDGE FUNDS IN THE ECONOMY
Until a decade ago, very little was known in connection to the activities of hedge funds. However, beginning on 1990, when the information and telecommunications network developed, the operations of allocating funds, more and more important from the institutional investors to this type of funds, became visible. The investors did that following their wish to diversify the investments achieved and to obtain a better yield than the one offered by the global capital markets. The increased importance of hedge funds made necessary the existence of a mechanism for regulating them. Therefore, at the level of European Union occurred the
76 Eurohedge, an institute competent for monitoring these funds. Although, among different states of European Union there are still major regulating differences; in Luxembourg and Great Britain, for example, the regime is much liberal than in France and Great Britain. As a result, the volume of assets managed by this type of funds had a positive dynamics as can be seen in the figure below (Figure 2). The number of these funds increased also significantly as the barriers in the way of capitals expansion were canceled by the states. Thus, if in 1990 there were 530 such funds worldwide and the assets managed by them reached less than USD 30 billion, at the end of 2007 they surpassed 7,000 and the funds managed by them reached almost USD 2,650 billion. Their unprecedented expansion was due to the existence of exchange rate and interest volatility which made that the investment alternatives for those having surplus money become very attractive. On the other hand, we believe that the activity of hedge funds was intensified and will intensify also in the future at an increased pace following the growing demand from the institutional as well as individual investors in the developing countries. By comparison to that existing in the developed economies, this demand has not been saturated yet. For now, in the developing countries of Central and Eastern Europe the investment made by institutional investors do not head at a greater degree towards hedge funds mainly due to legislative reasons (strict regulations), but probably in the future diversifying investments towards other investment forms under the form of alternative investments will be allowed.
8000 Number of 6000 hedge funds 4000 Managed 2000 assets (bill.$) 0 1990 2007
Figure 2 – Dynamics registered by hedge funds during 1990-2007 Source: realized by the authors according to the data supplied by Hedge Fund Research
The accuracy of data on hedge funds and their performance, although improved as this industry grows, is far from being perfect. In the context of the present day crisis, they have been considered even trigger factors. A powerful argument from our point of view for this is diminishing the regular yield obtained by this as the financial crisis occurred; it was characterized mainly by the crediting market crisis and decline of capital markets at world level that led, on their turn, to an acute lack of liquid money. Although the hedge funds are deemed funds that obtain performance in the growth and reduction market conditions, the financial crisis affected and continues to affect for another period the yield of hedge funds. Once the financial crisis will be defeated the hedge funds will be again, probably, the center of attention of institutional investors.
4. DEVELOPMENT OF THE FINANCIAL DERIVATIVES MARKETS
The derivatives market, although the last arrived on the stage, developed especially during the last 30 years. The need for derivatives markets was not felt until the early 1970’s when globalization of business that took place constantly was
77 confronted with the increased volatility of exchange rates and with the increase or fluctuation of inflation rates. As the activity of companies became more international, they were exposed to some higher and higher risks and, consequently, their management manner became a major concern of the business environment. The development of the markets for financial derivatives in such a short period was due to the need felt by investors for financial derivatives that are used for protection purpose against a series of unwanted situations or certain predictable events, as well as to the fact that these financial derivatives offer additional gain possibilities by speculation and arbitration. More, by using the arbitration operations the markets for financial derivatives allow adjusting and rectifying the price for financial assets used as support on the markets where they are transacted spot or on sight (Pirtea and Iovu, 2007). Given the financial globalization, the usage degree of financial derivatives increased year by year during the analyzed period (1997-2007), thus that can be seen that at a total value of contracts with derivatives (on the regulated markets, as well as on OTC ones) of USD 41,237 billion in 1997, it has reached a value of USD 674,440 billion. It was a significant increase, of over 1,500%, a fact that proves the increasing importance of these types of financial instruments in the economy and the wish of economic entities to diminish the commercial or financial risks in their operations (Figure 3).
500000 400000 300000 200000 100000 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Traded on regulated markets Traded on OTC markets
Figure 3 – Evolution of derivatives market during the period 1997-2007 (bill. USD) Source: realized by the authors, own calculation according to the data supplied by Bank of International Settlements
On this derivatives market, according to the last statistical data, there can be seen a greater concern of economic entities for three important segments, these being derivatives having as support the interest rate, the exchange rate and derivatives for transferring the credit risk (credit default swaps, that are traded only on the OTC markets). It is obvious the desire of international economic operators to cover the risks corresponding to financing, the three categories of risk resulting practically from their financing operations (Figure 4).
78 Derivatives traded on Interest rate OTC markets Exchange rate Stock indexes Derivatives traded on Credit risk regulated markets Altele
0% 20% 40% 60% 80% 100%
Figure 4 – Structure of transactions with financial derivatives according to the risk covered in 2007 (%) Source: realized by the authors, own calculation according to the data supplied by Bank of International Settlements
No matter the purpose for using derivatives, valued by investors for their high volatility or for covering the primary market risk by those that want to achieve hedging operations, it is clear that these instruments became in time an integrated part of the present financial environment. Even if due to their complexity they are deemed responsible for several massive loss situations, we believe that the demand for these instruments is far from diminishing; au contraire, it is stimulated permanently by developing new products.
5. INTEGRATION ON THE NATIONAL STOCK MARKETS
Consequence of globalization, the integration phenomenon of national capital markets is part of a vast integration process of financial services at world level, a trend that was initiated by the European Union and declared by it on numerous occasions. The development registered by the capital markets along the time led to increasing the market competitiveness, the stock exchanges acting as private entities that, in order to increase the importance at national and international level, used mergers, taking over and even creation of new entities in the same country (Pagano and Steil, 1996). After several failed attempts, the first attempt to integrate the European capital markets was achieved in 2000 when the capital markets in Amsterdam, Brussels and Paris merged in one market named Euronext Stock Exchange, meant to offer transaction services for securities and financial derivatives on an expanded and regulated cross- border market. More, integration on horizontal was insured by the storage and clearing systems in connection to these stock exchanges, being materialized in creating the Euroclear Group and the clearing system Clearnet Group. Since then and until now, considerable efforts have been made for consolidating it permanently, by integrating the existing European markets in order to create a single market, more liquid and more efficient, with promotion possibilities of some new financial instruments. After the initial merger of markets in Amsterdam, Brussels and Paris, Euronext absorbed also the London derivatives market, LIFFE, as well as the Portuguese capital market in 2002. Implementing the horizontal market model promoted by Euronext, created for generating synergies by incorporating the strong points of each local market, proved to be very successful by applying a global broad vision at local level. Then followed integration at technological level and, of course, adapting the market rules and the legal
79 framework in which the derivatives markets operate. In 2007, a new change occurs, NYSE takes over one of the oldest American stock exchanges, with one of the greatest stock exchange capitalization in the world, Euronext, thus resulting NYSE Euronext. The universe of developing markets of the world continued to expand in time. Also in 2007, Chicago Mercantile Exchange (CME) merged with Chicago Board of Trade (CBT). In this way was created one of the greatest stock exchange markets in the world, possessing a broad range of financial instruments. Likewise interesting was the manner for vertical extensive integration between the infrastructures existing in Germany, Luxemburg and Austria, thus being created the so-called Deutsche Börse Group. It relied on Eurex Clearing for achieving the clearing operations. In 2007, Deutsche Börse Group merges with International Securities Exchange (ISE), founded in 2005, and it became shortly after the greatest market of derivative financial instruments of options type. This merger allowed the German stock exchange to expand its activity on the American market for trading derivatives, of options type. As regards the other capital markets, the Italian and Spanish ones remained until now separated of any major integration process. However, the Scandinavian and Baltic capital markets, having a more diminished importance at European level, used such integration processes both on the horizontal and on the vertical level. Thus OMX Group was formed, an integrated capital market made up of Baltic and Scandinavian markets in Stockholm, Helsinki, Copenhagen and Reykjavik. In 2007, OMX Group was taken over by NASDAQ, the greatest stock exchange company in the world, thus forming Nasdaq OMX Group. By this markets integration process manifested now everywhere, even in Romania (merger by absorption by the Bucharest Stock Exchange of Rasdaq market and failed initiative of merger with Sibiu Monetary - Financial and Commodities Exchange), is followed, in fact, the consolidation and increase of the competitiveness of markets, diversifying the financial instruments and offering an integrated services package that would answer to the broad needs of investor clients using services and information of financial type.
6. CONTAGION EFFECT OF FINANCIAL CRISES ON THE ECONOMIC AND FINANCIAL SYSTEM
In theory, creating a global capital market governed by competition that operates without barriers should stimulate increasing the efficiency of financial system, allowing a diminishing of the financial cost and a better allocation of capital between countries and activity sectors that would lead to a faster growth of the global economy. Globalization did not brought along only positive effects on the financial system and economy. It made also possible the faster transmission of perturbations at European and global level, given the tight interconnection of international financial centers achieved by multiple information transport electronic manners in real time, as well as by the defragmentation of the international financial market due to the contagion effect. One of the most adequate examples for this is the Asian financial crisis in 1997 that began in Thailand but that affected not only the Asian continent, but also a great part of developed countries such as Russia and, it might be said, it was the basis of initiating a series of financial crises on the South-American market in Brazil. Precisely a decade later, in 2007, the real estate speculation bubble in the USA burst, the
80 development of sub-prime mortgage bonds market purchased by financial institutions all over the world leading to a strong contagion effect of the American financial crisis characterized by a loan crisis and a global recession. In this case, the contagion effect occurred following the sophisticated globalization system of credit markets, leading to affecting the portfolios and to severely limiting the access to liquidity in the world. But, the global financial crisis in 2008 did not occur without having been predicted before. There were numerous analysts that warned us on the development of this speculative bubble and the development of sub-prime mortgage bonds and on the negative consequences if it “bursts”. It was always common knowledge that there is a connection between globalization and financial instability. On one hand, trade liberalization, financial markets liberalization, financial innovation led to visible positive economic effects for many of the developing economies. These economies benefited increases of the income per capita, a thing predicted by the neoclassical growth theory (Solow, 1956). However, on the other hand, all these results of globalization are difficult to control and they may become easily causes for financial instability. For example, the financial derivatives have as subject matter protecting the economic entities against instability of exchange rates, interest rate, volatility of bonds exchange rates, but on the other hand, the new instruments are instability factors in themselves, the market of derivative instruments reaching today a vastness and a complexity that seem uncontrollable. Derivative products are an efficient risks management instrument but, at the same time an instability factor, being one of the favorite instruments of speculators due to their leverage. The unregulated and lacking transparency derivatives market that encountered a growth in the financial sector in the past years allow the easy and rapid transfer of risk in economy and encourage the entities that operate in the economic and financial system to take greater and greater risks, waiving prudence. Securitization of the mortgage loans by issuing mortgage bonds in order to be sold by the banks to different investors, the bank obtaining thus additional funds for granting new loans and eliminating at the same time the matter of the corresponding risk, was the main factor that triggered the sub-prime crisis in the United States of America. The tremendous development of hedge funds when their activity is mostly regulated and non-transparent may lead to great negative effects.
7. CONCLUSIONS
The financial globalization, like we showed in the above paragraphs, brought significant benefits to the national economies and to investors, but altered at the same time the structure of markets, generating new risks and challenges for the market participants and for the surveillance and regulation institutions. Given that the entire world became a globalized economy characterized by a more and more integrated and connected financial system becomes difficult enough, from our point of view, for a financial crisis in a certain economy not to propagate by the contagion effect also on other economies. Although the global economy survived other crises so far, the present financial crisis is truly the most difficult to manage since the 2 nd World War and this given the fact that the causes of past crises did not include financial products so innovative and complex as the ones today. Unfortunately, one of the most negative consequences of this crisis is losing credibility in the financial system, credibility that
81 will be remade only in time and as consequence of some firm and common actions initiated at global level. The contagion effect of crises is just one of the negative effects of globalization that, for being diminished or avoided, requires a series of measures at world level because the matter is also global. The actions initiated for the individual cases cannot be effective for solving some problems as the systemic financial crises. It is necessary the common and coordinated action of governments in wealthy countries (USA, Great Britain, Germany, France, Japan and China). They might be able to take, among others, efficient action that would lead to the following: better assessment of risks by the rating agencies, careful monitoring of phenomena in the main financial centers by the regulation and surveillance bodies, a more strict regulation of transactions with secured financial products, with derivatives having a high complexity, maintaining the transparency of transactions with such financial instruments. The economic and social effects of shocks on the international financial markets might be diminished by integrating them in a global markets system in which an articulate institutional system co-exists that has sufficient authority for implementing until the end its decisions and policies adapted to today’s political, financial and economic context. On the other hand, the role of international financial bodies (IMF, World Bank, Bank of International Settlements, etc.) must be adapted permanently to the transformation and restructuring process of the world reformed economic system, thus for it to be able to supply solutions to any future global financial crisis, assuring like this the financial stability. Re-regulating the financial markets should offer a set of measures for intensifying the control on some areas outside the jurisdiction of central banks or monitoring commissions of capital markets. More, the risk and rating methodologies must be rethought. More and more it is spoken of the moral chance matter that concerns the rating agencies that are financed for the activity developed, most times, just by the issuer for which the assessment process takes place and for which the rating agency must set out the risk degree it assumes for investors.
REFERENCES Allen, F. & Song W. (2005) “Financial Integration and EMU ”, European Financial Management , 11 (1), pp. 7-24, 2005 Corduneanu, Carmen (2006) “Piete de capital. Teorie si practica“ , Ed. Mirton, Timisoara Fung, W. & Hsieh, D.A. (2002) “Hedge-fund benchmarks: Information content and biases“, Financial Analysts Journal , 58, 1, pp. 22-34, 2002 Pagano, M. & Steil, B. (1996) – “Equity trading I: The evolution of European trading systems ”, in B. Steil (ed.), The European Equity Markets. The state of the Union and an Agenda for the Millennium , Royal Institute of International Affairs, Londra Pirtea, M. & Iovu Laura (2007) – “Influenta globalizarii asupra gestiunii riscurilor pe pietele de capital ”, Analele Universit ăŃ ii Eftimie Murgu Resita , nr. 1, ISBN 1584-0972, Resita Pirtea, M. & Iovu Laura & Milos, M. (2008) “Dynamics of financial markets in the context of globalization“, Economy and Transformation Management , Timisoara Pirtea M. & Iovu Laura & Milos M. (2007) – “Financial systems in transition: challenges in a global economy”, ECOTREND, Economie si globalizare , November 23-24, Targu-Jiu
82 Schneeweis, T. & Kazemi, H. & Martin G. (2003) “Understanding Hedge Fund Performance: Research Issues Revisited“- Part II , The Journal of Alternative Investments, 7, pp. 8-30 ***http://www.bis.org – Bank of International Settlements ***http://epp.eurostat.ec.europa.eu -Eurostat ***http://www.ecb.int – European Central Bank ***http://www.factors-chain.com – Factors Chain International ***http://www.fese.be/en - Federation of European Securities Exchanges ***http://www.hedgefundresearch.com – Hedge Fund Research ***http://www.ifc.org/ifcext/economics.nsf/Content/IC-WBES - IFC ***http://www.leaseurope.org - Leaseurope
83 FINANCING INSTITUTIONS OF HIGHER EDUCATION
Dorin COSMA Professor Phd Suzana SCHNEIDER Phd Candidate Faculty of Economics and Business Administration,West University of Timisoara Romania
ABSTRACT The primary resource of every nation is the capacity of creation of its citizens. Those valuable well trained creative people are the ones who can modify the economical and social environment. The entire fortune of a society is made by the innovative and intellectual capacity of its members, the ones who decides today the future of a nation. In the political, social and economical context in which our country lies (and beyond it), the educational system has the task of being the reform initiator, but to have a quality educational system we must have a quality reform. The higher educational system should have political sustentation and financing. The higher educational system and the scientific research give value and force to each nation. For the future of academic education, the investments in the higher educational system should be a public priority, having in mind that it generates long term effects in the development of human resources which represents the most important resource of each nation and in the production of knowledge without which we cannot evolve.
KEY WORDS: higher educational system, the financing of the academic education, budget substantiation and construction. JEL: G00
1. INTRODUCTION
The most important resource of a nation is represented by the creativity and capacity of its citizens to adapt. These creative, well-trained people can change the economic and social environment. According to the principle of equality of opportunity, all citizens of a nation who wish to pursue higher education institutions should be able to attend, regardless of their social, family, race. Higher education and scientific research gives the measurement of value and the force of a nation. For the future of academic education, modern society must invest in education and research in order to face increasing competition, given that higher education generates long-term effects on the development of human resources and in the production of knowledge.
The national system of higher education The national system of higher education includes all institutions of higher education accredited, public or private. An institution of higher education authorized to operate provisionally in accordance with the present legal procedures, will be a member of the national system of higher education only after accreditation.
84 The national system of higher education is based on the following principles: • the principle of university autonomy ; • the principle of academic freedom; • the principle of accountability; • the principle of quality assurance; • the principle of equity; • the principle of managerial and financial efficiency; • the principle of transparency ; • the principle of respecting the rights and freedoms of students; • the principle of independence of ideology, religion and political doctrines. In the political, social and economical context in which our country lies (and beyond it), the educational system has the task of being the reform promoter, but to have a quality educational system we must have a quality reform. In the financial plan, the reform has started from the preparation of funding the university inputs (staff salaries, maintenance of buildings, household services, etc.) to finance in form of core funding activities depending on the number of students and specific training costs, which are different from a field of education to another. In the reform of higher education, the most important measure taken by CNFIS in the set of measures that represented the Program of reform was the introduction of global funding for universities, a system of law built on basis principle “resources follow the student” making universities to realize that the growth of budget allocations can be achieved not only by increasing the number of equivalent students, but also by some actions of quality nature.
2. FINANCING INSTITUTIONS OF HIGHER EDUCATION
Education Law stipulates that the funding of public education is ensured from public funds because education is a national priority for the preparation of human resources at the level of international standards. In the Law of Public Finance no. 500/2001 is stipulated that the institutions of higher education are institutions based on self-funding received from the state budget, own revenues and other sources (external credits or external grants). These revenues are used by higher education institutions in the academic autonomy conditions for achieving their objectives in the respective state policy from the domain of education and scientific research. Income of higher education institutions consist of: 1. Own income: • allowances from the state budget given by MECI as basis funding determined by the total number of equivalent students in school in a figure approved by MECI and the index of quality of each universities; • own income obtain from taxes enrollment of Romanian and foreign students, license fees, registration fees, admission, etc. and other activities conducted by the institution; • donations, sponsorships and grants that form the basis for funding, necessary for the education of students . 2. Revenues from the research activity, design, consultancy and expertise, activities which function based on outside the budget principles.
85 3. Allowances from the state budget with special destination (complementary financing): • endowments and other investment (building consolidation, rehabilitation of student dormitories) ; • subsidies for student dormitories and canteens and individual accommodation outside the university campus, subsidies for purchase of computers for students; • capital repairs; • scholarships for students and Ph.Ds; • Achieving of investment objectives of new construction and continued ; • actions of social protection, such as facilities to the cost of public transport for students; • realization of projects jointly supported from external sources. 4. Revenues obtained from micro production, from the activity of: experimental resorts teaching, botanical gardens, centers of specialization and improvement, publishing, activities which operates on the principles of self-financing. 5. Own revenue of student dormitories and student canteens, houses annex, renting spaces, etc.. The own revenue of public institutions is collected, managed, used and accounted for by the public institutions. Expenses of higher education institutions consist of: 1. Expenses for the base activity, which includes current expenses and capital expenses which ensure the smooth functioning of institutions for training students, master and PhD students; 2. Expenses for the activity of scientific research, design, consultancy, expertise; 3. Expenses from budgetary allocations, with special destination: • for students dormitories-canteens, purchasing of computers for students, individual accommodation; • endowments and other investments; • social protection of students; • general repairs; • scholarships ; • realization of investment objectives. 4. Expenses for the activity of dormitories-cafeteria 5. Expenses for micro production, activity of experimental resorts teaching, botanical gardens, centers and specialized training and publishing 6. Expenses of the programs funded from external grants.
The funding of universities is made under an institutional contract between the Ministry of Education, Research and Innovation and universities. Institutional contracts are made public from the moment of their signature. The funding of universities is done through the following funding categories: • Fund for basic financing ; • Fund for complementary financing; • Fund consists of other funding sources (taxes and other activities, scientific research, foreign projects, dormitories, canteens, micro production, other sources).
86 In Figure 1 is presented the structure of income for universities:
Basic financing (45%) Complementary financing (19%)
UNIVERSITY
Taxes Scientific Foreign Micro Student Other and other research projects production dormitori sources activities es, canteens
Other financing sources (36%)
Figure 1 - Structure of revenues for state universities Source: Figure created from data CNFIS
The base financing is ensured by the number of admitted students and doctoral studies without charge and by other indicators of educational activities, particularly those relating to service quality in education. The Ministry of Education, Research and Innovation will provide the base funding for public universities through study grants, based on the equivalent average cost per student per field per cycles of study. Funds from the state budget for base funding are allocated differently to the institutions of higher education based on the following criteria: • the number of students equivalent per unit (70%) • relative qualitative indicators (13 indicators divided in 4 groups) determined for each university (30%). Complementary financing is granted by the Ministry of Education, Research and Innovation at the recommendation CNFIS to public universities and will be based on institutional development projects. CNFIS selects and recommends for complementary financing only projects of institutional development which are viable and ensures the monitoring of their completion. Complementary funding is allocated on a competitive base, based on additional contract, the amounts being designated for the realization of investments and capital repairs, to cover costs of equipment for teaching and research or development projects (new training, new forms of education), and funding of scientific research projects. Higher education institutions are financed also from own income derived from certain specific activities, interest, donations, sponsorships and fees levied under the law of individuals and legal persons . These are joined by foreign loans and aid grants contracted or obtained directly by institutions from the international financial organizations. The funds obtained from their own resources, including those from foreign students remain fully available to the universities needs.
87 In the figure no. 2 are presented the most important resources of institutions of higher education.
State Grants
Returned Grants and loan loans Institutions School Taxes of higher education Households and students Scholarships
Financial assistance
Payments for various services Other private entities Payments for services and donations
Figure 2 - The circuit of institutions of higher education Source: adapted by B. Jongbloed (2005), Funding Higher Education: Options, Trade-offs and dilemmas, CHEPS, University of Twente, The Netherlands, p. 2.
The state has agreed to fund the universities because they satisfy the need for highly qualified personnel for the public services of the state. Financing of higher education was not a burden for the public budget given that the number of students was relatively low. The increased demand for higher education is a global phenomenon faced by all the countries of the world, as more and more students register in higher education to be trained in various forms in an increasing number of areas and in the modern educational programs. The phenomenon is due to the democratization of growing society. The Government of Romania explains the increasing participation in higher education, specific for the past 16 years, through the developing of the private higher education, the development of networks of universities, establishment of new universities or development of subsidiaries of major universities in untraditional locations and growing interest in higher education caused by the existence of a high percentage of labor market absorption of highly qualified workforce. With the development of higher education, the state can no longer be considered the primary beneficiary of citizens trained in universities, as they are now absorbed by the private enterprises also. For this reason, the state is no longer motivated to finance higher education costs alone. In the case of financing higher education by the state, there are several major problems: - First and most important, refers to the failure of the principle of equality of opportunity, given the fact that for many young people the income they have is low, which limits their access to faculty. Moreover, this principle is not respected, nor because the allocation of resources from the state budget for
88 higher education often leads to a transfer of income from those with low incomes to those with higher incomes which have opportunities to follow higher education. The rich and medium social classes are the beneficiaries of this funding because a large proportion of students come from those classes, given that poor social class does not allow the “luxury” of maintenance the children in higher education. - Another problem is related to the inequity regarding funding. Recipients of products and services of the universities are also the private enterprises, from where results the need of funding the universities also by them.
3. BUDGET SUBSTANTIATION OF THE INSTITUTIONS OF HIGHER EDUCATION
The Universities manage cash resources on the bases of budget revenue and expenditure approved by the M.E.C.I. and the substantiation on the efficiency criteria of revenue and expenditure included in the budget which consists of an obligation of the management of the institution of higher education which should aim at achieving all the indicators on the activity of teaching and university scientific research with both lower costs and assume the responsibility for managing cash funds and material values. In order to elaborate a draft budget of the institution, the followings are taken into account: • the present rules and regulations and existing organizational structure at the time of its preparation; • the sources of income and the legal basis of their collection; • the level of prices taken into consideration at the moment of project creation • the consumption of materials, raw materials, spare parts, fuel, taken into account; • the substantiation of the expenses in the present year in comparison to the based year.
The substantiation of the costs for basic financing and complementary financing For the preparation of a student in the 1st and 2nd cycle of studies following main expenses are conducted: • Expenses to ensure the preparation of teachers (personnel expenses, expenditure necessary to the proper function of teaching activities, administrative expenses necessary for the support of teaching process); • Administrative expenses for the functioning of the educational structures (department, college, university). The Direction of Information forwards to the accounting service until May 15 of last year before the year of the plan , the revenues to be achieved for the next calendar year, depending on the number of students, master students and doctoral students registered to study and the fees approved by the Senate. 1. The dimensioning of personal expenses - based on states functions of each university, approved by the university rector and having CFP visa, it is required to prepare the need of personnel for each school and services. Payroll sends to the accounting service, until May 15 of the year before the year of the plan, the amount required for the payment of wages on faculties, departments, services, including debts to the state budget.
89 - based on existing travel business plan at each school or department, it is estimated the necessary of funds for domestic and foreign travel. - based on the price of meal tickets and policy management to grant them the necessary amount is calculated for the payment of meal tickets by accounting department 2. The calculation of material costs - are established on the basis of materials consumption of the previous year and the actual prices at the moment of B: V: C: realization. The data thus determined by the direction of economics, based on solicitation of existing structures at the university, is communicated to the accounting department, no later than on 15 May of the year preceding the year of plan. 3. The calculation of scholarships - depending on the physical number of recipients of student scholarships and the amount determined by regulation, determines the amount required for scholarship payment. The number of scholarship recipients will be forwarded by the direction of computerization at the request of MECI. 4. The way to calculate the necessary of current repairs, capital repairs and new buildings. - the necessary of repairs work is calculated for the next year. It is considered that current repairs is the repair which values up to 5% of the building under repair, capital repairs is the repair which values no more then 60% of the building which need repairs. For capital repairs and new construction work or further constructions, separate proposals are presented per the sources of funding for the nominated works, which will accompany the draft budget submitted to MECI until May 15 of the year preceding the year of plan. 5. The calculation of books requirements, inventory items, etc. - the required inventory of such objects is made and the plan of acquisition is created. Depending on the cumulative values per university the execution modalities of auctions for all types of acquisitions are performed by the economic direction, according to the present legislation. Complementary financing of institutions of higher education is made from amounts from the state budget and from external sources (loans and foreign aid), based on additional contract concluded with MECI. This can be done by: institutional programs or national competition of projects. Institutional programs have some objectives from the strategic plans of universities or support units vital for learning (eg research stations, botanical gardens). National competition of projects is conducted by the procedures used by the National Council of University Scientific Research and the National Council of Financing Higher Education. The grant represent the non-reimbursable amount of money to be given, on competitive bases, to an individual researcher (coordinator of a team of researchers) from an accredited higher education institution for a defined period of time, for an activity of scientific research of the themes of national interest and which contributes to knowledge development. Based on the data received from each section the revenue budget is made by the general administrative director, and if he is missing, by the financial director.
90 The budget of revenues and expenses approved by the Chief Authorizing Officer is submitting by the university to the state treasury where the university has the accounts available, afterwards it becomes operational. Financing investments are made on the basis of lists of investments approved by the M.E.C.I. The budget of revenue and expenditure of the university is final and approved with the quarterly distribution by the Ministry of Education, Research and Innovation, after adopting the state budget. Together with the budget of revenues and expenses it is approved as Annex, the list of capital expenditures, broken down into sources of funding, namely: own incomes, allocations with special destination from the state budget, external sources.
4. CONCLUSIONS
Having the background of amplifying the crisis of financing public education and increasing number of students enrolled in higher education, it becomes necessary to seek new sources of funding and a mechanism for allocating public funds more efficiently. The reduced funding of Romanian education from private sources requires a greater focus on the educational process, in terms of quality as well as to ensure an appropriate level of funding. The state is no longer motivated to finance higher education costs alone, given the fact that he is not the only beneficiary, and even if it was motivated, it would not be able to cope with higher education expenses. Due to this reason, finding new sources of financing higher education is vital for the future of academic education. In 2000 the European Council invited Member States to a reflection on the education system and a substantial increase in investments in human capital. Higher education remained under funded in many EU Member States. OECD studies show that European universities are seriously under funded, while the World Bank report shows the inadequate funding of higher education, which is unable to ensure sustainable economic development. The European governments estimate that they can not allocate a higher percentage of their GDP on education, but are aware that the reduced allocation of funds could lead to a stagnation of knowledge development. Surrendering to the existence of two classes of students from the current system of state education the ones paying taxes and the ones financed from the budget and introducing a new system of subsidies and tax studies, could be a solution to increase the performance in education and a real social protection of students from poorer social classes. In our country, rich and medium social classes are the beneficiaries of funding education from public funds because a large proportion of students come from those classes, given that the poor social class does not allow the "luxury" of maintaining the children in school. The State should promote those transformations from the higher education system that lead to economic development of the country and make it more competitive at European level and beyond.
91 REFERENCES
Corduneanu Carmen (1998) „Sistemul fiscal în tiin Ńa finan Ńelor”, Ed. Codex, Bucure ti; Dinca,G., Korka, M. (2001) „Finantarea înv ăŃă mântului superior: tendin Ńe actuale”, Ed. RAO, Bucuresti; Alberta Gisberto Chitu, colab. (2005) “Contabilitatea institutiilor publice dupa noul sistem contabil”, Ed. Irecson, Bucuresti; Donath Liliana (2007) „Finan Ńe publice”, Ed. Mirton, Timi oara; Mo teanu Tatiana (coord.) (2003) „Buget i Trezorerie public ă”, Ed. Universitar ă, Bucure ti; Mihai Valia Maria (2006) “Restructurarea sistemului de finan Ńare a înv ăŃă mântului universitar din România (tez ă de doctorat)”, ASE, Bucuresti; Muta șcu, M (2005) „Finan șe Publice”, Editura ArtPress, Timi șoara; Nistor Cristina Silvia (2004) „Mecanismul cheltuielilor i veniturilor aferente finan Ńă rii institu Ńiilor de înv ăŃă mânt superior din surse extrabugetare”, in Gestiunea si contabilitatea firmei, nr.9, septembrie 2004, pag.18-19. Roman, C. (2000) „Gestiunea Financiar ă a Institu Ńiilor Publice”, Vol.2, Editura Economic ă, Bucure ti; Văcărel, I. i colab. (2006) „FinanŃe publice”, Edi Ńia a V-a, Editura Didactic ă i Pedagogic ă, R.A., Bucure ti,
92 UNIQUENESS OF ELEMENTS AND QUALITY STRATEGY IN ECOTOURISM
Mirela COSTENCU Assistant Professor, PhD Faculty of Economic and Administrative Sciences, Eftimie Murgu University Re iŃa Romania
ABSTRACT Providing a quality facility or service for tourists is a fundamental part of developing a sustainable product, especially when dealing with the smaller market segments based on natural heritage. Quality needs to be assured all along the tourism chain from first marketing messages through to the provision of accommodation, food, information, orientation.Each one of the ecotouristic products can make an important contribution to the overall level of visitor satisfaction. The uniqueness of the natural elements in an ecotouristic product structure is also an inseparable part of the quality of the respective product and it must be highlighted through the communicational strategy.
KEY WORDS: sustainable development, ecotouristic product, national park, strategy of quality, touristic product Cerna Valley – Domogled, National Park ; JEL: M31 , Q01, Q26.
1. INTRODUCTION
Life quality is a complex and subjective concept and thus rather difficult to quantify. At present a direct connection has been established between life quality, the quality of the environment and implicitly sustainable development. Sustainable development has imposed itself as a necessary and useful model in creating the frame for a structural change of society, from an exclusively socio- economic focus on a development based on reaching the present goals, without jeopardising the opportunities of the future generations to satisfy their own needs (WCED(1999)). Consequently, the ecological principles are essential in the process of sustainable development. The importance of tourism at the international scale as engine of economic growth, as well as the growth rates of this sector, recommend it as a domain of maximum interest for sustainable development.The most valuable form of manifestation of sustainable tourism, in this content, is ecotourism. One thing is nevertheless sure, the increase of the global interest as well as the exponential growth of ecotourism may not be explained merely as part of the line of the recreational trends. This phenomenon reflects a fundamental change in the human beings’ way of conduct and a greater involvement in the environmental issues.
2. THE QUALITY STRATEGY IN ECOTOURISM
In spite of the conflictual interpretations and of the advantageous deployment of the “ecotourism” term within the industry of tourism, one thing is unanimously
93 accepted: the exponentially increasing global interest as regards ecotourism cannot be explained simply as being part of a the wide range of recreational trends. On the contrary, this phenomenon reflects a fundamental change in the vision of the human being as regards the relation with nature. The initial concept, as alternative to the increasing threat, both on culture and on the natural environment of the destination areas, represented by the mass tourism, referred to a discrete tourism, with a minimum impact on the natural ecosystem. For these reasons, a definition of ecotourism (Wearing S., Neil J., (2000)) especially as an alternative form of tourism is difficult to determine with precision. The term in se comprises a wide range of elements, as follows: A form of “alternative tourism” - opposed to the mass tourism; A particular philosophical orientation towards nature; Those tourists characterised by particular motivations; Touristic practices; A touristic product; Levels of technology; Solutions to plannings; An approach of local, regional, national and international policies; A strategy for sustainable development.
2.1. The component parts of the ecotouristic product and their quality
The national park touristic destination, as eco-tourism destination, does not represent a singular tourist product or a singular component since, as a rule, a destination comprises more types of different tourist products. The national park as an eco-tourism product, included into the tourist circuit can be in the same time, a component of more types of tourist products , such as (Costencu M., 2007): holliday destination in nature the host of a seminar regarding ecological subjects / the protection of certain threaten species one night’s halting place for a initiation scene in nature’s mystery. Consequently, the national park has and is able to offer various tourist products that use either simultaneously or alternatively the same technical-material basis and tourist attraction as well. Providing a quality facility or service for tourists is a fundamental part of developing a sustainable product, especially when dealing with the smaller market segments based on natural heritage. The components of an ecotouristic product can be distinguished as follows: basic elements – accommodation, food, transport; auxiliary elements – balneotherapy, recreation, sport activities, educational activities, adventure. As for the basic elements, except the regional, national, traditional specific features, the need for moving or leaving the residence by the tourist is not justified, but they impose quality standards both as services seen as individual entity and services integrated within an assembly.
94 The choice of an ecotouristic destination is determined by: • national factors: geographical position, relief, landscape, vegetation, fauna, climate. • general factors of the past and present human existence and activity: the language, mentality, hospitality, customs, folklore, culture (religion, art, science), policy, economy. • human element: the attitude of local population, tenderers, administration, security and public order representatives against the tourists. • general infrastructure: transport and communication, accommodation structure and image, water and power supply, sewerage, telecommunication. • Tourist equipment: tourist transport, means of accommodation, meals, sport activities, entertainment, information The motivation for choosing a certain touristic product is, to a certain extent, subjective – it depends on the image the customers have acquired about the product by: advertising, previous usage, or previous description of other uses, fact that confirm the need for the existence of a quality chain of the tourist product components.. The basic service offers – components of the tourist product – are necessary but not determinant for choosing the touristic destination. Consequently, the other needs of human being should be taken into account. From this point of view, the „park national” eco-touristic product can be considered as follows: • a real anti-stress therapy • a place to meet the wild nature • return to the origin - for the segment of tourists from the large urban agglomeration, from the high industrialised countries, that live a stressed life due to their multiple and dense concerns whose existence is lack of reverie elements and the possibility to go out in the middle of the nature • a real „laboratory” where we can see life and its ongoing In this context, it is absolutely necessary for all the components – human resources - to qualitatively sustain each other in order to have valid and competitive eco-tourist products. The “national park” eco-touristic product, by its quality, can answer to the tourists` demands in two ways: it has solutions for customers` various problems (need of relaxation, isolation away from the noisy life, documentation, satisfying certain hobbies) it solves certain states of cognitive dissonance by conveying the information (by means of press, TV, radio, school) and eliminating the strains between apparent contradictory previous knowledge. As a marketing instrument of the tourist enterprise, the tourist product has to meet the demand of an extremely heterogeneous and complex motivation, going as far as to its individuality for each tourist, this being possible by creating certain niches and establishing the quality standards at the level of these niches. (St ăncioiu F., coord., (2005)) When we talk about a specific touristic product such as the “national park” , in its quality context, we should bring into discussion the concept of “capacity of welcoming”, the bearing capacity of a protected area, concept appeared in the 70s. The central idea of this concept is that the environment factors set the limits of population that an area can support. When these limits are exceeded, the environment quality has to
95 suffer and, consequently its capacity to support / sustain a certain population or activity. This objective is achievable, as the biological studies can determine the level of use of natural resources in a certain area, thus establishing a regularisation of the access to resources. The welcoming capacity varies inhe time and depends on a series of factors such as: behaviour models of the tourists, the management and facilities design, dynamic character of the environment, the change of the attitude of the host-community, etc. The international practice shows that the „capacity of receiving” hasn’t proved to be as useful as it was expected to be. Those involved are perhaps expected to reveal “„how many are too many”? There are a series of different values and „conceptions” about an "unacceptable impact” defines and involve. There aren’t absolute methods of measurement that are able to define the notions such as "agglomeration” or „ lose of resources”. This is due to an adequate frame that breaks the relation between the visitors' desire and usage / action, and the management consequences and decisions. The eco-tourism, with all its forms of manifestation is thus turned into an adequate solution in this field. Another aspect of the „national park” product consists in the fact that it doesn’t represent a series tourist product, but it is original, new, surprising and it represents a rich source of satisfying the needs therefore the motivation. The natural element is the most important factor in achieving a quality product. The tourists express their desire to spend their spare time in an ecological place; in the same time the recreational activities are considered to be very important and desired. Regarding the accommodation, the tourists are more attracted by the experiences in open air than by an accommodation of „luxury”. Guides with experience are preferred and they can improve the quality of the eco-tourist product. The tourists wish their travel to last at least a week or longer and consider that the national parks and the activities performed there are very important components within an ecotouristic experience. As it has already been shown, the eco-touristic product quality starts from the information and dissemination of the information. In some countries there are marketing researches, educational programmes, as well as a series of other programmes that focus on ecotourism. For example, the National Parks in USA performed a series of research programs and preparing courses in co-operation with important universities in this country. Unfortunately this type of co-operation is not performed in many countries, and this leads to an insufficient number of experts in tourism in protected areas. Thus it is important that a better connection should exist between universities and national parks. This also happens in Australia where there is a co-operation with the universities, this leading to the publication of magazines specialised on tourism in protected areas. The parks represents an important component of the tourism in protected areas and generally of the ecotourism as they are situated in very interesting areas from the landscape point of view and in the same time, they have an infrastructure that attract the tourists. Unfortunately, the most managers of the national parks knows very a little about the global market of the ecotourism and this is perceived by the tourists as a weak point in appreciating the quality. In this respect there are many examples such as: the lack of facilities needed for the foreign tourists` arrival, lack of multi-language
96 publications, the personnel usually know only a foreign language, English, ignoring other important languages such as German, Spanish and Japanese. The reservation of rooms in the national parks in other countries by the foreign tourists is actually impossible, many times the tourist has to bring on him the equipment needed for practising various sports and activities. The access to information, to experienced guides is usually difficult. The co-operation with the air companies, the travel agencies, car renting companies and the hotel chains is very rare. Taking these aspects into account, it is quite odd that such a great number of tourists visit the protected areas. The importance of the service quality. The tourists requires more and more high quality services and recreation opportunities. Those who benefit of quality services during the week days pretend to be offered the same standard by those that deal with their spare time, they want guides owning mach knowledge and communication abilities; they want the ones who lodge them to make them feel welcome, comfortable and part of the community they visit. The eco-tourism in progress presumes a growing demand for recreation services and special accommodation. The most administrations of the parks do not have programmes for their monitoring, and this gives a mark of irresponsibility and primitiveness to the performed activities. The managers of the protected areas and the representatives of the private sector should offer quality services to the visitors, the challenges in this respect include the clear set of services, programs for delivering high quality services and the program monitoring in sites. It is important to keep in mind that this type of sophisticated customers recognise and appreciate the quality of the services and are dispose to pay for
2.2. The strategy of quality in tourism
For tourism companies, the competition at local level is out of discussion, but it is considered at regional or global level. In order to put into practice a strategy aiming the quality, a few fundamental strategies should be observed as follows: - a strategy of quality is based on the tight relationship between the company and the client. - the staff of the company should be organised in multi-functional teams, oriented towards the client. - starting certain processes, procedures needed for fulfilling the tasks within the company and the measurement of the results.; - contacting the clients in order to know exactly what they expect from the respective company, permanent study of the customers` reaction - employing the best-trained personnel and offering continuous training on the company expense. - Company and its personnel capacity to adapt to any new situation occurring without waiting for indications, flexibility to be able to act at the right place and moment. - A permanent open attitude, a continuos desire of self-surpassing. At present, the tourism companies` managers think that their main objective is to improve the touristic products and services quality that they offer. The customers – tourists are not going to accept medium quality services. The unique solution for a tourism company that want to maintain itself on the market and to get profitability is the adoption of the total quality management: „the quality is the best insurance policy of the
97 clients` fidelity, the most efficient defence against the foreign competition and the only way of developing and getting the earnings”(Weleh J., 1999)
2.3. The originality of elements– quality – communicational strategy in the Cerna Valley – Domogled National Park
Within the system of national parks set in Romania, the Cerna Valley - Domogled National Park is the second largest park and the only one comprising a hydrographic basin, as a large ecological unit, unlike the others, which are generally overlapping over mountain massifs. Delimited on a surface of over 62 000 hectares, of which the natural reservations total more than 24000 hectares, this national park represents first of all a unique sample of Carpathian and European beech forests, from the lowest to those climbing up to the limit of the alpine voids forests, and also a true symphony of lime, a harmony between the risk and the life it conquers. The arguments justifying and supporting the integration of the Cerna Valley – Domogled National Park into the touristic circuit may be synthesised as follows: • The Cerna Valley comprises a very interesting geologic phenomenon, the Cerna fault, to which an original geographic conformation is associated; • The wide extension of limestone, which through their nature provide difficult national conditions, general ecosystems with a great anti-entropic capacity and requiring special measures of conservation and protection; • The presence of several thermomineral water springs with remarkable curative qualities; • The area of the Banat black pine tree, extraordinary endemic species grace to its resistance and ecological adaptation; • The area with the optimum beech vegetation, composing here the most beautiful forest areas in Europe; • An important area of climatic and biogeographic interference; • A great richness of flora, with the presence of many; • A great richness of fauna, especially butterflies; • The expansion of all the above aspects over a large surface with continuity; • The remarkable landscape value due to three major elements of landscape: the calcareous rocks, with all its morpho-sculptural originalities, the rich vegetation; the clean and dynamically flowing waters; • The general natural character, little and undetectably modified by man. Creating a quality ecotouristic product implies, as show above, the combination of certain material elements, including attractions, and of certain touristic services observing the quality standards. Moreover, we must bring to the forefront thorough the communicational strategy the elements of originality specific to the park as ecotouristic destination. The strategy chosen in the communicational field must focus on the highlighting of the originality and uniqueness features of the park. One may be use the following “strategic goals”: the negative air ionisation with exceptional values and the bioenergising effects on organisms in the anti-stress cure; thermo-mineral waters – as core of the global system ”national park touristic product” with an almost 2000-year guarantee of results;
98 Adam’s cave – the only cave in the world with flexible stalactites and stalagmites; three species of butterfly unique in the world. We may synthesise by saying that these “strategic aspects” of the Domogled – Cerna Valley National Park can be presented as follows:
Figure 1 – The coefficient of interest triggered by the uniqueness features of the park Source: Costencu M.,2008, p.457
Following an adequate promotion, all these elements of uniqueness may trigger a correspondingly appropriate interest, both for Romanian and for foreign tourists.
3. CONCLUSIONS
So as to conclude, the entire presentation of the Domogled - Cerna Valley National Park supports the idea that this park may be structured into a touristic product “made in Romania”, which, under the circumstances of a rational and efficient touristic exploitation, together with adequate marketing strategies may become competitive on the international market of the “national park”-type touristic products. Moreover, we must also consider the subproduct strategies, which, under circumstances of originality specific to the strategic modules of the national parks’ subproducts, can become basic elements of the marketing strategies regarding the launching of this product on the internal and international touristic market. There is a tight relationship between the services’ quality offered by a touristic company, the satisfaction of the tourist client and the company’s profitability. With the client as central element, the quality represents the ensemble of features and characteristics of a product and service that consists in its capacity to meet the expressed or implied needs.
99 REFERENCES
Costencu M., (2007) “Ecotourism. The national park touristic product”, Editions, Timi oara, Costencu M., (2008) “Marketing of ecotourism. The strategies of the national park touristic product”, Mirton Editions, Timi oara, St ăncioiu A.F. coord, (2005) “Marketing planning in tourism“, Economic Publishing House, Bucharest, Weleh J., (1999) “Quality Programs Show Shoddy Results”, The Wall Street Journal, Wearing S., Neil J., (2000) “Ecotourism – Impacts, Potentials and Possibilities”, Butterworth- Heinemann, Oxford, ***WCED - World Commission on Environment and Development our Common Future Oxford: Oxfords University Press.
100 ENTREPRENEURHIP IN CARA -SEVERIN
Gabriel DINU Lecturer PhD Candidate Faculty of Economic and Administrative Sciences, Eftimie Murgu University of Resita Romania
ABSTRACT Entrepreneurship refers to people, to their choices and their actions to begin, to take or pursue a business or their involvement in decision-making strategy in a firm. Entrepreneurs are a heterogeneous group and come from all over the world. Worldwide, there is an increasing sense of insecurity, anxiety, despite many significant achievements of our time. In addition, the transition to a global society is questioned and marked by numerous enhancing intercultural identities, giving rise at the same time to a tendency towards a kind of a global civilization. Globalization serves to link people and groups previously separated and islanded by time and space, so we can tell, the world became a single place.
KEY WORDS : female entrepreneurship, behavior, motivation, business world, phenomenon. JEL : M10
1. ENTREPRENEURSHIP IN CARAS-SEVERIN
Entrepreneurship refers to people, to their choices and their actions to begin, to take or pursue a business or their involvement in decision-making strategy in a firm. Entrepreneurs are a heterogeneous group and come from all over the world. In other cases, management was hit by the problem of formulation and implementation of an adequate strategy for the survival and development of the business. In the market economy under development in Romania, the lack of alternatives with respect to suppliers and customers places one of the partners in a monopoly position. The term entrepreneur is defined by Re iŃeni, for 42.18% of the subjects interviewed in the same study, as that of a businessman. Instead 51.34% of men define this term by investing money, and 17.77% of women defined it by doing something to make profit. Young people define the term entrepreneur as being the business man, but mature people define it as an employer. Regardless of the occupation category of the subjects, in general, the term entrepreneur is defined by businessman. There are common characteristics of entrepreneurial behavior, including the ability to take risk, the taste for independence and achievement of its own. Entrepreneurship at Caras help create and develop business through a combination of risk taking, creativity and innovation management, through new or existing organizations. - Contribution of C ără ean entrepreneurship to create jobs Increasing the number of new and small companies, makes them become major providers of new jobs. A large increase in the rate of entrepreneurship, records then a decrease of the unemployment rate.
101 At the end of ‘90s, firms with a rapid development have contributed to job creation. For example, in our county, between 2000-2002, the number of small and medium enterprises fell by almost 8% compared to 1997, from 3743 to 3288 companies of profile. A positive contribution to local economic growth, was made by increasing the number of SMEs after 2003, number which reached 5245 companies in 2007, with 42% more than in 2002. In 2007, 41% of county employees belong to the small and medium enterprises. Entrepreneurship can thus contribute to economic and social growth in the area, whose development is already delayed, by stimulating economic activities and job creation to integrate the unemployed or people without occupation. - Entrepreneurship crucial to competitiveness New entrepreneurial initiatives, starting a business or reorientation of an existing one (after transferring a business to a new owner), supporting productivity – increase competitiveness by forcing other firms to react by improving efficiency. Increase efficiency and innovation within the firm, in the organization system, in processes, products, services or markets, increasing competitiveness strength of an economy as a whole. This process gives the C ără eni consumers benefit by choosing the best offer at low prices. -Entrepreneurship promotes personal potential An occupation is not just a way to make money. People have other criteria in choosing careers, such as security, the level of independence, the variety of tasks and interests in their work. 32.29% of Re iŃeni would set up a firm for career and safety, 13.52% are thinking about the economic needs of the area and 11.46% of C ără eni want better social position by setting up a company. For those who can not find a regular job to their satisfaction, the choice of becoming an entrepreneur can come (partly or entirely) of economic needs. Becoming entrepreneurs, they gain the opportunity to create a higher position for themselves. Job satisfaction among entrepreneurs is higher than among employees. An overview shows that 33% of workplaces where people are their own boss without any other employees and 45% of people working as their own boss and have employees, have reported being very satisfied with their conditions of employment compared to only 27% of ordinary employees. Despite ongoing efforts to improve, the entrepreneurs point to bureaucracy as a major obstacle to running a business, especially for those who wish to operate and develop in the European market. The legislation is not generally varied according to the firm’s size and thus disproportionately affects smaller businesses. Local authorities should be encouraged to think about the micro level at first and keep the law as simple as possible and appropriate. To reduce administrative tasks, the Romanian state has established exemptions for SMEs or provided administrative services to support them. Providing information and support such projects can help businesses to fight bureaucracy.
2. GENDER INCONSISTENCIES IN ENTREPRENEURSHIP
Globalization serves to link people and groups previously separated and islanded by time and space, so we can tell, the world became a single place. In our county, although progress has been made in recent years, however there isn’t still an entrepreneurial culture, therefore, state institutions, academic institutions and SMEs
102 acknowledge the need to proceed in this direction. Limited number of studies on entrepreneurship in Romania, made the business itself remain in a continuous state of inferiority (through the lack of resources available to universities and government agencies). Services provided by such organizations are of a very wide range: support to start a business, training, access to know-how, advice on the difficulties arising in the entrepreneurship activity, building a network for members to share experiences. In "National and Regional Women Entrepreneurs' Networks" (national and regional networks of women entrepreneur), Prof. Mariana Dragusin identifies associations aimed at promoting female entrepreneurship in Romania. Dragusin notes that the process of creating networks among women in business in our country is “surprisingly large and dynamic ". In a short period of time, 20 associations have been established across the country. Distribution by region associations of women is relatively homogeneous, with the exception of Bucharest. The situation reflects efforts to increase the potential of women in each region. The largest number of associations is concentrated in Bucharest (35%), the region with the highest number of SMEs and women entrepreneurs. Women entrepreneur association is a necessity, because these associations can defend and promote business women's rights, in a world where business and top management are concepts associated with men rather than women. Association membership and involvement in its activities play an important role in increasing the number of women who establish businesses, and also contributing to their success in developing businesses. At the end of 2007, in Caras-Severin there were 8239 small and medium enterprises. Regarding gender, almost half of them, a number of 3928 firms, representing 47.68% of the total have women as associates. In absolute terms, 4355 women of the county are associated to various companies in the county. Within the entrepreneurship revolution in the business world, women are an essential component. In recent decades, women entrepreneurs were brought into discussion, in many studies, comparing women and men entrepreneurs. In urban areas there are 3446 women associated to 3089 SMEs and in rural areas are 909 women belonging to a number of 839 firms. Women make a substantial contribution to the proper administration of the company, fact which also strengthened by figures. County Office of Trade Register reported at the end of 2007 a total of 3198 administrator women in 3010 business units. 84% of administrator women are in urban areas and only 16% in rural areas, a matter to be speculated when the forming female students will give courses. The decision to start a business for women is more complex, they were usually closer to family obligations than men. Women, especially those with young children are more prone to mention the flexibility and family issues as reason for opening their own business. The reason men have, shows a low connection with the marital status. Points and the motivation to start their own business are similar for men and women. Both sexes have a strong interest for the company. Although the increasing number of women owned businesses is encouraging, their size is reduced in terms of earnings and number of employees, compared to men’s businesses. As already indicated, women specialize with predilection in the services and retail, where businesses are relatively lower as number of employees and earnings, compared to the fields of construction, production and top technology.
103
3. CONCLUSIONS
Creating small businesses in Caras-Severin, is limited because they are few people who have private equity and banking systems offer very limited access to capital. Where this expertise was noted, they created businesses that have used sound effectively valuable management resources, and where access to Western markets was possible some positive results were achieved. There is an increasing sense of insecurity, anxiety, despite many significant achievements of our time. In addition, the transition to a global society is questioned and marked by numerous enhancing intercultural identities, giving rise at the same time to a tendency towards a kind of a global civilization.
REFERENCES
Audretsch D.(2002) „Entrepreneurship: A survey of the literature”; Bygrave, W. Zacharakis, A.(2007) “Entrepreneurship”, John Wiley & Sons Publishing house; McMILLAN, A.( 2007) “Entrepreneurship”, Book point Publishing house; Schaper, M. Volery, T(2004) “Entrepreneurship and small business” John Wiley & Sons Publishing house; *** „Strategia de dezvoltare a jude Ńului Cara -Severin 2007-2013” disponibil ă on-line la http://www.cjcs.ro/strategie-2007-2013.php *** „Programul anual orientativ de dezvoltare economic ă i social ă a jude Ńului Cara -Severin pentru anul 2008” disponibil on-line la http://www.prefcs.ro/oportunitati.php *** „Strategia Guvernamental ă de sus Ńinerea dezvolt ării IMM pe perioada 2004-2008”, disponibil on-line la http://www.mimmc.ro/imm/sector_imm/ *** „Statistici jude Ńene” disponibil on-line la http://www.carasseverin.insse.ro ; *** „Opera Ńiuni în Registrul Central al Comer Ńului, disponibil on-line la http://www.onrc.ro/romana/statistici.php;
104 A NEW BUSINESS - NEW TECHNOLOGY
Loredana DINU Assistant PhD Candidate Faculty of Economic and Administrative Sciences, Eftimie Murgu University of Resita Romania
ABSTRACT Those who start a business have to spend time in that market with their customers or traders, to look and listen. The new company has to develop systematic practice to remember that the "product" or "service" is defined by the client and not by the manufacturer. So that the usefulness and value of products or services be in the benefit of our customers, continuous work is required. The new company should want, after all, to see unexpected success as an opportunity, not as an affront to expertise, and must accept the basic axiom of marketing: "Companies are not paid to reform customers, but to satisfy them."
KEY WORDS: entrepreneur, customers, products, focus on the market, company. JEL: M10
1. INTRODUCTION
For existing enterprises, whether business or public service institutions, the control word in the "entrepreneurial management” term, is "entrepreneurship". For the new business, the word is "management”, for the existing business, the main obstacle to enterprise system is the presence of what it exists, whereas in the new company, is its absence. The new company comes up with an idea that might be a product or service, and that it is possible to sell, sometimes in significant quantities, to bring income and even profits. What is missing is the "business", the viable "present", organized, functioning, and where people know what they are aiming for, what they should do, what results are or should be. But if the new company does not become a new business and if is not "run" will not survive, no matter how excellent the entrepreneurial idea would be, how much money it would invest, no matter how good the products may be and no matter the extent of the request. Refusal to accept these facts has destroyed all the businesses started in the 19 th century by the great inventor Thomas Edison. He had the ambition to become a successful businessman and the president of a large company. He should have succeeded, because he had a special talent to plan business. He knew exactly how to developed an electricity company, to use the lighting bulb, knew how to get the money for its business, its products got immediate success and the request was ever increasing. But Edison has remained an entrepreneur, believing that "running" means to be the boss. He didn’t have a management team and, therefore, four or five of his companies collapsed after they had reached the size of a middle company and could be saved only by replacing Edison with competent leadership. Entrepreneurial leadership of new businesses implies complying with four conditions: - Focus on a market; - Financial caution, especially in planning the cash flow and necessary capital
105 - The management team, even before the new organization needs it or can afford it; - Making a decision by the entrepreneur on its role, scope of works and the system of relations.
2. FOCUSING ON A MARKET
An explanation of the inability to achieve or even to survive is: "We did well until the others came and took our market. We do not understand what happened, because what they offer is not much different from what we have" or:" We did very well until others came and started to sell to customers that we have never heard , suddenly, the whole market was theirs”. If a new business does not anticipate this and, if it doesn’t organize to benefit from unexpected markets, if it does not focus on these markets, unless they allow to be led by these markets, they will only create an opportunity for the competition. There are exceptions, too. A product designed for a particular purpose, especially if scientific or technical, keeps its market. But not always, even a drug which is designed for a particular condition is sometimes used for an entirely different condition. An example may be a compound that is used to treat stomach ulcers. It is possible that the medicine intended for human use to find a very important market in veterinary medicine. An absolutely new product creates markets that nobody has thought of. By 1960, when the first Xerox machine appeared, no one thought they would need an office copier. After five years, nobody could imagine that they could do without a copier. When the first jet aircraft had to be put into operation, market research showed that there were not enough passengers for all the planes that made a transatlantic flight or which were to be built. After five years, passenger jet aircrafts were carrying 50 or 100 times more passengers. The innovator has a limited vision. He sees only the area he is familiarized with. An example is the D.D.T. product used during the Second World War to protect American soldiers against tropical insects and parasites which has found great utility in agriculture to protect crops and livestock, which had to be banned because it was “too efficient". None of the scientists who contributed to DDT have not thought about its utility. They knew, of course, that newborn babies died of summer diarrhea transmitted by flies, they knew that livestock and crops were infested with parasites. But they knew these things as outsiders, as experts they were only concerned for the study of tropical diseases. The American soldier was the one who used DDT in the areas where he was the "expert" being in his house, or on his cattle, on the cotton growing. One company, 3M, was not aware either that the adhesive tape designed for the industry would find lots of uses at home and at work, becoming scotch tape. For years 3M was the supplier of adhesive and abrasive materials for industry and industrial market and was quite successful. They have never thought to the consumers market. Only by accident, the engineer who had designed an industrial product that nobody wanted it, understood that he could sell the product on the consumer market. They say that when the company decided to abandon the product, he took some pieces home. To his surprise, his daughters used it to catch their hair at night. And so it was a new market. In 1905, a German chemist synthesized Novocain anesthesia used as local anesthetic, but failed to persuade doctors to use it because they preferred local
106 anesthesia. (Novocain was only accepted during the First World War.) Quite unexpected was the use of the product by dentists. It is said that the chemist has held conferences in major cities of Germany, combating the use of Novocain in dentistry, because it was not manufactured for this purpose. His reaction was, in a way unusual. Although entrepreneurs know the usefulness of the product created by them, if there is one other use, they tend to reject it. In fact, they do not refuse to serve the customers that have not "planned" for, but it clearly shows that they are not welcome. This is what happened with the computer. The first company, UNIVAC, who manufactured the computer, knew that the machine is designed for scientific activities. So they were very shocked when a company expressed interest to buy. IBM was also convinced that the computer was a device for scientific activities, designated especially for astronomical calculations, but IBM has accepted companies’ purchase orders and supplied them. In 1960, UNIVAC still had the best equipments, but IBM led the market supremacy. The advice for this problem is "market research”. But it is a bad advice. Nobody can make market research for something that is completely new, not yet on the market. Market research made by UNIVAC, in 1950, concluded that in 2000 it will sell two thousand computers, another research conducted in 1984 shows a figure of one million computers. And yet, was the most scientific, the most careful and thorough market research. The only mistake was that it was started from the premise that the computers will be used only in scientific activity and, of course, for this purpose, the number is limited. Several companies refused Xerox patents on the grounds that market research indicate that publishers did not need copy machines. Nobody had any clue that businesses, schools, universities, colleges and many other individuals will have to buy copy machines. Therefore, new firms businesses must start from the idea that the product (or service) can find customers on markets that nobody thought, or usage that nobody has imagined when designing the service or product, and that it may be purchased by unknown customers to this new business. If the new company does not focus on the market from the beginning, it may create a market for a competitor. After few years "those people" would come and "will take the market" or "people who started to sell to customers that we have never heard " will indeed attract the whole market ". In a new company it is not very difficult to focus on the market, which has yet to be made is contrary to the entrepreneur’s tendency. It must systematically seek both the unexpected success and unexpected failure. Immediately after World War II, a small technical company in India bought the license of a European bike equipped with an auxiliary light engine. For India seemed an ideal product, however, had no success. The owner noted that substantial orders were made for engines. At first he did not want to fill the order on the basis that "What can someone do with such a small engine?" Only curiosity made him see what is up with those engines. Peasants disassembled bicycle engines and used them for the irrigation pumps, which until then had been operated manually. This employer is currently the largest manufacturer of small irrigation pumps and is one that has revolutionized the whole system of land cultivation in Southeast Asia.
107 To be driven by the market, testing is also required. If there is any interest of consumers, or markets, initially unplanned, compared to product or service, there must be someone who wants to test the new product or service, and find the use that it might have. It shall give free samples to those people on the 'improbable' market to see what it can be made with them, and if there are any virtual clients. Advertising is made in the newspapers, in areas of interest for these products. Du Pont company did not think that the most important use of new Nylon fiber will be the car tire, but when the Akron company has expressed interest in testing Nylon fiber, Du Pont company has made a battle plan. In a few years the tires became the largest market and most profitable of nylon fibers. The greatest danger for the new organization is "to know better" than the consumer, what should the product or service be, how to buy and what should be used for.
3. FORMATION OF THE MANAGEMENT TEAM
We believe that new business has become successful on a proper market and found the financial structure and systems it needs. However there is the risk that, in some years, it could enter the crisis and this will happen just when is about to become "adult", and nobody seems to understand why. Product quality is very good, prospects are excellent, however, the company cannot develop and the profitability and quality cannot act. The cause is always the same: lack of senior management. The company has increased being led by one or two people, and now needs a management team, which if does not exist, is already too late to build one. In this case there can be hope only for survival, but the company will endure problems forever. Morale is shattered, company employees are disillusioned and cynical, and those who have started the business wake up to reality. The remedy is simple: formation of the management team must be made before the need for it occurs. These teams cannot be made overnight and in order to function, they need a fairly long period of time. They are based on trust and mutual understanding, and for that it takes at least three years. But the small new company cannot allow for a management team because it can not support six senior people with equivalent salaries. In such a company few people make everything, so how can an optimal solution be reached? Whenever the objective economic indicator of a new business (market research and demographic analysis) suggests doubling the business in three or five years, is for the founders to form a management team, which the new company will soon need. This means applying the precautionary treatment. First, the founders and key business people should think to the very important activities of their business. What are the specific areas that depends the survival and success of this company? Most areas should appear on everybody’s lists, but if there are differences and differences of opinions - and there should be - they should be discussed very seriously. Any activity that is considered critical by a group member should be placed on the list. Two companies with business activities apparently identical can have very different key activities. For example, one can focus on the production, other, the services to consumers. There are only two key activities that occur in any organization:
108 people and money management. The rest must be set by the people inside, who know the company, their own jobs, values and goals. Then start the team formation. The founder must be self-discipline and should not be managing the people and handle the problems, if this activity does not suit him. Maybe he should deal with the new products and new technology, maybe of the operating production system, physical distribution, service, or maybe money and financial issues. But all these key activities should be managed by someone who is competent in the respective field. The Chief Executive is the last to take responsibilities and to ensure accuracy of the information required to reduce these responsibilities. The work of the Chief Executive depends on the needs of the company and the importance of the individual. Finally, the goals and objectives for each area must be established. The person who takes the responsibility of key activities must be asked: "What can the company expect from you? What are your responsibilities? What are you planning to do, and when? ". Of course, these are basic aspects of management. At first it is cautious that the management team is not officially established. There is no need to name positions, to make statements or to pay extra. All these can wait a year until the new organization functions properly. Meanwhile, team members have much to learn about their work, about how they work together and about what to do for the CEO and their colleagues. After two or three years, when the company needs leadership, it already exists. If a senior management is not in place before it is needed, the ability to run the new business will be lost before a management team is necessary. The founder will have so many responsibilities that important tasks will not be met. In this situation there are only two possibilities. First is when the founder focuses on an area (maximum two), which matches the ability and his interests. These are indeed key areas, but not the only important ones and for the other ones it does not have anybody in charge. In two years, important areas are given on one side and the business is in great difficulty. The other possibility, which is worse, is the founder to be conscientious. He knows that people and money are key activities that need to be carefully looked after. His knowledge and interests relate to the design and development of new products, but he forces himself to deal with people and financial issues. And because he is not very capable in any area, what he does is very little. He must decide on these matters, so lack of time, makes him neglect the activities which he understands, which is new technology and new products. After three years, the company is as an empty shell without the products it needs, but without financial and staff management. In the first case, the company can be saved, because it has the products. But the founder will be replaced by the person who comes to save the company. In the second case, all it can be made is to liquidate or sell the company. So a new company should build a management team before it is needed, before the respective management team cannot manage the situation, that single person must learn to work with his colleagues, to have confidence in people and consider them responsible for what they do. The founder should learn to become a team leader and not a "star" with "assistants".
109 4. CONCLUSIONS
New firms businesses must start from the idea that the product (or service) can find customers on markets that nobody thought, or usage that nobody has imagined when designing the service or product, and that it may be purchased by unknown customers to this new business. If the new company does not focus on the market from the beginning, it may create a market for a competitor. In a new company it is not very difficult to focus on the market. The entrepreneur’s must systematically seek both the unexpected success and unexpected failure, should think to the very important activities of their business and should learn to become a team leader and not a "star" with "assistants".
REFERENCES
Audretsch D. (2002) „Entrepreneurship: A survey of the literature”; Bygrave, W. Zacharakis, A. (2007) “Entrepreneurship”, John Wiley & Sons Publishing house; Drucker, P. (1993) „Innovation and entrepreneurial system”, Encyclopedic Publishing house; McMILLAN, A.( 2007) “Entrepreneurship”, Book point Publishing house; Schaper, M. Volery, T(2004) “Entrepreneurship and small business” John Wiley & Sons Publishing house; Vaduva, S. (2004) „Entrepreneurship”, Economical Publishing house; Vaduva, S. (2004) „Entrepreneurship – Experiences of USA, Japan and countries of Western Asia”, Economical Publishing house;
110 THE INDEPENDENT PRINCIPALITY OF TRANSYLVANIA (1541-1688). ASPECTS OF THE SOUTH-WEST TRANSYLVANIAN’S HISTORIAN
Florin DOBREI Lecturer, Phd Eftimie Murgu University Re iŃa, Faculty of Economic and Administrative Sciences Romania
ABSTRACT Inaugurated in 1541, the period of Principality represented a period of profound political, social, economical, cultural and religious changes. The Church, an omnipresent institution in the medieval life, went through major transformations, their effects being felt nowadays. This study wants to present some aspects from the Romanians past in the south-west of Transylvania, a territory from the present county of Hunedoara.
KEY WORDS: Hunedoara, Orthodoxy, Principality, Reformation, Transylvania JEL: B15
1. INTRODUCTION
After three years of relative peace, the powerful sultan Soliman I the Magnificent (1520-1566), confronted with the perspective of constituting a strong anti- ottoman coalition under the jurisdiction of the Habsburg’s House, started the offensive to Central Europe. Belgrade was the first conquered city in 1521. The military failure from Mohàcs in 29 th August 1526 where the Hungarian army was defeated by the Turkish and the Buda’s conquering (8 th September) released the fight for supremacy in Hungary the Habsburgs and the voivode John Zápolya of Transylvania – supported by the majority of Hungarian nobles, traditionally hostile to Vienna and having the support of the High Gate – asking the legacy of Hungarian crown’s heritage. The double election – in November and December – of Ferdinand of Habsburg and John Zápolya released a powerful military conflict between the two claimants to Hungary’s crown that lasted more than a decade („Istoria românilor”, IV, 2001, p. 503-507). The hostilities temporarily closed in 1538 when, by the agreement made in Oradea on 24 th February, it was decided that after the death of Zápolya, Transylvania and parts of Hungary ruled by him to be offered to the Habsburgs. The agreement was not respected because on July 1540 the sultan recognized John Sigismund (1540-1551; 1556-1571), the minor son of the late Hungarian king; the conflict started again. Against the Habsburgs expansion, the sultan conquered Buda again (29 th August 1541), transforming the central and southern Hungary into a Turkish pashalic for almost 150 years. The territories on the left of Tisa – Transylvania, Banat, and so called „Partium” (the counties S ătmar, Bihor, Zarand, Crasna, Middle Solnoc, Exterior Solnoc and, sometimes, Maramure ) entered the Transylvania Principality, having the capital in Alba Iulia, under ottoman suzerainty but enjoying a wide autonomy. Transylvania was being lead by the prince chosen by the Dieta and acknowledged by the sultan (Fene an, 1997, passim).
111 2. NATIONAL, POLITICAL, SOCIAL AND ECONOMICAL ASPECTS FROM THE HISTORY OF SOUTH-EAST OF TRANSYLVANIA
The south- west Transylvanian area, Hunedoara county nowadays, faced these difficult times, the economical and political crisis provided by the army conflict between 1526-1538 having negative consequences over the local society. As an example, all those years, the Deva’s fortress and the castle from Hunedoara were the reasons for the fight between those who were loyal to Ferdinand and those who were loyal to John Zápolya. Despite the efforts of keeping them in the group of the Habsburgs till 1535, they were both lost. The situation was not natural as long as the Hungarian noblemen and the Romanian knezes of Hunedoara remained faithful to the king of Transylvania (Pataki, 1973, p. XXVIII-XXXIV; T ănăsescu, 1984-1985, p. 206). The crisis continued after 1540. The Turkish forays from Banat maintained an uncertainty climate deepening the population dissatisfactions. On 1 st November 1550 there was bloody fight in the place called „at the barrier” (the custom from the foot of the Deva’s fortress) between the Feru’s Turkish people – the vanguard of the Kasim’s great army, having the residence in Lipova – and the Romanian people of Török Jànos from Hunedoara; the last won (Floca & Bassa, 1965, p. 17). The sixth decade was not a peaceful one too. Although Soliman I appointed the bishop George Martinuzzi (1541-1551) the governor of Transylvania instead of the minor prince John Sigismund Zápolya, he meant to defend the country letting it, after many secret negotiations, to the Habsburgs. In the five years that followed (1551-1556) Transylvanian Romanian people suffered a lot („Istoria românilor”, IV, 2001, p. 511- 513); the people from Hunedoara felt the shock of those new changes. In front of Deva fortress, considered „the key of Transylvania” due to its excellent position, there was installed a big military camp in the autumn of 1551 under the command of the cruel commander Giovani Castaldo. More than 13,000 of the 60,000 soldiers were Spanish and German mercenaries. The market and Deva’s fortress were devastated and many Romanian soldiers were killed because of the lack of payment of the pays and because of the misunderstandings among them and with the local population (T ănăsescu, 1984-1985, p. 207-208). A petition to the new political authority of Transylvania from the small nobility of Hunedoara showed that the crimes did not stop there. Being grouped in 40-50 mercenaries the Castaldo’s men attacked and plundered all the villages around in 1552. Those who tried to oppose had been killed or ran away and the administrations had been burst out („Istoria românilor”, IV, 2001, p. 511-512). The tragedy of the people of Hunedoara did not stop there. In the summer of 1552, scared by the perspective of ottoman occupation, more than 100,000 people from Lugoj and Caransebe area took refuge in the county by the Iron Gate of Transylvania and Mure Valley. Some of them moved to the centre of Transylvania but most of them stayed still ( uiaga, I, 1985, p. 48). Then, in 1554, a powerful plague epidemic widespread the Transylvania adding to the misfortunes already existing there (T ănăsescu, 1984-1985, p. 208). The Turkish people were not inferior. Dissatisfied by the lost of Transylvania, they launched many attacks over the Austrian garrisons. The first in sight was Deva’s fortress too. But their repeated attacks – a first attack over the fortress in the winter of 1552 of an army of 600 Turkish people and 400 Tartars under the command of the Romanian priest George from Ciurila, followed by another one on 29 th December 1552, both being rejected with great loss – did not hit their target; the fortress was taken
112 instead without fight in 1555 by Peter Petrovici in the name of Isabella, the garrison that stayed there leaving it as a form of protest for no payment of the pays ( uiaga, I, 1985, p. 198). Starting with 1556, the political situation of Transylvania started to reestablish. It was succeeded, as a result of the decisions of the Dieta from Sebe and with the help of the Romanian voivodes over the Carpathians P ătra cu cel Bun of Romanian Country (1554-1557) and Alexandru L ăpu neanu of Moldova (1552-1561; 1564-1568), the bringing back of John Sigismund to rule the country. At the same time, the Turkish people struck the south flank of the Habsburg Empire. Entering through the Vâlcan mountain pass, they attacked and conquered the fortress giving it to the new political authority of Transylvania (T ănăsescu, 1984-1985, p. 209). The internal anarchy continued despite the county’s independence. Under the following princes – Stephan (1571-1575), Cristofor (1576-1581), Sigismund (1581-1597; 1598-1599) and Andrew Báthory (1599) – the fight for the consolidation of the internal independence between the forces that wanted a noble regime and those that wanted a central power with an absolutely monarchic feature spread on the background of the confrontations between the Ottoman and the Habsburg Empire, emphasized the tensions that existed in the Transylvanian society („Istoria românilor”, IV, 2001, p. 514-523). The end of 16 th century promised new changes: the Romanians’ dream of bringing back a ruler of the same people and the same religion was, at least for the moment, fulfilled. In his short reign in Transylvania, Mihai Viteazul (1593-1601), the ruler of Romanian Country, tried to restore the Romanian people in its rights; the situations opposed him („Istoria românilor”, IV, 2001, p. 623-626). By his vile murdering not only a Romanian citizen disappeared but a symbol too. The county of Hunedoara, with its fortresses and inhabitants, fully participated in the events of those years. During the battle of elimb ăr, on 28 th October 1599, a Romanian citizen from Hunedoara – Daniel from Zla ti – left for the Muntenia camp; his valuable information helped Mihai to stabilize the Transylvanian front (Rusu, 1976, p. 161-172). Then, according to the vow of faith of the nobility from Hunedoara, the fortress of Deva (called „our fortress“ by the ruler of Muntenia on 18 th April 1600) and the castle of Hunedoara had been included by Mihai Viteazul in the defensive system of Transylvania. Then, unfortunately, a dramatic episode took place: the slaughtering of 180 soldiers from the Huniade castle’s garrison by the Magyar nobility was followed by the burning of the entire borough, Romanians and Hungarians suffering together (T ănăsescu, 1984-1985, p. 210). At last, in November 1600, the Romanian ruler headed to the imperial court from Prague and was met with hostility all his way through Hunedoara (Vâlcan-Ha Ńeg-Deva-Baia de Cri ), the nobility ordering shoot on him from the fortress of Deva (Floca, Bassa, 1965, p. 19). The fortress of Deva remained in the centre of the events in the following years. In 1601 it became a place of refuge for the prince Sigismund Báthory, recently returned from the Polish exile. From October the same year, as a result of the rejection of Turkish army at its foot by the general George Basta, the fortress belonged to the House of Habsburg. In the „Magna Curia” building the Dieta of Transylvania was convoked on 9th September 1603, where the nobility from Ardeal accepted, under the pressure of the general, to swear forever obedience for the emperor Rudolf II (1576-1612). After two years, on September 1605, the fortress came back to the people of Transylvania after a long exile of prince Stephan Bocskay ( uiaga, I, 1985, p. 200-201).
113 The 16 th century started under bad signs. After the insecure reign of Sigismund Báthory (1601-1602), ended on July 1602 by the retreat from Bohemia and the giving up of Transylvania to the emperor, George Basta – governor, supreme commissary, military commander of the country and of the imperial commissars – got the power. The efforts of transforming the Principality of Transylvania into a simple House of Habsburg, doubled by the efforts of forced catholic proselytism of the country, all of them being realized on a background of a excessive taxation policy, of internal violence, of generalized hunger and of a terrible plague epidemic, lead to obeying to the Ottoman Gate and to the two countries beyond the Carpathians of the princes of Transylvania – Stephan Bocskay (1604-1606), Sigismund Rákóczi (1607-1608), Gabriel Báthory (1608-1613), Gabriel Bethlen (1613-1629), Stephan Bethlen (1630) in the first decade of that century („Istoria românilor”, V, 2003, p. 83-95). In the period that followed the good relations of vicinity of Transylvania with Romanian Country and Moldova, in the context of the common fight for independence to the Gate, became one of the foreign political priorities of the princes from Ardeal, George Rákóczi I (1630-1648) and George Rákóczi II (1648-1660). After 1650 these treaties of alliance had been understood by accurate actions of removing the Turkish suzerainty, finishing with the great action against the ottomans in the autumn of 1659. Unfortunately, the Transylvanian area faced one of the most difficult period of its history; Turkish-Tartar invasions, internal anarchy – the concomitant ruling of Transylvania between 1658 and 1660 by two princes: George Rákóczi II, a promoter of the anti ottoman policy, and Barcsai Ákos (Magyar Romanian citizen from Ardeal, native from the village Bârcea Mare) –, who let behind them a ruined country („Istoria românilor”, V, 2003, p. 182-201); a good example is the city of Or ă tie that was burnt down by the Turkish people of Ali Pa a in 1661 on the reason that its citizens did not punish the run away prince John Kemeny (Dörner, 1975, p. 410). Not even under the following prince Michael Apafi I (1661-1690) the politico-military and economical situation of the country reestablished („Istoria românilor”, V, 2003, p. 341-355). The entire period of the county represented only suffering for the Romanian people of Ardeal. The worst seemed to have been the plundering of the Habsburg army. For example, during the occupation of Deva fortress by the Austrian army of general George Basta, from years 1603-1604, the savage treatment that some villages were put to, determined the local people to do desperate gestures: the grains were taken from the kettles manure, the bread was made by the flour obtained from the dead animals’ bones; there were rumors of cannibalism ( uiaga, I, 1985, p. 50). The Turkish-Tartar invasions were devastating, especially those in 1551-1556 and 1569-1662 (Decei, 1970, p. 97- 118; T ănăsescu, 1984-1985, p. 209). The plague, the natural disasters (drought, floods, fires) and hunger filled up that sinister painting. A legislation against Romanian people was added to all these problems- codified in the law collections Approbatae Constitutiones from 1653 and Compilatae Constitutiones from 1669 („Istoria românilor”, V, 2003, p. 483), with the perpetuation of slavery seigniorial servitudes (Prodan, I, 1986, p. 127) and of a discriminating social stratifying („Istoria românilor”, V, 2003, p. 483-486). Starting with the 17 th century there was equality between the Magyar nobility and nation („Magyar nemzet”). The free peasants got the so called „privileged” new categories, related to some military services: the gunmen, drabantes and libertes. Most of the population was formed by serves and jeleries. The agricultural census at the end of 17 th century shows these movements and social realities (Iona , 2002, p. 17).
114 3. ECCLESIASTICAL ASPECTS. ORTHODOXY AND CONFESSIONAL DIVERSITY
Starting with the acceptance of Transylvania as an independent state in 1541, for the Romanian nation and for the Orthodox Church, excluded from any political and religious rights, it was announced another crisis. In the new political context, the rise of the catholic proselytism was replaced by a subtle and more perfidious one: the introduction of a protestant doctrine and a total obey of the Orthodox Church (P ăcurariu, I, p. 439). We can not talk about a Lutheran missionary among the population in the Or ă tie area; if there were isolated converts they were something else than the consequence of the social opportunism. Without having the political, administrative, legislative and juridical levers of the Principality, the Saxons from Transylvania were not able to impose their Lutheran belief; then, being a privileged people, a mass movement of the Romanian people to the Evangelic Church – in a period when the religion seemed to mingle with the nation – would have endangered that status (Filimon, 1938, p. 15-17; Leb, 2000, p. 33). Calvinism, the official religion of the province, was a proselytism action only. Its only purpose was to bring back the Christians contaminated by the catholic and orthodox heresies (P ăcurariu, I, p. 439). The Calvinist proselytism promoters were the princes of Transylvania John II Sigismund Zápolya, the first prince of Transylvania. He also was the first supporter of the Reformation, the idea of foundation a Romanian Calvinist bishopric fot the orthodox people being his idea. Weakened in the last three decades of the 16 th century under the Báthory catholic princes – Stephan, Cristofor, Sigismund and Andrew (Pâcli anu, 1911, p. 614-615) –, the reformation proselytism kept enough force to be seen in the Romanian orthodox church by the decisions of Transylvania’s Dieta, almost entirely formed up by Calvinist representatives. The unification of the Romanian provinces under Mihai Viteazul, the forced attempts to move Transylvanian people to the catholic religion forseen by the general George Basta, the political anarchy of Stephan Bocskay and Sigismund Rákóczi and the religious tolerant policy of Gabriel Báthory, did not stop the Calvinist offensive (P ăcurariu, I, 2004, p. 438-441). After 1620, due to the European Protestantism, generated by the 30 years War (1618-1648), Transylvania got a status of bulwark for the reformation being active on the side of those against the Habsburg catholic people. That was the debut of the second step of the Calvinist proselytism whose specific purpose was the subordination of the Romanian Orthodox Church to the Magyar reformatted bishopric. The next princes – Gabriel Bethlen, George Rákóczi I, George Rákóczi II, Acatius Barcsai and Michael Apafi I – lead this action, but the ways of convincing Romanians was more developed (Dumitran, 2001-2002, p. 313-314). The attempt of crossing the Romanian people to Calvinist in the county of Hunedoara must have had a careful attention, especially that some princes who lead Transylvania were masters of some lands on the present county and some of them, permanently or occasionally, living in the palace „Magna Curia” from the foot of the Deva fortress. It is about the princes Stephan Bocskai, Gabriel Bethlen (born in Ilia), George Rákóczi I and Acatius Barcsai; the last came from a Romanian family that become Magyar and Calvinist from Bârcea Mare (Floca, Bassa, 1965, p. 21, 31). The case of the prince George Rákóczi I was eloquent. Being in the castle of Hunedoara, he
115 was bothered by the women’s laments from the nearby church and he destroyed it („ ematismul”, 1903, p. 348-349). Alongside the princes of Transylvania, the Calvinist superintendents of the reformatted church were involved in the action of getting Romanians to the Calvinist beliefs. It is about: Keser ői Dajka János (1618-1633), Geleji Katona István (1633- 1649), Kovásznai Péter (1668-1673), Tiszabecsi Nagy Gáspár (1673-1679) and Tofaeus Dobos Mihály (1679-1684). For example, after their insistence, the royal authority imposed the orthodox metropolitan bishops to respect that package of Calvinist rules. Then, naming themselves „vlach bishops” they pretended to be the rulers of the orthodox church of Transylvania, that issue being a simple adding to the Calvinist bishopric. They are the artisans of many measures taken for the mass moving to Calvinist church (Filimon, 1938, p. 48; P ăcurariu, II, 2006, II, p. 56-60, 68-78). Among these opponents of the Romanian church we can mention here: Csulay György (1650- 1660) - successor of a noble family from Ciula, that adopted catholic religion in the 15 th century and, finally, took Protestantism – the initiator of printing Catehismul calvinesc (1642) and Scutul Catichizmusului (1656), but the main opponent of the metropolitan bishop Ilie Iorest (1640-1643) (Dumitran et al. , 2000, p. 122). The reformation’s promoters were members of Transylvania’s Dieta where was established the legislative structure of the Calvinist proselytism among the orthodox Romanian population. Most of them being members of the Magyar nobility, their contributions for maintaining Calvinist proselytism tendencies were seen in the second half of the 16 th century, when the reformation trends kept their value despite the efforts of Báthory princes of reestablishing the catholic religion in Transylvania (P ăcurariu, I, 2004, p. 439). Thus, among the supporters of the Calvinist trend must be included the majority of the Transylvania’s noblemen; the activity of Geszti Ferenc was representative for a Calvinist direction ( uiaga, I, 1985, p. 68). Supporters of the Reformation were the members of the local Romanian families who adopted Calvinist religion and after that became Magyar: Kendenffy, Nalaczy, Budai, Csulay, Ribiczei a.s o. For example, one of the opponents of the metropolitan bishop Sava Brancovici (1656-1680) was Nalaczy István or tefan from N ăla Ńvad (Rusu, 1997, p. 48-49). From a juridical and legislative point of view , the dispositions of the famous laws Approbatae Constitutiones Regni Transilvaniae et Partium Hungariae eidem anexarium (promulgated by the prince George Rákóczi II, on 15 th March 1653, that comprised the articles of Dieta from 1540-1653) and Compilatae Constitutiones Regni Transilvaniae et Partium Hungariae eidem anexarium (a completing of the previous laws of 1654 and 1669, initiated by Michael Apafi I) were representative for the confessional climate of Transylvania of the 17 th century. Not even after 1669 the legislation was more tolerant. Two decisions of the Dieta on 1 st October 1678 and 12 th January 1680 directly hit the Romanian values, partially represented by the priests with a high status. According to these, the orthodox people were not allowed to be ennobled. Those who had that status were forced to present their nobility documents. It was not mentioned that those documents were retained and the holders were left without the prerogatives mentioned in that superior status (Bari Ńiu, I, 1889, p. 135; Marienescu, II, 1911, p. 172; Bichicean, 1992-1994, p. 278-281). Another dispositions have been given by the princes of Transylvania or by the county’s authorities. For the example, at Deva, between 1640-1645, the old orthodox church was stolen by the catholic people, and after 1545 it was passed to the reform
116 people – the Romanians had being given humiliating conditions: to help and to undertake the Calvinist church (the priest’s payment, the teacher’s payment, the bell ringer’s payment), not to go out for (Epiphany, funerals a.s.o), not to hit the bell board and not to draw the bells before the Calvinists. The previous interdictions had been completed on 19 th September 1662, when in the letter to captain Udvarhelyi Jànos and to Michael Apafi I, following the complaint of the preacher David Szentgyörgyi, it was said that the Romanian peasants of Deva should serve him two days of mowing or pay 50 moneys, and the priests were not allowed to do any „superstitious ceremony”. On 19 th July 1679, the prince ordered punishments for not respecting those rules (Lupa , 1940, p. 308-309; uiaga, 1972, p. 25-27). The measures referring to the orthodox churches were incisive. Thus, the reformed authorities disposed transferring some buildings to the Romanian Calvinist communities; it is known the case of Turda ’s church in Hunedoara, stolen in 1652 and given to the 26 calvinist believers from locality (Bunea, 1904, p. 42-43). The passing of some Romanian families to Calvinist religion was accompanied by the transforming of some churches into reformed ones. Moreover, the process was accompanied by a more destroying action for the Transylvanian spirituality whose consequences, at the art church level, are still visible today. It is about the medieval „newiconoclasm” of protestant nature (Muntean, 2005, p. 64-65). The first wave was over the Hunedoara’s churches during the reign of prince Gabriel Bethlen, reaching its highest point in the mid of the 17 th century. The Calvinist structures, opposing to all kinds of icon representations, disposed the plastering, the whitewashing or the destroying of all the paintings from the churches transferred to Calvinist communities.(the fragments of the paintings still have the mutilated faces of the orthodox saints). There are still visible the damages of the churches’ paintings from Densu , Ostrov, Suseni-Col Ńi and Cri cior. The results of the new icon’s persecution were such devastating that not even the heritage of simple wooden churches was preserved (Rusu et al. , 1992, p. 162; Rusu, 1997, p. 46-47). Difficult situations faced the Hunedoara’s monasteries, Transylvania’s legislation being unfavorable for the orthodox monasticism. Being left out by the financial support of old families – now at Calvinist religion – and transferred in the possession of other masters and with debts to the principality’s treasury, most of them ruined themselves. The Suseni-Col Ńi monastery disappeared at the end of 16 th century; the following century the same fate had the Cerna monastery (in this case the orthodox monks were victimized too by the members of Csermenyi family). The Prislop monastery could have had almost the same fate in the 17 th century of being vanished from the map of the Hunedoara’s county (Rusu et al. , 2000, passim). As a whole, the Calvinist proselytism had two distinct periods. If in the 16 th century Romanians were attracted to the Protestantism by their unification in a Calvinist bishopric, in the following century the main target of the protestants in Transylvania was the obligation for every bishop to accept Calvinist conditions (Dumitran, 1999, p. 160). The new plan supposed: the submission of the archbishops and priests to the protestant bishop; support for those who wanted to accept Calvinist religion; the organization of the Orthodox church in a protestant way; the discipline of the clergy and the believers by canonical visits, the introduction of the Calvinist ceremony in the orthodox cult, offering the divorce, giving up the icons, the cross, the cult of saints and so called „superstitions”; giving up The Holy Tradition; the young people must learn the Calvinist Catehism ; the use of the Romanian language in schools, printing works and in
117 the religious ceremonies (P ăcurariu, 2006, II, p. 72-73). These actions had a major impact on the life of the Romanians of Hunedoara. Although the success of the Reformation seemed clear, in reality the new religious trend faced the Romanian traditions, the Romanians’ faith and only a few cases of proselytism were met and for economical reasons too. For example in the Hateg area the changing of „idol icons” in some churches is a proof. We can talk only about a formal Calvinist movement by adopting elements of liturgical practice (Bari Ńiu, I, 1889, p. 149; Filimon, 1938, p. 31-32; Rusu, 1997, p. 45). The Orthodox Church of Hunedoara remained up despite all the difficulties due to the connections of the Romanians with their brothers beyond the Carpathians during the reign of Mihai Viteazul. The circulation of documents from Moldova and Romanian Country, the gifts of the noblemen strengthened the Orthodoxy from Transylvania. The same importance had the connection with Russia by the travel of three monks from Prislop to Moscow for a financial support that was paid to local Hungarian noblemen (P ăcurariu, 1968, passim; Mete , 1977, p. 79-80). The dialogue between the Reformation and the Orthodoxy had positive consequences too. Many books had been translated and printed into Romanian. It is known that the first translations of biblical texts had been done in Transylvania half a century before the Protestantism appeared in Ardeal (Ghe Ńie & Mare , 1974, p. 31; Păcurariu, 2004, I, p. 454).
4. THE OTHER ASPECTS 4.1. Reactions of Romanian population
All the enumerated troubles mixed with the rejection of the Romanian people from the public life of the county (Ciolan et al., 1995, p. 27) had lively reactions among the people of Hunedoara. As in the previous centuries some of them crossed the mountains; in 1552, the Magyar noblemen from Hunedoara complained the authorities that Romanians around Deva ran away in Romanian Country because of Castaldo’s mercenaries; their return was not possible with all the efforts done. Others ran in the forests, the decisions of the Transylvania’s Dieta referring to the groups of peasants retreated in the mountains because of the feudal persecutions (Mete , 1977, p. 79; „Istoria românilor”, V, 2003, p. 486). In exceptional cases many of them took the guns in their hands to get their rights. A first attempt against feudality of the peasants of Hunedoara burst out in the first decade of the Transylvanian principality in 1550 on the land of the Kendeffy family in Râu de Mori. Taking advantage of the absence of the Ha Ńeg nobility drawn in the Turkish-Habsburg conflict on the side of Isabella and of minor prince John Sigismund, jeleries revolted occupying the Col Ńi Fortress and sequestering the family of the Magyar Romanian nobleman; the fury and their number seemed to have been large as long as the price they asked for was 25,000 florins (a sheep at that time cost 1 florin) and it was accepted. A huge expansion was the rebellion in 1659-1660, when more than 600 armed peasants, lead by the Romanian priest Chiril ă, devastated and fired up the boroughs of Hunedoara and Deva. All these were finally failures (Jivan, 1971, p. 86-87; uiaga, I, 1985, p. 52).
118 4.2. Administrative and canonical structures during principality
From an administrative and territorial point of view, the division of the Transylvania’s principality into counties, Saxon and Szekler reign chairs, Romanian and Szekler districts did not suffer important changes from the previous historical period. This structure was maintained in Hunedoara too, in the composition of the county entering Mure , Valea Mure ului, and Ha Ńeg district (Fr ăŃ il ă, 1971, p. 245). After the peace of Oradea in 1538, the northern part of the present county, entered the composition of the new Principality, this situation lasting till 1716, when the entire territory of Zarand was reincorporated to Hungary (Meru Ńiu, 1929, p. 165-166; Belu, 1973, p. 203). In the eastern part of Hunedoara the Szekler reign chair existed in 1550 being made up of 14 free localities (nine of them being situated in the present county: Beriu, C ăst ău, Or ă tie, Pricaz, Romos, Romo el, Sereca, Turda and Vaidei (Nägler, 1992, p. 262-270). In a leading position of the Hunedoara county there was a comite (Magyar nobleman, named by the prince) helped by two vicecomities (the rulers of two circles) and an numerous administrative personnel. The chair of Or ă tie was ruled county lord helped by a royal county lord and by the general council, all of them obeyed to Szekler Sibian University („Istoria românilor”, IV, 2001, p. 734-737). From an organizational point of view the old orthodox Romanian residences had a well-determined structure on the territory of the present county of Hunedoara: Hunedoara („P ădureni” land, the places around Deva, Cerna and Strei), Ha Ńeg (Ha Ńeg area and the Valley of Jiu), Or ă tie, Dobra/Ilia and Cri . All of them were under the jurisdiction of the Transylvania’s archbishops having the residence at Alba Iulia (Binder, 1981, p. 536-538).
5. THE ESTABLISHING OF HABSBURG RULING IN TRANSYLVANIA
The rejection of the ottomans under the walls of Vienna in 1683 by the Austrian- Polish army lead by the king Jan III Sobieski of Poland (1674-1696), opened the Habsburg conquers in Hungary and Croatia against the ottoman’s interests. The successive victories brought the Austrian people till the customs of Transylvanian Principality, still under ottoman suzerainty. Taking advantage of the internal crisis, generated by the consolidation of economical and political positions of the great Transylvanian nobility, opposed to Michael Apafi I, on a background of taking the power by the group gathered around Michael Teleki, The House of Habsburg succeeded to impose its rule over the the Romanian space between the Carpathians. As a result of the imperial political insistence, a first treaty – „the hallerian treaty” (after the name of its founder, Ioan Haller) was signed in Vienna on 26 th June 1686, between Leopold I (1658-1705) and prince Apafi. It followed another agreement on 27 th October 1687, the treaty from Blaj marking the beginning of the Austrian military presence in Transylvania; 12 cities and fortresses from Ardeal had been forced to accept troops and the paying of important sums of money. Despite the Transylvanian society’s opposition, the general Anton Caraffa supported by the military troops from the inner Carpathians, imposed the imperial protection over the Transylvania on 9 th May 1688. Released under the ottoman suzerainty, the land of Ardeal entered in the possession of the Habsburgs („Istoria românilor”, V, 2003, p. 358-374).
119 The consolidation of the new political and military regime in Transylvania was made gradually in a juridical environment, offered by the „diploma leopoldina” (4 th December 1691) considered to have been a real „constitution” of Transylvania; this new political reality was internationally recognized by the treaty of peace from Karlova č (Karlowitz), in1699, reestablished by the Transylvanian status by the treaty of Satu Mare (1711) and, finally, strengthened by „the peace” from Pojareva č (Passarowitz), in 1718, where the Turkey made new territorial concessions in favor of the Austrian people (Banat, Oltenia a.s.o.). In the eight points of the diploma was sketched the new status of Principality. Thus, a governor ruled the Transylvania with a council made up of 12 members, chosen by the Dieta and confirmed by the emperor. The connection between The Court and „Gubernium” from Ardeal was realized, starting in 1694 by the „Cancelaria Aulica” having the residence in Vienna. Other institutional bodies were: „Tezaurariatus” (financial issues), „Tabla” (the supreme law body), „Dieta” of Transylvania (legislative body) and „The general military commandment” (Transylvania’s section of war Viennese council) („Istoria românilor”, VI, 2003, p. 352- 372). From a legislative point of view, the statements of Tripartitum of Werboczy, of Approbatae Constitutiones and Compilatae Constitutiones had been still kept valid, reestablishing the privileged status of the three „indigene nations” (Hungarians, Saxons from Transylvania and Szeklers) and the four „receptes religions” (Catholic, Calvinist, Lutheran and Unitarian). Romanian people remained tolerated with their orthodox faith being refused to have access in the representatives forums of the country. The recognition of the social status had been conditioned again by the affiliation to the Church of Rome; the wrong consequences of the decisions of some clerical leaders – tempted by the political, social and religious privileges promised – are perceptible in the present days (P ăcurariu, II, 2004, p. 290-291).
6. CONCLUSIONS
From the facts previous presented we can say that the Principality represented a period of profound changes in the history of Transylvania, that period being felt at all levels of every day life. From a churches point of view, due to the lack of that aggressive proselytism promoted by the protestant reformation, the face of the orthodoxy would have probably been different. An integrant part of the space between the Carpathians, the territory of the present county of Hunedoara faced the same historical suffering.
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122 POSSIBILITIES OF IDENTIFYING SITUATIONS FOR INTEGRATED ORGANIZATIONAL COMMUNICATION
Claudia-Nicoleta DOBRESCU Assistant, Phd Candidate Eftimie Murgu University of Re iŃa, Faculty of Economic and Administrative Sciences Romania
ABSTRACT The study analyses and develops the concept of integrated communication, offering markers for the founding of internal and external communication strategies of an organization. In the beginning the integrated communication is defined reported to different theories that have succeeded in time centred on public relations. Markers are identified that make possible the Trans- disciplinary analyses so that obtained information be used drafting managing strategies for integrated communication. Strategies can be truly performing if they are made up of correlated constructive actions in the contexts of communication as well as in the situation in which one communicates.
KEY WORDS: communication, information, interactions, context, processors. JEL: J53
1. INTRODUCTION
The concept of integrated communication has successively developed in the measure in which the research results on organizations have generated new theoretical markers with practice appliance. A significant contribution in the field was brought by German theoreticians. Still, at present, the practical appliance is not sufficiently coherent and united and analyses and studies are further necessary which might be conceived in a theoretical framework that derives explicitly from an epistemological Trans- disciplinary option.
2. THE CONCEPT OF INTEGRATED COMMUNICATION
The concept of integrated communication has made up the objects of many debates in the scientific community centred on the public relations and has entered in the focus of preoccupations at the beginning of the 1990s. Berger Rudolf, Gärtner Hans- Dieter and Rainer Mathes (1989) state the necessity of an integrated concept of communication. The studies have revealed that three quarters of these use integrated communication (Bruhn & Boenigk, (2000)). The authors define integrated communication as a “process of analysis, designing, organizing and controlling, which aims to realize a unit from the differentiated sources of internal and external communication, with the purpose to enable a consistent image of the enterprise towards the target groups”. Kirchner (2001) claims and arguments that “an integrated communication of an enterprise, in its organizational and functional consequences means the direction and coordinating of all communication functions of an enterprise on a superior level, the level of holistic communication”. Integrated communication refers to all communicative activities of an enterprise: corporate identity, corporate design, marketing, publicity,
123 investor relations and last but not least public relations (PR). A study carried out at two companies with over 1000 employees reveals the following sources which block integrated communication: each subsystem of the organization tries to solve the problems with an exaggerate level of particularities, without taking into consideration the interests of the system as a whole, the insufficient managing of the registered results as successes within the organization, the insufficient correlation of the communication tools, the thinking of the co- workers is limited to the sector or section that contains their particular interests, integrated communication is not centred on the objectives of the organization, difficulties in correlating some communication tools, no purposes for integrated communication are formulated, fear of losing positions or resources, the lack of availability to coordinate the measure for an integrated communication. The study has shown the decision takers from organizations not posses theoretic markers to settle the objectives and to found strategies for integrated communication. In the same time, the necessity of a structure that should draft strategies and manage communication techniques in order to attain the set objectives is not grasped. The difficulty can be overcome if in the organizations, cognitive activities are carried out according to markers offered by the theories that make possible the applicative studies which do not come from particular interpretations, separated from the social element.
3. THEORETIC MARKERS FOR MANAGING INTEGRATED COMMUNICATION
If we take into account the fact that the organizations function as information possessors in which the people act as organizational care takers through the specialised interactions between them in order to reach some objectives, then the relations between the organizations influence both them ant the persons within them. The interactions are the one who generate informational relations that signify favourable or unfavourable communication for the completion of the set objectives. Communication influences people because the information those make up the object of the relations, their meanings not only orient the peoples manifestations but can also modify the characteristics of the human personality, their functional state of being. These modifications can be according to their meaning beneficial or harmful. Communication may be constructive whenever it satisfies needs of the human being (desires, aspirations, interests) and of the social organization in which he or she is positioned. Communication may be destructive whenever in the relations between human beings nefarious, subversive and right on aggression processes are introduced. If we take into account the fact that, according to their meanings, communications produce modifications in people and the reports among them, and that people sustain the organization through interactions, than informational relations, organized or disorganized, are realized through the circulated information, through the lack of information and blocking of the informational relationship. Informational fluxes are constituted in informational networks that through the consequences they generate, which can be beneficial or harmful for people and organizations alike. The importance of informational relationships in organizations can be more comprising understood if we take into consideration the possibility that certain people would act deliberately, on the inside or on the outside of the organization, in order to hinder the informational fluxes which ensure the functioning of the organization or to orient the organization in
124 directions that remain hidden to itself, to the people involved in running it. Such actions, guided by certain purposes can cause tremendous malfunctions in the organizations and in manifestations of people, or can turn the organizations into “the tools of manipulators” (Dobrescu, (2003)). In conclusion, the problem of informational relations must be in the focus of the people from the organizations, especially the ones involved in managing it. From an epistemological point of view, the decision takers, in the drafting of the communication strategies, must take into account the historiography, practical and future analyses. The mentioned theoretical framework reveals the possibility that within organizations communication to be realised spontaneously at the beginning by itself. Depending on the measures that regulated the completion of some objectives, the difficulties in communication can be overcome due to the fact that they become increasingly clearer and produce decisions mean to improve informational relations on the inside or on the outside of the organization (Culda, (2007)). As a consequence, whenever managing becomes possible, specialised roles and statuses are generated for the designing, organizing and monitoring informational relationships. Managing has as an objective the realising of a united communication from the differentiated internal and external sources and monitoring the informational relationships for a consistent image of the organization towards the target public. The limits of managing are given by the theoretical research but also by the capacity of the organizations to use possibilities opened by the available open objective theories. To manage informational relations, we are in addition presenting frame markers that may found the integrated communication strategies. a. The distinction in between the context of communication and the situation in which one communicates. The context of the communication is given by the ensemble of hindering social elements in which the communication situations form and develop (judicial norms, measures for formalizing public communication, ideological constraints). The communication situation include communication partners, communication objectives, channels that enable the informational relation are from a conceptual point of view dimensions of the communication that demand to be studied, because they imply ample inter- dependencies. For instance, partners can communicate with declared or real objectives a use formal and informal communication channels, more or less transparent. In the same time, the situations in which one communicates include communication contents, their implicit finalities, finalities that are drawn from the influences of the messages on the target group, whether the objectives are declared or real. The difficulties are the consequences and the expressions of the limits and particularities of the people involved in constructing the context of the communication, but also the situation in which one communicates. b. Information, meanings circulated and the support units used. The object of the informational relations is the circulated information and meaning that influence the involved people in communication and through them the communication networks constituted or in the course of being constituted. The used supports sustain informational networks and can modify the possibilities of the communication partners. The energetic supports are informational regulated and constitute an informational significant that influences people involved in communication.
125 c. The main sources of the communication difficulties lie in the contexts of communication and are drawn from the limits of the interpretation and of the interrogation of the interpreting processes. Taking into account the following aspects: errors in public management law giving, public administrative measures, in organizing organizations, in regulating the set roles, in the socializing of people, deficiency in formalizing the social framework for communication and informational relations, in the conception of managing communication in organizations. d. The way in which, in the case of people representations and images are constituted. To the generation of this situation the lack of information may contribute or information that is the consequences of deliberates actions to manipulate people.
4. CONCLUSIONS
If we accept the scientific model for investigations we may conclude that for organizations spontaneous communication cannot be satisfactory. The more organization are complicated the necessities of managing communication become more ample and the managing measures must comprise at least the following activities: activities by which the people are supported to functionally socialise, formalising some channels of communication, producing and bettering data banks, activities that grasp in real time the needs for corrections, informational relations between organizations and partners (the instrumental environment and the social environment). In the undertaking of the activities one must take under consideration the possibility of informational aggressions, of using informational relationship with hidden purposes. In these conditions the gaps between the capacities of the organizations in managing communication have dire consequences for those organizations with reduced information processing abilities, of understanding the problems that are generated by informational relations. Such organizations become vulnerable due to the interior interactions that cannot be functional, but also due to the speculations of other organizations in the noted gaps. The presented theoretic framework through the taking into account of some studies regarding: specializing organizations, connections between private socializing, professional and civic one that generate social competences, differences between the set roles, the assumed ones, the real and functional ones, possibilities for the informational relationships to be symbolical or analytical, involving type need necessities, aspirations and interests in the informational relations between people, make possible the drafting of strategies for integrated communication beneficial to both persons and organization. One may come to the assessment that such strategies cannot be truly performing if they do not comprise constructive actions in order to satisfy necessities of both people and organizations in which they interact and whom they support.
REFERENCES
Berger, R.; Gärtner, H.D. & Mathes, R. (1989), ” Unternehmen Kommunikation , Grundlagen Strategien Instrumente , Enterprizes Communication, Bases Strategies Instruments”, Ed. Gabler, Wiesbaden, Bruhn, M.; Boenigk, M. (2000), ” Integrierte Kommunikation in deutschen Untersuchung, Integrated Communication in German Research”, in Bruhn, M, Schmidt, S.J. & Tropp, J. Integrierte Kommunikation in Theorie und Praxis, Integrated Communication in
126 Theory and Practice, Marketing Review St. Gallen , Ed. Gabler Verlang, pp. 65-86, Wiesbaden, Culda, L. (2007), ” Organizations” , Ed. Licorna, Bucure ti, Dobrescu, M. (2003 ), ”Delinquency - Source of Insecurity. New Markers for Security Strategies”, Ed. Licorna, Bucure ti, Kirchner, K. (2001), ” Integrierte Unternehmen - Kommunikation Theoritischer Grossunternehme Integrated Enterprise Communication of Theoretic Cluster Enterprises” , Ed. Westdeutscher Verlag, Wiesbaden.
127 SOCIAL CORPORATIST RESPONSIBILITY A FORM OF SOCIAL INVOLVEMENT
Mihail DOBRESCU Assistant Professor, Phd Faculty of Economic and Administrative Sciences, Eftimie Murgu University of Re iŃa Romania
ABSTRACT After the 1990s theoretical debates regarding corporate social responsibility (CSR) extended in Romania, but only in the measure in which the academic community managed to acquire knowledge about the studies of western theoreticians. Presently the research is at the beginning and the practical application is based more on the CSR experience of multinational companies. The realized research reveals our preoccupation for the CSR concept, with the interest on the way in which the transparency of social programs is carried out as well as in the credibility of the companies involved in the CSR policies, using social and environmental audit, social bearings and ethical codes. The research reveals the necessity of grasping by the business people of the need for the CSR transparency and the accord between declarations and practical social actions.
KEY WORDS : responsibility, stakeholders, corporations, transparency, credibility. JEL: M14
1. INTRODUCTION
In Romania there is no complete knowledge of the field of CSR and the CSR practices belong mostly to multinational companies. There are partial programs regarding social investments that take the form of sponsorships and donations or corporatist philanthropy. We have however few information on CSR strategies, on the policies of companies of on the groups involved in/ or affected by the companies actions. In this context we have carried out a research in the purpose of knowing the opinions of business people from the Cara -Severin County on two of the most controversial issues in the field of CSR: transparency in the policies of CSR and credibility of the companies that carry out social programs.
2. THEORETICAL FUNDAMENTS REGARDING CORPORATE SOCIAL RESPONSABILITY
The specialty literature has produced a variety of definitions, each illustrating the advantages of the CSR practices. It has been argued that the CSR is “the process by which the managers of an organization think and discuss the relations with the stakeholders as well as their roles in relation with the common wealth” (Basu, Palazzo, (2008)). CSR is thus “the continuous accord of the business to behave ethically and to contribute to the economic development, enriching the quality of the work force and that of the community” (Watts, Holmes, (2003)). In his introduction on the corporate social responsibility from the Encyclopaedia of Public Relations, Rawlins (2005) proposes another meaning for the CSR: “to be good, by doing well”. Therefore, the organizations that practice CSR become favourite employers, chosen neighbours for the
128 community selected vendors for the consumers. Apart from the maximum profitability imperative, companies have also social responsibilities. A large part of the companies’ success is due to the values, expectations and social norms, in a certain sense there is a social contract and this determines corporations to abide by the social objectives. Carroll and Buchholtz (2000) realise a CSR pyramid as follows: economic, legal, ethic and philanthropic responsibility, whereas Kotler & Nancy (2005) realise a typology of the CSR programs: promoting a cause, marketing related to a cause, social marketing, philanthropic actions, community work and business practices of social responsibility. The theoretical fundaments of the CSR reveal that each organization operates within an arena of multiple stakeholders and each stakeholder has different expectations regarding the way in which the organizations should operate. The UN, the EU and the Organization for Cooperation and Economic Development are three of the most important institutions that have become involved in drafting a framework for defining the CSR and setting the markers by which it could be transparently evaluated. The poll has set as a goal to highlight the way in which the companies from Cara -Severin County use the three instruments that ensure transparency and credibility within the CSR: social audit, social markers and ethical codes.
3. METHODOLOGY
CSR, is a form of social involvement with taking into account the interest of all the co/interested groups (stakeholders), from shareholders, employees, business partners such as suppliers, clients, creditors, distributors, to consumers and community; drafting a strategy of social involvement that integrates on the long and medium term in the company’s development strategy and the corporatist communication strategy. Transparency in the CSR policies for corporations is: - To define an ethic code with a set of ethic standards that set the rights and obligations of the company towards the con- interested groups; - To make public the ethic code and to promote it with the employees and business partners; - To draft periodic social reports that should reflect the limits in which the companies respects the obligations it has vowed to uphold; - To make public the marking standards used as well as the auditorium that has drafted the reports; - To evaluate the social investments programs, their impact on the targeted social groups; - To publish the results of the social investments programs. The target audience was made up of business people and their representatives involved in CSR programs. Research questionnaires, with 16 questions have been drafted and which have covered the criteria that define transparency. We have taken into account the credibility as being the accord between declarations and the actions of the companies. The questions in the specified dimensions have tackled the problems of social and environmental audit (social audit and the fields envisaged for auditing), the social reports (publishing the reports, their credibility, the target groups taken into interest and the reporting process), the ethic code (the existence of such an element, its publication), the social investments (evaluating and publishing the results of the evaluation, the evaluating methods used, the fields of social investments, the target groups envisaged for the investments). The research has had two stages, the first being
129 quantitative and the second being qualitative. The qualitative research has been made up of a content analysis of the answers to a set of questions addressed to the persons encompassed in the poll. The questionnaires, which has been carried out on the same sample of representatives for the business environment involved in CSR.
4. INTERPRETING THE RESULTS OF THE QUANTITATIVE RESEARCH
The questionnaires have been answered by 65 business persons and their representatives, the answer ration being 100%. Of these correspondents, 52, 6% claim that the firms are not socially audited and they do not publish social reports. This results in 23, 4% of the companies being socially audited, the multinational companies being predominant. One must notice that 24% of the answering people claim that they are ignorant of the fact whether the firms in which they work are socially audited. The answering people consider that the main problems to be taken into account by a social auditor in their company in order of their precedence should be: the relations with the local communities (82, 3%), the rights and working conditions of the employees (76, 2%), the consumers (62, 8%) and the environment (68, 7%). Of the correspondents 40% state that their firms publish social reports, although only 15, 3% of the companies have published social reports on their websites. 7, 69% of the business persons or their representatives claim the social reports of the firms are not credible and 17, 01% claims that the social reports seem credible. At a ratio of 86% the business persons or their representatives state that their firms posses ethic codes. The main channels by which the firms promote the ethic code are: internal communication channels (82%), training (34%) and corporatist web sites (48%). According to the study the ethic codes address firstly the employees (92%), the shareholders (32%) and the clients of the companies (47%). Of the correspondents 76% state that their firm invests socially and 92% state that the organizations should invest in community problems. 24% of the correspondents state that their firm neither does nor evaluate social investment programs. The ones which claim that their firm carries out the evaluating of the social investment use in the order of importance the following methods: the invested budget (67%), press articles (55, 6%) and reports of the partner ONGs. The fields of investment preferred by the companies are: training and opportunities for professional development for the employees (84%), education (60%), working conditions for the employees (71%), culture and art (54%). The fields of preferred social investments by the employees are: training and opportunities for professional development for the employees (72%), education (67%) and working conditions for the employees (64%).
5. RESULTS OF THE QUALITATIVE RESEARCH
The qualitative research consists in collecting and analyzing the data from a sociological and psychological perspective that explains the attitudes, the motivations and the behaviour of the ones referred to by the studies (Olteanu, 2002). The qualitative research has had the purpose to identify through in depth interviews the problems suggested by the first part of the research. From the answers to the interviews on can draw the conclusion that the transparency in the CSR policies and the credibility of the companies are determined by the ways in which the said companies make public the results of the social programs. These are a proof of transparency and respond to some
130 needs of the stakeholders of knowing what the concrete results of the companies’ actions in this field are. One can also conclude that the social reports are not credible, they have the tendency to exaggerate, the results are unjustifiably optimistic and follow almost exclusively the attracting of benefits for the public image. The concept of CSR is mistaken very often with punctual actions, donations, sponsorships, generally philanthropic actions. Corporate social responsibility is not understood as a management practice, the activities being let to the care of the Public Relations Department. The attitudes towards evaluating CSR programs reveal the necessity for realising the social audit in all stages of carrying out the actions which would allow the establishment of the goals, of the priorities, of the target public, the establishment of precise tasks for the involved team, the follow up for the partial and final results.
6. CONCLUSIONS
The research of the corporate social responsibility CSR practices in the Cara - Severin County brings a plus of information and analysis in the field and may serve to the fundament of the companies’ development strategies. The CRS concept is sufficiently known in the companies with over 500 employees and very well known in multinational companies with branches in the Cara -Severin County Alcoa, Raiffeisen Bank, BRD – Groupe Societe Generale). One can draw the conclusion that transparency and credibility of the companies that practice CSR are determined by the way in which they make public the social programs. The need is felt for a common language and of a unitary perception on the way in which these can be developed. In most companies CSR has not become an organizational culture because the initiatives are not properly communicated to the employees. Each company must constitute a set of CSR values that may exercise a strong influence on the decisions and individual behaviours (Cr ăciun, 2006). Actions are necessary for knowing and realising the recommendations of international institutions (UNO, EU and OCED) which have become involved in drafting the framework for defining CSR and the companies should establish markers through which transparent evaluating is possible. Generally, the conclusions of the research reveal the necessity of developing practices of corporate social responsibility especially through the promoting the experience and good practices exchanges within the European Union, taking into account the international standards in this field. In the future we propose to realise a study regarding the way in which the organizations of the Cara -Severin County build and coordinate the mutual beneficial relations they have with their clients, communities and other employees.
REFERENCES Basu, K.; Palazzo, G. (2008),” Corporate social responsibility, a Process model of sense making” , Academy of management Review , 33, pp. 122-136 Carroll, A.B.; Buchholt, Ann K. (2006),” Business and Society: ethics and stakeholder management”, 6th edition, Thomson/South – Western, Mason Cr ăciun, D. (2006), ” Ethics in business”, available at http://www.ase.ro , Kotler, F.; Nancy, L. (2005),” Corporate Social Responsibility: doing the most good for your company and your cause”, Editura John Wiley, Hoboken Rawlins, B.L. (2005), ” Corporate social responsibility in R.L.Heath” , Editura Sage Publication, pp 210-214, Encyclopaedia of public relation, Thousand Oaks Sims, R. (2003),” Ethics and corporate social responsibility. Why giants fall”, Westport, CT Praeger
131 LOCAL AUTONOMY – TERRITORIAL DEVELOPMENT FACTOR
Ioan DRAGOMIR Phd Candidate Faculty of Economics and Business Administration, West University of Timisoara Romania
ABSTRACT In the countries passing the economic transition period, the interventionist role of the governments began to be replaced, with accent on designating or allocation of responsibilities regarding expenses and taxing. Local authorities were given general responsibilities regarding public functions, new property rights, self-government right, through the chosen representatives. There were easy to introduce these ideas into laws and Constitutions, but also enough difficult the transformation of the general laws into regulations and applying of those. There is a strong connection at local level between local finances and economical development, materialized especially in the efficiency of liquidities’ administration by the local administrations. This aspect is particular important in now days, especially for Romania, in a period when in Europe a new process has been started, the one of more pronounced reconsideration of regional and rural development
KEY WORDS: local autonomy, territorial development JEL: H80, H83
1. LOCAL AUTONOMY – TERRITORIAL DEVELOPMENT CONDITION
European Charta of rural spaces, the recommendation of The European Council formulates the following definition: the rural space means a continental or coast field, witch includes the villages and small towns, where most of the existing fields are used for: - agriculture, forestry, aquaculture and fishing; - cultural and economic activities of the habitants of these areas (industry, services); - recreations and resting function, with non-urbane character or to protect the nature; - other utilizations. The main functions of rural spaces are: - economic; - ecologic; - social-cultural. The international accepted criteria regarding the classification for urban space or rural space is realized through rural population/urban population report: - predominant rural region is the region where over 50% of the population lives in communes and villages; - significant rural region is the region where 15-50% of the population lives in villages;
132 - predominant urban region is the region where less of 15 % of the population lives in rural communities. OECD uses one indicator to distinguish rural emplacements from urban ones, that being the number of habitants per square km (are considered rural emplacements those where population density is not higher then 150 habitants per square km). At European Union level the population density is of 115 habitants per square km. The European Union uses the 100 habitants per square km criteria. In Romania, the statute of a emplacement is established by law, existing villages with a population over 10.000 habitants and also small towns with a lower population. The OECD methodology considers the report between rural regions and national economy as a whole and distinguishes three categories: - economic integrated rural regions; - intermediary rural regions; - long-run rural regions.
2. NECESSARY CONDITIONS FOR THE EXISTENCE AND MANIFESTATION OF LOCAL AUTONOMY
As per European Charta regarding regional autonomy, the applying of local autonomy principles, as they were defined by the European Charta of local autonomy, is not limited only through regional autonomy consecration. The logical report between the two concepts supposes that relationships between the regional autonomy structures and local structures to be governed based on the subsidiary principle. In conclusion, the administration of public activities must be as close as possible to the base administrative structures – villages, cities, municipalities – and only when common interests interfere or the local resorts are insufficient or inappropriate for the regional interest, the competency of regional authorities will be solicited. The two notions are not opposite all the more so as the reports between the two administrative organization levels are based on aspects regarding the national and European solidarity and reasonable solutions, coming from the authorities involved. The regions can not substitute themselves in a competent way to the local authorities, any conflict of competence being based on the applying of the local autonomy principle and the subsidiary principle, where both suppose competent priority of the local authorities. The regions may depute to the local authorities their practical attributions, respecting the internal right and they can exert some competences regarding the financial activity coordination of the local collectivities placed on their territory. Is truth that the internal right does not define the concept of subsidiary, and if it does, as it is the case of the local autonomy principle, it oscillates between the centralized and decentralized conception. Therefore, the necessary conditions for the existence and manifestation of the local autonomy are connected to the applying of the fundamental principle of organizing and functioning of local public administration, respectively decentralization, on a side, and on the other side, the offering of guaranties to the financial autonomy formulated as it follows:
133 - budgets of the territorial - administrative units to be independent, elaborated, approved and executed in conditions of financial autonomy, as it is stipulated by the local public finances law and local public administration law; - the amount of the approved and not collected revenues for the territorial- administrative unit’s budget, as the additional effectuated expenses from it’s budget are not recuperated from the budget of another level; - the cashed revenues during the executing budget process, additional to those approved, remain at the disposal of the local public administration; - any additional depute coming from the state, through the Government, to be followed by the allocation of financial resources; - the financial autonomy has to be based on solidarity principle, fact that has to be stipulated by law.
3. LOCAL AUTONOMY EXERTING DIRECTIONS
In Romania it has been elaborated The National Development Plan of Romania, correlated with the regional development plans. So, through the regional development politic program, disclosed in the Green Charta, have been lay the foundations of some regional development of Romania principles, in order to realize the integration into the European Union. It is tried to underline the idea that the present territorial- administrative structure of the state, characterized by the existence of 42 counties, can not assure an efficient base for regional development. Hereupon, it is being proposed to use a smattering number of development macro-regions, obtained by associating more counties. The Green Charta does not contain adjustments regarding the territorial- administrative structure of the Romanian state, because the macro-regions are economic development structures and not administrative. The most important topics as per the content of the regional plans are: - increasing the efficiency and competitiveness of the regional economy, through: the forming and development of the economic structures, the development of the research organizations, the setting up and supporting some regional organizations for economic development support; - development for the regional infrastructural networks: public roads development, regional airport, cross frontier of regional interest passing points, development of the great establishments of the urban infrastructure; - environment protection; - development for the human resources: setting up a regional network of universities, development of the social assistance institutions, supporting the programs for increasing the cultural level. - organizing the regional space, regional management and marketing, international relationships development. The authors of the Green Charta admit that “the disadvantage of such macro- regions is that they can not be efficient only by voluntary cooperation of the administrative regions (counties) that they are made of. Another problem that the applying of such a project rises is that of the report between regional development politics- stimulated by the Government through different
134 methods- and the concentrated interest in the local development politic of these communities – communes, cities, municipalities.
4. TERRITORIAL-ADMINISTRATIVE DECENTRALIZATION, MEASURE TO REALIZE LOCAL AUTONOMY
Decentralization is considered a problem of deputing attributions and responsibilities to different governing levels. Delegation of responsibilities to local administrations can be based on different considerations, such as scale economy, portfolio economy (appropriate packages of local public services for improving the efficiency through information and coordination of economies), beneficiaries’ proximity, cost-benefit analysis, consumer’ preferences. The responsibilities of different local public administrations reflect the population dimension, its rural or urban classification and fiscal capacity criteria. Decentralization needs the politic authority decentralization and central governing responsibility transfer to local authority representatives, having as effect the responsibilities assumption by the local public administrations regarding the funds usage. Local councils have multiple attributions, starting from studying and prognosis, to revenue and expenses budgets approbation. From public finances point of view, specific literature (Musgrave, Shah, Rosen) suggests some economic reasons for inter-administrative transfers: - solving fiscal-vertical unbalances (inter-administrative transfers are necessary for local budgets balancing); - reestablishing horizontal fiscal balance (local administrations with different fiscal capacities, but same fiscal effort, should have the same income per habitant to be able to provide the same level of services); - indemnification of the public goods provision (keeping a minimum standard of public services considered necessary socially speaking); - neutralizing the externalities, the public services with effect upon other jurisdictions (pollution control, urban public transport); - economic stability and increase (local reduction for unemployment). Decentralization foe expenses responsibilities involves also an argument in favor of fiscal responsibilities decentralization. The most common method of fiscal decentralization is deputing a certain fiscal power to the local administrations and, if necessary, completing the local revenues obtained with subventions from state budget. Another reason for fiscal decentralization is encouraging local responsibility. Local responsibility asks that, in case of a raised expense locally established, the revenue’s consequences to be transferred to local electors, through taxes and consume prices. There are more ways for fiscal decentralization to appear: - local overtaxing (central and local administration split the same taxing basis, but collect different tariffs); - splitting the revenue (central and local administrations split the same taxing basis, but there is one unique tariff and one single authority that establishes the rate). In Romania, the law frame for realizing decentralization exists, but sometimes is incoherent, inconsequent, and the regulations implementing did not always determined
135 the expected results, this fact being influenced by the local public administration capacity to implement the norms in the area. Public administration efficiency can be realized through applying of a decentralization program from the center to the local communities, but also of the financial resources.
5. PRELIMINARY CONSIDERATIONS
The local public administration laws, consecrates fundamental principles on witch public administration is established in territorial administrative units. Respecting the principle is a juridical obligation of all of those who are in touch with or have the quality of being a public authority. On this principle is based the public administration, these being in straight conformity with constitutional provisions.
Local autonomy principle
This principle has a fore-ground place between the other principles that public administration is based in territorial administrative units. Local autonomy does not mean the exclusive right of a collectivity to govern itself in any matter, without respecting the report with other similar collectivities or with those situated at higher levels or at center. Local public administration law defines the concept of “local autonomy” also specifying that through this concept it is understood “the right and the actual capacity of the local public administration authorities to solve and manage, in the name and interest of the local collectivities that they represent, public activities, considering the law conditions given.” This right is being exerted by local councils, and also the counties’ councils. Local autonomy principle is not only a theoretical concept and does not have an abstract content. Local autonomy has as economic fundament its own patrimonial sphere that local collectivities manage as a authentic proprietor, respecting law conditions. The patrimony of witch each collectivity dispose, represents in fact, the development, prosperity and solving problems source, at the superior level of habitants’ requirements. The communes’, cities’ and counties’ patrimony includes not only material goods, but also financial means of witch usage also expresses the autonomy of witch local authorities benefit, the law establishing that the local autonomy is not only administrative, but also financial. Regarding the exerting of the free association right, it is stipulated that local public administration authorities have the right, that respecting the limits of their competences, to cooperate and associate with other local public administration authorities from the country or abroad, being able to sign economic, cultural or cross- frontier agreements as per law conditions. Finally after these concise considerations it is revealed the fact the local autonomy principle subordinates all the other principles regarding organizing and functioning of local public administration authorities, the local autonomy being considered the apotheosis of those.
136
Public services decentralization principle
It is manifested in two directions: ● centralization for public administration In every country there are two categories of interests: some have a general character regarding the main part of the citizens such as the state’s laws, army organization, some others are especially for certain localities such as building a bridge over a river. Basically, centralization for public administration means, on organizational plan, hierarchical subordination of local authorities towards the central ones, to witch they subordinate and answer for the way they are managing. The documents released by the local authorities, in the centralized system can be canceled by the central authorities. The centralized system of the public administration has advantages and also disadvantages. As advantages we mention the following: - the public services functioning under a unique command, - the hierarchical subordinating principle has as consequence the elimination of superposition and parallelism; - it is assured the purpose and action unit of the central and local authorities of the state from all the component links; - the right of control on more hierarchical steps is assured. As disadvantages we present the following: - local interests can find the optimal solve; - over-agglomeration of central authorities and late problem solving; - increased bureaucracy. ● decentralization for public administration Decentralization is a juridical system opposite to the centralization. In this juridical system the local authorities are not subordinated to the central ones, and their emitted regulations can not be cancelled any more by those, but only by the judicial power, or inside a special built jurisdictional system. In the administrative decentralized system, it is recognized the juridical personality of the administrative units and also the existence of the public authorities that represent them. Basically, the level of administrative decentralization depends on: - the number of public services existing in the local public authorities competences; - the way the local public authorities are organized, they can be nominated or chosen; - the form of the exerted control. The specific elements of administrative decentralization that characterize now days the public administration from Romania are the following: - local problems solving is of the local authorities competence, these having general material content, the right and obligation to solve the main part of the problems; - the persons that compose the local authorities, the councilmen, the mayors are chosen by the electoral frame, and the public functionaries are nominated by those;
137 - the reports between these units and central authorities; - the impossibility of the central authority to cancel local authorities norms; - each one of the territorial-administrative units disposes of its own patrimony and budget.
Medium systems of public administration
Defocusing – represents an administrative-juridical system that is situated between centralization and decentralization, being a subdued centralization, or a pale decentralization. In the case of defocusing, the central public authority remains integrant part in the central hierarchical system. As per regulations, the managers of these administrative-juridical units are nominated by ministers, have the competence to solve problems, and the norms they release are followed by hierarchical control. Administrative trust – it is an institution of the public right on witch base a central authority has the right to control the activity of the autonomous local authority chosen. The administrative trust system is more close to the one of administrative decentralization.
Local public administration authorities’ eligibility principle
In the Constitution it is stipulated that mayors, local councils and county councils are “elected” respecting the law conditions. The eligibility of these authorities has a very special political and social significations, witch comes in the first place from the juridical nature of those. This double recognition coming from the state assures in fact the joint of the general interest, of the nation’s ones with the local ones of the collectivities.
Legality principle
Applied at the local public administration, this principle dresses all the organizational and functional aspects through witch administration is made, the consecration only through law power norms of the organizational structures that have the quality of being local public administration authorities, the content and their built, their attributions, etc. The indemnification of this principle, the same as the other principles’ and norms’ is assured, at the last point, through law consecration. Consulting the citizens in solving the local problems of special interest principle
This principle refers to the citizens’ consulting, this thing is made through referendum or any other form of citizens’ participation to the local problems, respecting the law conditions. The local referendum has to respect, as per law, the following: - all the citizens older then 18 years have the right to participate at the local referendum;
138 - the referendum is available only if the number of participants is al least half plus one of the persons registered on the electoral lists; - the referendum can be organized in all the villages and localities composing the commune; - the problems subject for referendum are chosen by the local councils; - the citizens are called to decide YES or NO for the chosen problem. The local referendum respects straight the law requirements for all operation and fazes.
6. THE INSISTENCE UPON DECENTRALIZATION PROCESS FOR THE PRESENT COUNTIES
Even in the situation in witch the territorial reform will not take place, the decentralization process for the existing counties will have not only to continue, but even to be reconsidered in the same time. One of the biggest problems now days is the legal frame in this area, still enough confusing and unclear, aspect that creates uncertainty and locks at the public administration level, local or county administration. In this moment there are more laws that regularize the public services area, a unitary frame to incorporate them does not exist. Beside the aspect mentioned above there must be pointed the fact that there is no specific separation stipulated by the law regarding the public services entrusted for the counties and the ones entrusted for the other localities. Sometimes these overlay aspect that determines the apparition of major conflicts and de-functions. Another unclearness that the existing legal frame maintains refers to the ambiguous differentiation regarding the responsibilities that appertain exclusively to the counties authorities and those that are deputed or shared. The unclearness regarding who and respecting witch limits is administrating the counties and local services does only to affect even more the local management efficiency and to aloud at the same time the accentuation of the political influence into administration. This last aspect is even more obvious at the time when the problem of correlating the services decentralization with the public finances decentralization rises. If in the services area, the central authorities tent to transfer as many as possible responsibilities in a relatively short time, in the finances area does not exist a clear strategy of decentralization. Therefore, the present resources for the counties authorities are insufficient, fact that has a direct impact on the services quality. Because counties represent the medium level of governing in Romania, the next step to be followed be the central authorities and witch does not involve major implications, is to enforce in a real way the counties autonomy by transferring an increasing power, respecting the subsidiary principle. This power is translated through transferring all the responsibilities that obviously can be better managed at county level in the same time with the increasing of the shared revenue quotes of the state budget that are destined for local authorities. In this context, the number and the role played by the defocused public services of the central public administration must decrease. As a conclusion, the enforcing of the counties role should start with the modification of the local public administration law (No. 215/2001) and the local public finances law (No. 189/1998). In the case when the decision factors consider the foundation of the regions, no matter their statute (administrative regions or regions with elected public authorities)
139 they can exert attributions that, as per existing surface and population conditions of Romania, they match in a small length with the existing governing levels. It is about services, such as regional infrastructure, environment protection, certain education and health services segments, regional planning and especially regional economic development. Although the administrative regions and also the political ones can manage these services, the last category can do it in a more efficient way because they own the necessary pries (financing, autonomy, authority) for them. Below we offer a possible model of delimitation of competences on governing levels, including the general competent central level in laws and national strategy area.
7. CONSIDERATIONS REGARDING DECENTRALIZATION IN THE REFORM CONTEXT
There can not be considered directions for reform regarding public administration or territorial organization without taking in count the financial implications, reflected in budgets building for each governing level. On the other hand the process of services decentralization is in straight connection with financial instruments decentralization, and on the other hand without financial autonomy we can not speak about a real local communities’ autonomy no matter the level they are situated. The foundation of a new administrative level supposes not only the regional budget conception, but also the reform for certain legal aspects regarding the local budgeting such as rebalance process or fiscal revenue collecting politic for the state budget. For a deeper analysis of the budget implications there are two principal elements that must be considered. On a side it is about the local communities’ capacity of producing revenues, even if it’s about their own revenues or it’s about the revenues they give forward to the state budget. Another major element is represented by what remains at local level from the realized revenues as much as the way budget balance is made. One of the direct implications that must be taken into consideration is the context created by the regional level through the existence of a real financial autonomy. This aspect is marked principally on the power transfer that is accentuated with regionalizing conditions but also in a better dispersion of the regional budget revenues. Another principle that has to underlie the budget construction in the territorial- administrative reform frame is the supereminence of the incentive principle above the solidarity principle. Taken as starting point in the budget balance construction system, the applying of the solidarity principle accentuated more over the interregional unbalances, not stimulating poor regions to intensify the efforts to produce revenues on a hand and on the other hand accentuating the supposed complaints of the developed region regarding the report between its contribution and what receives back after budget rebalance. It is also imposed the simplification of the financial balance system through reducing the number of parts involved. From this point of view the budgets balancing for the local communities should not remain anymore under the will of the counties authority, the local authorities communicating directly with the Finances Minster. In this mode it is aloud the real orderliness of the regulations regarding the un- subordination relationship existing between different levels of governing. The existence of some regional budgets for economical development coordination and stimulation
140 would encourage in the same time the elaboration of local complementary development strategies and not competitive ones as they are right now. Development regions prove themselves to be inefficient from this point of view, because they are not a synthesis of the regional component counties strategies, the two program documents being elaborated and implemented independently.
REFERENCES
Constantin, D.L. (1997) Institutions and Regional Development Strategies and Policies in the Transition Period: The Case of Romania, The 37th European Congress of the Regional Science Association, Rome Constantin, D.L. (1999), Local Initiatives of Economic Development for Economy and Local Administration , no. 9 Henmanrud, Inge (2000), Local Democracy a Key Factor for Rural Development , AESOP XIV Congress Proceedings, Brno Inceu, A. M. & Dan T. L. (2000), Public Administration , Accent Publishing House, Cluj-Napoca Prelipcean, Gabriela (2001), Regional Restructuring and Development , Economic Publishing House, Bucharest Roy, B. (2000), Fiscal Decentralization, Europe Youth Center Council , April Roy, B. (1999), Implementation Rules for Fiscal Decentralization , World Bank
141 ASPECTS CONCERNING THE TOURIST MARKET IN ROMANIA
Roxana DRUT Assistant Dragan European University Lugoj Romania
ABSTRACT The last five decades mark a strong growth of tourism proved by a fast-growing and diversification of the offer and the demand and the tourist request, in most of geographical areas of the world. Its economic and social importance simultaneously grows on the national and international economic level. In these conditions the tourism became an important field of activity with its own particularities, requests and exigencies that at their turn impose a suitable step in order to modernize all its aspects, including the promotion of a new modern conception in its management where incorporating the marketing is a huge necessity. Besides, the promotion of the concept of marketing in tourism, adapting its methods and techniques to the specific of its activities is a proof of multiplying of the fields of application of marketing, of its extensions in other fields than that in which it first appeared.
KEY WORDS : touristic market, resources, recreation, environment JEL : L83
1. INTRODUCTION
The notion of tourist market isn’t different in its essence, from the content attributed to the market generally by the economic theory. It can be defined as being the confronting economic sphere of the offer of touristic products and services with the demand of tourist consumption of their realization through sale and purchase documents. By its content, the tourist market covers a wide are of processes and very complex economic relationships end very dynamic done by several economic agents having different roles, who develop different activities as for their profile, extent, organization, etc. As a whole, the tourist market represent an important component and at the same time distinct of the merchandising and services.
2. THE FACTORS OF THE TOURIST MARKET
The evolution of the tourist market as a whole as its components is influenced by several factors that determine modifications in its volume and in the structure of the market; several factors influence the group evolution of the market while others influence the tourist offer and demand. The action of several factors could be aimed the evolution of the market at a given moment or in the future. In the end several factors determine the evolution of the internal and that of the external market or only of one of those two. Between the factors that influence the evolution of the tourist market we can name: the touristic potential of an area or of territory expressed by the volume, structure and quality of the touristic resources. If this capacity is only potential, practically its size depends on the way the touristic potential is developed through several actions of touristic development at their turn the size and quality of the work of touristic construction determine the degree of accessibility of touristic resources.
142 The touristic market is still influenced by the degree of the touristic development of certain geographic space. Thus, an insufficiently promoted territory from a touristic point of view offers more extension possibilities of the touristic market on the extensive way, while a wholly promoted territory creates possibilities of extension exclusively on an intensive way. The promotion possibilities of the touristic resources considerably depend on the development level of the infrastructure (general and touristic). Thus a territory with an important touristic potential will be more easily promoted in the conditions of a developed infrastructure and consequently offers greater possibilities of extension of the touristic market. The above factors influence mainly the offer of touristic products and services. Besides several factors act on the demand and through this on the touristic market; among them we can quote: the level of the population’s income, that of the process and fees done the level of the inflation, the geographical factors, the demographical and psychological ones, etc. The evolution of the touristic market is also influenced by the action of specific factors among which the length and the display of the holidays (vacantion) the spare time, the promoted social politics in order to satisfy the touristic needs of certain social categories, etc. All these factors determine the evolution of the tourist internal market. Some of them differently influence the external touristic market. There are also other factors that exclusively determine the external touristic market, such as: the political factors, the international climate, the legislation (especially that concerning customs and borders) the degree of concentration of the touristic market. We should also mention the short-time factors, usually with short action but who in certain periods can determine reorientations of the touristic flows.
3. CHARACTERISTICS OF THE TOURISTIC OFFER AND DEMAND
Generally the physiognomy of the touristic market is determined by the specific aspects of its two correlative categories – the offer and the demand . Their content, their way of formation and manifestation in time of confronting and reciprocal adaptation, etc, could be found in the dynamic of the market and express the measure of the development of the touristic activity. The two big components of the touristic market- the offer and the demand – are characterized by several elements that definitely make the difference between them from those specific to the merchandise market.
3.1. The touristic offer
The touristic offer is defined by the ensemble of the attractions (natural, historical, etc.) to which could be added the organizing capacity of the network (infrastructure, the technique and material basis and so on) and who may satisfy in certain conditions the demand of the population. We should also mention that regularly the ensemble of the natural and historical attractions are very important for the choice of touristic destination. It results that the touristic offer is made of two big groups of elements: the elements of attraction, that exist only potentially at a certain moment and the services offer throughout which they are promoted. In their ensemble these two groups of elements make the real offer.
143 Characteristic for the attraction elements is the fact that they haven’t the same touristic value all over the year because if they are associated with the climate conditions they present certain variability in time and they determine the season choice. As concerns the services offer, it contains a somehow variable part (the stuff in the tourism units, the retails in public food retailing) and another part (the infrastructure, the technique and material basis) fix, rigid that can’t be moved in space in order to meet the demand. The components of the offer haven’t the same importance in the process of satisfying of the touristic need. The order differs from an individual to another and because of this there is the practical possibility to compensate of the former for the latter according to the variety of the touristic motivations. Thus, it is necessary to combine the elements from the structure of the offer in such way that they could compensate the possible diminution of the attraction factors or even the temporary absence of the natural conditions favorable to satisfy the demand. Finally, because of the multitude and particularity of its components, the touristic offer has a strong complementary character in the varied nature of the attraction elements and the quality of services that make the touristic product and the different profile of the economic agents the provide their providing.
3.2. The touristic demand
The touristic demand expresses a sum of superior needs, which at their turn determine different behaviours of purchase of the touristic products and services. The global evolution of the touristic demand makes obvious some of its basic characteristics such as: • It is a demand in proportion of 70%-80% national; • It is a concentrated demand; Europe and North America concentrate approximately 90% of the world touristic demand; • The main component of the touristic international flows is represented by the intraregional tourism (2/3 of the international touristic demand is represented by the trips between the countries of the same continent); • In most of the countries the touristic demand has a pronounced season character and it is concentrated in some months of the year (except for the trips made with other aims than holidays such as, the business tourism and that of congresses, etc.) • The average annual growth of the international touristic circulation registers lately a drop tendency (8,3% in the decade 1960-1970; 6% between 1970-1980; 4,6% between 1980 – 1990), tendency that could be assimilated with the touch of a level near maxim of the touristic demand ( for instance in the North Europe countries more than 70% of the population make annual trips); • In its ensemble the touristic demand is extremely flexible compared to the action of the influence factors. The high flexibility of the demand is directly manifested suffering important changes under the action of its own factors of influence and crossed over by the modification of the prices for the less flexible merchandise ( for instance, the food) and affects at certain extent the touristic demand. The touristic demand is characterized through a high degree of mobility determined by the rigid character of the offer. If theoretically, the distance traveled by the tourist from his residence area to that of touristic interest can be limitless because of the cost of the trip and of the time needed for the trip, there is a geographical area that
144 particularly attracts the tourists: for instance the week-end tourism is developed in certain area with a quite precise delimitation; The touristic demand has a heterogeneous character because it expresses needs of great diversity: practically the demanders are constituted in distinct segments according to the behaviours manifested towards the different components of the touristic offer according to the nature of the need that is to be satisfied. The multitude of the components of the offer, on one side, the universe of the needs, on the other through preferences, tastes, motivations, etc. On the other side it makes the configuration of a complex picture of the characteristics of the demand that could be found in the behaviour of the consumers of touristic products and services.
4. THE MAIN TOURISTIC RESOURCES’ OF ROMANIA
Endowed with several spectacular forms of relief, harmoniously mixed on the territory of the country, and having a favorable climate for tourism, all over the year endowed with a rich fauna, with several historical monuments, of art and architecture. Romania can satisfy by its touristic resources mentioned above the preferences of several segments of the touristic demand internal and international. In Romania the natural setting is rich varied and complex with a particularly harmonious landscape structure. The complexity of the potential as well as its degree of attraction, generally, are in a narrow connection with the relief and progressively grow from the plain to the mountain; the Black Sea seaside resorts and the reservation of the Danube Delta Biosphere are exceptions. The Romanian Carpathians The Romanian Carpathians cover 36% of the surface of the country and impose in the national touristic ensemble as an important touristic area, although they have important rivals in many European countries such as the Alps or the Balkans, Pyrenees or Tatra, the Romanian Carpathians present some particularities that confers them a lot of originality, that means that they have the capacity to kindle winter sports fans, mountain climbing and mountain hiking. The Carpathians accessible from anywhere, offer favorable conditions for a complex promotion in tourism, for their basic forms – rest and treatment and for the specific ones – winter sports, hiking, mountain climbing and potholing, hunting and fishing. Our potholing potential has a well-known esthetic and scientific value. This disposes of 10900 caves, Romania having the 3rd place in Europe. There among these large caves, true underground karstic rivers and water falls (Topolnita, Cetatile Ponorului, etc.) or floor developed systems some of them being with rich and beautiful concretion ( more than 300) and other with rare minerals or with rock paintings (Pestera Cuciulat, Pestera lui Adam and others). Most of them by their scientific and esthetic value are single at the national and international level, being declared Monuments of Nature or speleological reservations, such as: Topolnita, Cetatile Ponorului, Sura Mare. The cave from Izvorul Tausoarelor, the Glacier from Scariosara Closani, Ursilor from Chiscau, etc…. many of them already belong to the touristic circuit. The mountains as Muntele Mic, Tarcu, Parang, Rodna, Fagaras, Bucegi allow the building of ski-slopes and cable means of transports in the stream system, from the inferior floor (900 – 1000 m) to the superior one, on the mountain (2200 m) allowing a successive promotion of the skiable domain and the extension of winter until April – May. In the Carpathians an important climbing domain has developed, especially on the
145 East side of the Southern Carpathians, the climbing Centers from Busteni, Brasov and Sibiu being nationally and internationally recognized. There are more 325 routes with several degrees of difficulty. For winter and summer climbing localized especially there where are Glaciers and the steep limestone such as Piatra Craiului (218), Retezat (71), Apuseni (69), Cheile Bicazului (42) Fagaras (11) etc. Plain lakes They are very many and partly converted by man; they also have important touristic valences: balneotherapy (Amara, Balta Alba, Lacu Sarat), pleasure and sportive fishing (Snagov, Caldarusani, Mostistea, Galatui, etc). Another part of attraction, but especially for pleasure and rest, have the Colentina Lakes from the North-East part of the capital (Straulesti, Baneasa, Herastrau, Floreasca, Tei, etc). By the physic and chemical qualities of the water many lakes present a therapeutic interest. The salt lakes are also used in salt Sub Carpathian Hills (Sovata, Ocna-Mures, Bazna, Ocna-Dej, Someseni, Cojocna, Ocna-Sibiului, Slanic – Prahova and Telega), rich in saprogenic sludge of great balneal and medical importance. The Romanian Seaside has many lakes with fresh water (Siutghiol, Tasaul, Neptun, Jupiter) or with salt water. An important palace is occupied by the hydro energetic whose waters and dams that complete the landscape around already belong to the circuit of the touristic sites or for nautical pleasure (Vidraru, Izvorul Muntelui – Bicaz, Vidra, Portile de Fier, Valiug, etc) The Romanian Black Sea seaside The first touristic area of the country is more than 45% of the Romanian accommodation basis and an important touristic potential. Although apparently the therapeutic resources of the seaside are considered to be the salted water of the sea that by its chemical composition (salinity 17 – 18 mg/l) and by the waves action strengthens the organism and intensifies its activity as the beach with its sand; in reality we are talking about more natural factors: the sea bio-climate, the mineral and mineralized waters from the drillings the salt lakes and the therapeutic sludge. The Romanian beach sheltered at the feet of the cliff between Constanta and Mangalia with a wide extension and opening to the seaside has an orientation that allows the exposure in the sun all the day long (more than 10 hours) that we rarely meet in Europe. The beach is natural, it has 400 – 500 m heights in Mamaia and Techirghiol and 50 – 200 m for the others and the quartz and limestone sand with a high purity and a middle granulation is most of the time dry. The absence of tides allow the optimal use of the beach and the low salinity enables the nautical sports especially the underwater ones. There are two types of mineral water on seaside: the deep ones brought by drilling (Mangalia, Neptun, Eforie) and the salt lakes. The therapeutic sludge is one of the most important cure factors. It is in some lakes from the Romanian seaside. Among these the sludge of Techirghiol occupies an important place concerning the exploitable reserves and their therapeutic value. The Danube and the Danube Delta The Danube represents the most important international river in Europe crossing it from West to East, on 2860 km. from near the Rhine to the Black Sea. On the Romanian territory between Bazias and the Black Sea, the Danube travels over about 1075 km., on its wholly navigable crossing we can distinguish four areas with different landscape and touristic aspects: Bazias – Portile de Fier; Portile de Fier – Calarasi; Calarasi – Braila and Braila – the Black Sea. If the first three areas together make from the navigation point of view “The fluvial Danube”, where ships can navigate with 2 m
146 draft , the fourth one, by its morphologic and hydrologic characteristics, allows the ships with 7 m draft. The Danube Delta has an area of 4340 km² and is in fact a terminal low plain that is depositing alluvia. A common work of the Danube and of the Black Sea, The Danube Delta is a “raw” landscape still being built, a real “natural living laboratory”, where, an exceptional dynamic can be noticed at the level of all its natural components. Morphologically and hydrographically all over the delta we can distinguish on one side the hills ( the dry wood) the are 13% - 16 % from the whole area, and on the other side the temporary or permanently water covered areas. The arms of the Danube, the rivers, the channels, the lakes, the swamps), that have a huge importance. The Antique Vestiges All the long of its existence, of more than 2000 years the Romanian people created a very rich and varied cultural patrimony, all of it being used in touristic purposes. Romania disposes of monuments that by their specificity could be considered unique in the world. We can exemplify with the Dacian Cities in the Orastiei Mountains that resisted many years the attacks of the Roman Legions, the peasant cities from Transylvania, the wood churches from Maramures, the monasteries from Bucovina, Moldavia and the North of Oltenia, Eminescu’s poems; Brancusi’ sculptures, Enescu’s compositions and Grigorescu’s paintings. An important lace is occupied by the military fortifications built on ancient Dacian sites. Drobeta where one can see the ruins of Trajan’s bridge built by Apolodor of Damasc, Tybiscum (near Caransebes), Potaissa – Turda, etc. The ruins of aedile buildings – temples, amphitheaters, thermals, palaces, all of them showed a high level of economic and social development in those ancient times of mixing the two civilizations – Dacian and Roman – that lead toe the birth of the Romanian people. We can also speak about the customs and habits, the folklore, the national costumes, the language and the hospitability of the Romanian people, as well as the contemporary attractions created by man (the hydro energetic buildings from Portile – de- Fier, on the Danube, the Danube –Black Sea Channel. The Parliament House in Bucharest, and many social and economic, technical and scientific achievements, etc.
5. CONCLUSIONS
Having a rich and varied touristic potential, Romania was always situated among touristic destinations recognized and appreciated all over Europe and all over the world (in the 70’s, Romania was among the first 20 touristic destination of the world). This was seen in important arrivals of tourists, offering to our country the status of receptor. During the last 25 years, Romania gradually lost its fame it had on the touristic market because of the absence of preoccupations concerning modernizing and diversifying the offered products and to the development of the infrastructure. The tendency was accentuated by the negative image of our country (generated by dictatorial regime or by the inadequate behaviour of some of our compatriots after 1990). Romania’s integrating the UE offers the opportunity to regain the position our country had in the world and European tourism and even its improvement.
147 But this supposes efforts of adaptation to the new exigences of the market, doubled by an improvement of the image of the country. Thus Romania’s promotion as a touristic destination represents a priority of the sectoral politics and strategies. The mechanized Hell and the monotony of the urban life determine more and more city-dwellers wish space, freedom to move, nature. Prisoner of the city, man discovers nature in order to be free.
REFERENCES
BRAN Florina, MARIN Dinu, SIMON Tamara, Economy of Tourism and Environment, Editura economica, Bucarest, 1998 BALAURE Virgil, CATOIU Iacob, VEGHES Calin, Touristic Marketing, Editura « Uranus », Bucharest, 2005 www.ase.ro Digital library
148 TRAVEL PROFILES OF EU CITIZENS IN 2008
Florin FRANT Assistant Phd Candidate Laurentiu FURDUI Phd Candidate Eftimie Murgu University Resita, Faculty of Economic and Administrative Sciences Romania
ABSTRACT Overall, in 2008, two-thirds of EU citizens (67%) made a private trip where they spent at least one night away from home; 58% took a vacation, defined by a stay somewhere away from home for at least four consecutive nights for private reasons. In the more affluent parts of Europe (e.g. most of the pre-2004 countries), it is normal for more than three-quarters of citizens to take at least one trip per annum; in the rest of the Union (primarily the post-2004 Member States, but including Portugal) – about half of the citizens travel each year. The most popular holiday destinations of the EU holiday makers in 2008 were Spain, Italy, France and Greece – and these countries dominate the current plans made for 2009.
KEYWORDS : tourism, travel, holiday JEL : O16, F18, F15, R11
1. INTRODUCTION
As to how many people will actually take a vacation in 2009, the picture is not clear. At the time of the survey (February 2009), 28% of EU citizens were undecided about the type of vacation they want to take. Many of those yet to make a decision are probably hesitating as to whether or not they will take a vacation, rather than making a choice about the type of holiday. Unfortunately no earlier data exists that could support any projections about the likely percentage of the undecided groups who will eventually not take a vacation away from home. (For the same reason it is also unknown whether or not the current number of undecided citizens is above the „normal ‟ proportion characteristic to this period of the year.) At the time of the survey, the proportion of those who are certain that they will not travel in 2009 (19%) was below the proportion of non-travellers in 2008 (32%). It remains to be seen what proportion of the currently undecided ones (28%) will eventually take a holiday. Four in ten Europeans travelled in 2008 and have holiday plans for 2009. However, 17% travelled last year but are still hesitating about a holiday in 2009 – their eventual decision will be critical for the European tourism industry. This segment amounted to a relatively high percentage (of all residents) in some of the largest Member States in terms of tourist “output”. The survey showed that 23% of Dutch and Italian, 21% of Spanish, 17% of French and 16% of German and British respondents belong to this “vulnerable” tourist category in terms of prospects. The focus of tourism seems to be shifting in a more domestic direction: in 2008, 43% of respondents took a holiday in their own country, this compares to 48% who will take a holiday in their resident country in 2009 (of those who already know their 2009
149 destination). Significantly fewer travellers have current plans to travel to other EU countries in 2009 compared to 2008 (24% and 31%, respectively). Non-EU destinations, however, gained some popularity, probably due to the increasingly favourable exchange rates for euro area travellers to many destinations (among those who plan a holiday and already know a destination 28% plan to visit a non-EU country, which is slightly more than the 26% in 2008). Most citizens who did not take a holiday in 2008 said this was due a lack of the necessary funds. About 4 in 10 Europeans who have plans to take a holiday in 2009 felt they have sufficient funds to do this (41%). Almost as many (40%) said that they would need to make extra savings. About 1 in 10 (11%), however, said they had serious financial problems that could impact their holiday plans. There were only six Member States where a clear majority who planned to take a holiday were confident they could afford to take a holiday in 2009: Finland (69%), the Netherlands (66%), Sweden, Luxembourg, Denmark (all 62%) and Austria (60%). A few patterns in the data might show where the economic downturn might have the most affect on the tourist industry. Respondents who have planned more substantial holidays (more than two weeks or a combination of longer/shorter trips) are more confident about funding. Over half (54%) felt there would be no financial problems vs. 45% of those planning shorter trips. Those who preferred alternative locations were slightly more optimistic compared to those who like to travel to classic destinations (44% vs. 41%). European travellers would first give up winter holidays (42%) if their finances were not sufficient to meet their total holiday plans. A quarter (23%) said they would save money by travelling during the low season (currently half of the EU citizens ‟ holidays take place in July and August), and 20% said they would consider staying closer to home (this tendency has been seen in the 2009 plans, with a markedly higher share of domestic vacation plans). Last-minute booking could also gain more popularity: 12% would consider this strategy to cut costs. Finally, 15% said they would (be able to) save on accommodation and 8% on the type of transport. Europeans were most likely to travel for recreation (47% indicated that this was the main objective of their 2008 holiday). Another 20% were specifically motivated by the possibility of a beach holiday and a further 17% focused primarily on cross-cultural experiences (e.g. visiting cities, cultural events etc.). On average, European tourists prefer value for money (33%) over “low price” (16%). Safety and security at the destination was important for 13% of respondents and 12% indicated that they usually focus on quality – not necessarily in conjunction with the associated costs. Cost in itself is an overriding concern in countries where the survey found - proportionally - the least people taking a holiday. This shows that a lack of disposable income on the part of a large section of the population is a barrier to travel. Countries, where “price” is clearly the most important factor are Hungary, Poland, Romania, Latvia and Lithuania. Most Europeans preferred to spend their holidays in conventional tourist destinations (54%). About half as many, 28%, would rather go “off the beaten track”. Those attracted to non-conventional destinations were most likely to indicate that they appreciate the couleur locale (48%) at these destinations.
150 Non-conventional, emerging destinations might want to anticipate relatively more guest-nights than the overall 28% popularity might suggest. Those who favour such locations were more likely to indicate that they will travel in 2009 (19% of the former said they do not plan to travel this year compared to 27% of those who preferred conventional tourist de stinations). Additionally, they were also more likely to say they are planning more substantial holidays. When choosing holiday destinations, most Europeans named the actual environment of the location (e.g. its overall attractiveness) as being the major consideration (31%). Cultural heritage (24%) and entertainment possibilities (15%) were the second and third most widespread criterion for choosing a destination. A majority (56%) of holidaymakers across the EU said they had organised their main holiday themselves. Sixteen percent had booked travel tickets or accommodation through a travel agency and one-fifth had opted for a package tour, either booked through a travel agency (9%) or via an online travel provider (10%). Holidaymakers who spent their main holiday of 2008 in their country of residence typically booked their travel and accommodation individually (72% compared to 47% who had travelled to another EU country and 42% who travelled outside the EU). Europeans generally preferred non-institutional sources of information about vacation possibilities: the three most preferred sources were – in part or totally – independent of the tourist industry. Most respondents said they primarily relied on word-of-mouth information when deciding about holiday destinations: 57% utilise social networks to obtain information about travel destinations. Almost a third (31%) of respondents indicated that they relied on personal experience when choosing a destination. In those countries where respondents relied most often to the personal experiences of friends and family when choosing a holiday destination, holiday-makers were least inclined to refer to travel agents and vice versa. The Internet has clearly become the most influential “non-personal” information source for holiday planning: 38% use this medium that provides commercial information as well as peer reviews and recommendations. Those respondents who prefer going “off the beaten track” rely heavily on the Internet: almost half of those interviewees indicated that they seek information online. Mass media channels like newspapers, TV and the radio were least likely to make any of the two most important sources where Europeans obtain inputs for their holiday decisions.
1. MAIN ASPECTS OF TRAVEL PROFILES
2.1 Proportion of EU citizens who travelled in 2008
Seven out of 10 (71%) EU citizens said they had travelled at least once in 2008, while 28% had not travelled during that period. Note: travelling was defined as spending at least one night away from home, for private or business purposes. In 2008, 65% had not taken a trip in the previous year. Looking at all EU citizens (as shown in the chart below), this means that 71% had travelled at least once in 2008, 9% had not done so in 2008 but had made at least one trip in 2007, and 19% had not travelled at all (i.e. in either 2007 or 2008). Almost nine out of 10 Swedes and Finns
151 (88% and 87%, respectively), and 84% of Dutch, Irish and Luxembourgers had travelled at least once during 2008. In Hungary, on the other hand, only 45% of citizens had made a trip during that period. Other countries at the lower end of the distribution were Romania (51%), Portugal (52%), Malta (53%), Bulgaria (54%), Latvia (56%) and Slovakia (58%). Hungary and Portugal (44% and 37%, respectively) had the highest proportion of interviewees who had not made any trips in 2007 or 2008. In Sweden and Finland, the share of non-travellers was 6% or less. The proportion of respondents who had not travelled in 2008, but who had made at least one trip in 2007 ranged from 5% in Finland to 13% in Romania and Malta.
2.2 Short private and holiday trips in 2008
The previous section looked at the proportion of EU citizens who had travelled for private or business purposes in 2008 and, to an extent, in 2007. In the current section, we focus solely on travel for private or holiday purposes – distinguishing between short private trips and holiday trips as defined below. Short private trips: spending between one and three nights away from home for private reasons (including short holidays) Holiday trips: spending four nights or more away from home – on holiday - while staying in paid accommodation or in a second home. Two-thirds of EU citizens said they had travelled – for private reasons – at least once in 2008: 39% had made at least one holiday trip and at least one short private trip, 19% had made at least one holiday trip but no short private trips, and 9% had made at least one short private trip but no holiday trips. The individual country results showed a similar ranking of countries as we saw for the results of travel in general (for business and private purposes – section 1.1). Half or more interviewees in Hungary (59%), Romania (51%), Portugal and Malta (both 50%) had not made any holiday or short private trips in 2008. In Finland, Sweden, the Netherlands, Ireland and Luxembourg, on the other hand, less than a fifth of respondents had not travelled for private reasons in 2008 (between 13% and 19%). Furthermore, a majority of interviewees in the latter Member States – and in Spain – had made at least one holiday trip and at least one short private trip: 57% in Finland and Sweden, 54% in Ireland, 53% in Spain and 52% in the Netherlands.
152
In slightly more than half of the EU Member States, the proportion of respondents who took a holiday during 2008 was greater than the proportion making one short private trip. For example, while 7 out of 10 Slovenes said they had taken at least one holiday in 2008, only slightly more than half (53%) had made at least one short private trip. Short holiday trips were as frequent as, or more frequent than, longer ones in Finland and Sweden, and in some eastern European countries: Bulgaria, Lithuania, Latvia, Estonia, Slovakia, Hungary, Romania and Hungary. For example, 49% of Lithuanians went on at least one holiday trip in 2008 compared to 54% who made at least one short private trip. The likelihood to have travelled for private reasons during 2008 decreased with the respondents ‟ age and increased with educational level and occupational status. For example, while 52% of the least-educated respondents had not travelled for private reasons, this proportion decreased to 18% of the most-educated respondents. Those living in rural areas were also less likely than city dwellers to have travelled for private reasons in 2008. Furthermore, older respondents, those with lower levels of education, rural residents, manual workers and those not working were – relatively speaking – more likely to have only made short private trips or holiday trips and they were less likely to have made both types of private journey.
153
It should be noted that some of the differences across socio-demographic groups observed at the EU level were much more pronounced within the individual country results. For example, while 45% of Hungarians living in metropolitan areas had not gone on holiday in 2008, this proportion increased to 70% for those living in rural areas. In Austria, on the other hand, the respondent ‟s location of residence had much less impact: one-fifth of Austrian city dwellers had not made any holiday trips or short private trips during 2008, compared to a quarter of rural residents. When comparing responses for the total number of trips taken and the number of trips made for private reasons, it appears that only a minority (4%) of EU citizens had only travelled on business. One-sixth of EU citizens had travelled for both business and private purposes, while 50% had only travelled for private reasons.
2.3 Travel frequency of short private and holiday trips
Focusing solely on respondents who had made short private trips in 2008 , it appears that a majority had made one or two trips (33% and 24%, respectively). Only 16% had made more than five such trips. In almost all Member States, half or more of these respondents had made one or two short private trips (ranging from 51% in Ireland to 82% in Malta). In Malta, Cyprus and Portugal, a majority had only made one short private trip (55%, 53% and 52%, respectively). More than four out of 10 Finnish and Swedish respondents – who had made short private trips in 2008 – went on at least four trips (48% and 41%, respectively). In Malta, Cyprus and Belgium, on the other hand, only approximately 1 in 10 respondents had made at least four short private trips in 2008 (between 9% and 12%).
154
However, if we look at respondents who had been on holiday during 2008 , it appears that almost three-quarters had made one or two holiday trips (45% and 27%, respectively). Only 6% had taken more than five holidays during 2008. The travel frequency for short private trips was higher than for holidays (i.e. respondents were more likely to have made more than one short private trips than to have taken more than one holiday In all Member States, a majority of respondents – who had been on holiday during 2008 – had made one or two holiday trips (between 59% in Finland and 86% in Slovakia). In 10 Member States, at least half of the respondents had been on holiday only once (ranging from 50% in Italy to 65% in Hungary). Interviewees in Finland and Sweden were – once again – the most likely to have taken four or more holiday trips (28% and 22%, respectively). In Malta and Belgium, and six more Member States, less than one-tenth of respondents had been on four or more holiday trips.
Socio-demographic considerations It was noted before that older respondents, those with lower levels of education, rural residents, manual workers and those not working were less likely to have made both type of private trips. The socio- demographic analysis of the number of short private and holiday trips in 2008 showed that respondents in some groups were also less likely to have made more than one or two such trips: respondents with lower levels of education, rural residents and manual
155 workers. For example, while almost half (46%) of the most-educated respondents – who had made short private trips in 2008 – had made at least three such trips during 2008, only 30% of the least-educated respondents had done so. Amongst the latter, 42% had made one short trip and 24% had made two such trips (compared to 27% and 25%, respectively of the former). The effect of age on the travel frequency was dependent on the type of travel. The frequency of short private trips was highest among the 25-39 year-olds (31% made at least four short private trips in 2008 vs. slightly more than a quarter of those in the other age groups), while the travel frequency for holiday trips was highest among the over 54 year-olds (19% made at least four holiday trips in 2008 vs. slightly more than one-tenth of respondents in the other age groups).
2.4 Evolution of short trips (business or private)
Half (51%) of respondents – who had travelled in 2008 – had made as many short trips (for business or private reasons) in 2008 as in 2007. An almost equal number said they had made more (22%) or less (24%) short trips, in 2008 compared to 2007. From this fact alone, it appears that there was no substantial change at an EU level in the overall numbers of short trips. The proportion of travellers who had made the same number of short trips in 2008 and 2007 ranged from 39% in Lithuania and Estonia to 60% in Finland. Maltese, Romanian and Latvian citizens were the most likely to have made more short trips in 2008 than in 2007 (35%, 34% and 33%, respectively), while Estonians were the most likely to have made less short trips (35%).
The socio-demographic analysis in terms of the evolution of short trips from 2007 to 2008 did not show many differences across socio-demographic groups. The largest differences were found when comparing respondents in the different age groups. While more than half (59%) of the over 54 year-olds – who had travelled in 2008 – had made the same number of short trips (for business or private reasons) in 2008 as in 2007, this proportion decreased to 38% for the youngest respondents (15-24 year-olds). The numbers of short trips varied more from 2007 to 2008 for those in the latter: 28% said they made less short trips (vs. 21% of the over 54s) and 32% said they made less such trips
156 3 CONCLUSIONS
The globalisation of the markets, has created competition pressures but has also opened up opportunities, with tourists from new markets (such as China, Russia and India) able to afford high value vacations. Attracting more tourists to Europe will favour the creation of growth and jobs. The complexity of tourism and the broad diversity of involved actors require the collaboration of all stakeholders in the planning and implementation of related European policies and measures. Community institutions, national administrations, professional organisations, employers and employees, NGOs and researchers, should build up partnerships at all levels to improve the competitiveness and demonstrate the importance of European tourism. The development of the collaboration and partnerships in the framework of the renewed policy can be reviewed regularly during the European Tourism Forums. This Communication presents what and how the Commission intends to do in the area of tourism within the current EU legal framework in order to better exploit the growth and job potential of the sector in a sustainable way. It also highlights the way the various stakeholders can be involved in the Community actions. The renewed policy addresses all principal aspects of European policy making and allows the constructive collaboration of everyone concerned. Its degree of success depends of the response and active involvement of all stakeholders.
REFERENCES
www.eurostat.eu Viitorul durabil al Uniunii Europene, 2008 www.europarl.europa.eu/news/public/, 2008 www.ier.ro, studii regionale, nr.3, 2008
157 THE AUDIT OF PROJECTS FUNDED BY STRUCTURAL FUNDS
Mihaela LESCONI FRUMU ANU Assistant, Phd Candidate Jeanina Biliana CIUREA Lecturer, Phd Candidate Adela BREUER Lecturer, Phd Candidate Faculty of Economic and Administrative Sciences, Eftimie Murgu University of Re iŃa Romania
Abstract: This work represents a theoretical research on concepts auditing projects financed by funds, which was followed by other works that will surprise various practical aspects concerning the procedures and techniques used. The sculpture can be seen as a guide information for those who wish to access funds non-reimbursable post-accession, there's no communication better between the recipient and auditor, being surprised at the various documents underlying the grant financing (guide applicant, financing contract, manual implementation), but opinions among the various experts in the country and abroad.
KEY WORDS: financial management, auditing, project funds JEL: M41 , M42
1. THE AUDIT OF PROJECTS – DEFINITION AND ETYMOLOGY
In the vision of the European Commission main bodies which are involved in the audit funds are: European Court of Auditors (the auditor's external European Commission); services Commission; the services of Member States of Audit; institutions Supreme Audit of the Member States; audits of individual final beneficiaries. The American Institute of the Public Authorised Accountants presents the audit as an ordinary examination of the financial situations, made by an authorised public accountant, in order to express an opinion conceding the correctness of these documents which are presenting the financial situation, the results of the operation which were made and the changes which interfere the financial situation of the organisation, in agreement with the accountant principles generally accepted.(The Audit Standard nr .1). The origin of the word “audit” came from the Latin word “audire” and it means to listen, the citizens who are living in England gave this word the meaning of evaluation, accountant examination, and balance. In Romania (The Urgency Order of The Government nr 75/1999 examining the activity of the financial audit, re-examined in The Official Monitor of the Government from august 2003), presents the financial audit as an examination activity, in order to be expressed by the financial auditors, an opinion above the financial situations, in agreement with the audit standards, harmonized with the international standards of audit which were adopted by the Financial Audits Room from Romania.
158 In Law nr. 672/2002 examining the internal public audit, this expression is defined as representing an independent functional and objective activity, which gives assurances and consultancies to the leadership for a good administration of the public finance and expenditures, to improve the activities of the public entities; helping the public entity to accomplish the targets with a systematic and methodological approach, which evaluates and improves the efficiency and the efficacy on the leadership system based on the risk administration and the control of the administration proceedings. In the Solicitor Guide for financing the Operational Subdivision Programme for Developing the Human Resources, the public internal audit is defined as being “an independent objective activity which offers advises to an entity in order to express the control above the operations, guides it to improve the operations and by a systematically and methodically approach helps this entity to achieve its targets, evaluating and making proposals of improvement for the efficiency of the risk management, control and leadership processes”. The Romanian Dictionary defines the idea of project from an economical side, technically and as a plan, but in the management concept of the European Funds this must be defined as being totality of all the organized actions and activities, with the purpose to achieve some targets. The concept of project is defined, in Manual de auditoria de gestion, as being “the operation which is not divisible, limited in some calendar terms and to the budget which follows to be elaborated under the responsibility of an agency on which it executes and, nearly the place where the project takes part, the resources which are allocated for the intervention. In the opinion of Mariana Mocanu and Carmen Schuster, the project involves the execution of a temporary activity which has the scope of creating a new product or service, and the targets of this project are grouping themselves in objectives which are aiming the project’s speciality., targets conceding the cost and the finance, but targets which are aiming the finalization terms. Project’s audit represents the major modalities of evaluation, researches less or more formals among each aspect with financial content, and with all these arguments, the audit of a project is more flexible and, if someone requests, it might be concentrated above only one aspect of the project but more complex. In Manual de auditoria de gestion we are dealing with the concept named management’s audit, which represents an audit of a good financial administration, and specially of the economy, efficiency and effectiveness and the way they are used in EU funds by different economic entities, practicing their attributions. The economy principle says that an entity which is controlled must offer in a certain period of time the necessary means to develop their activities in the adequate quantity and quality, at the best price. The efficiency principle refers at the connection between the resources which we are dealing with the results obtained. The efficacy principle refers at the accomplishment of the specific objectives and the obtaining of the main targets. Elena Dobre, in her writing “Project’s Control and Audit” (Dobre E., 2007) states that “the audit of the financed projects is based on a complete study and the understanding of the established clauses in the finance agreement which must not be returned, a special attention for the quality aspects of the project, according the procedures test and the demands which are established by the financial agreement or in other document made in consent with the one which finances”.
159 In these sense there are realised: • nature’s analysis and verification, expenditure’s legality and correctness; • the account’s audit for the third person; the expenditure confrontation with the accounts special designated and with the project’s budget; • checking the incomings; • information’s regarding the specified localisation of the residence where the original justificatory documents are kept if those documents must be verified by the European Committee or Account’s Court. Irina Manolescu, in her writing named “Project’s Management” (Manolescu I., 2005) defines the project’s audit as being a well detailed examination of project’s management, procedures and utilized methodology, budgets and the way the objectives are affected. The project’s audit might be an internal audit or a external financial audit as all the organisations might search an internal auditor which depends for monitoring the accomplish of the project or they may appeal at an independent auditor for certifying the resemblance of the project’s achievement. Having the fact that auditing the project represents the achievement of a post- control, which does not have as a target, only, the change of something which just happened, but to surprise the main causes of the project’s success or failing, for exploit them in the future projects. All these underline the fact that the project’s result, no matter if it is positive or negative must be understood and evaluated. Evaluating the project as a hole we may understand the evaluation of its finality but the project’s evaluation in the essential points of its life. An auditor may resume the differences between the success and the failure of a project distributing them in four fundamental concepts (T. Ingram, 1995): 1. The Objectivity in order to establish the scope, the budget, the deadlines which are very well established and solutions. Because one of the main causes of a failure represents the lack of objectivity in order to establish these parameters, the decisions which are affecting the initiation of the project and the establishment of all the initial parameters must be protected to facilitate and diligence, inadequate. 2. The necessity of an experienced personal at the standard levels of the project. The existence of an experienced personal as for the client, and from the contractor as well serves at: keeping an attitude of cooperation and which tries to solve the problems between both parts; the impose and the establishment of the main targets which must be achieved and of those which might be already gave for use, using professional management techniques and maintaining a permanent contact with the client in order to achieve the project. 3. The Authority in correlation with responsibility. Since the project has establish a certain scope, but in general limited by time and budget, it is necessary that if the target must be achieved, the project manager must have the authority to make agreements between these targets( scope, cost, time). 4. The total accountancy of all the operations and project’s activities. The accountancy evidence must be held in a responsible way as well as it may assure that all the parts which are implied are accomplishing their well structured parts. The accountancy must present in detail all the aspects which are written in the contract and all the buying orders. These must include details referring at the project manager, at the one who made the estimations, at the providers, at the contractors and of course, at the client and the ones which are using the product in final.
160 2. THE CONCEPTS USED IN THE PROJECT’S AUDIT
We will present some concepts which are met in the realization process of the project’s audit. The Audit Authority represents the public authority, at a national level, responsible with the verification of the management operations and the control system for each operational programme, which functions independently by the Management Authority and by The Certificated and Order Authority. In Romania, for these operational programmes the Audit Authority functions among The Account Court. The Audited Entity represents any activity of an organisation which is audited. The Object which is audited represents the elementary activity of the area which is audited, of whose characteristics might be theoretically defined and compared with the practical reality. The audit’s circuit represents the establishment of the fluidity of the information’s, the attributions and their responsibilities about information’s, as well as the archiving of the evidence complete documentation, for all the levels of any action, which may also allow the reconstitution of all the operations from the entire cost till the individual details and his opposite. The audit’s way represents a painting, a representation which allows the verification and the reconciliation of the entire costs certificated to the European Committee, with the registered detailed accountings and the evidence documents which exist at the authorities level from the management and control system of the Member State, including the beneficiary concerning the operations which are financed from communitarian funds and forms state’s budget. The Mission concerning the stipulated procedures represents a kind of service from which an authorised financial auditor according the law pledged himself to solve those procedures which seem to look as an audit, for which the auditor agreed together with the entity and also any other person which is interested and reports over the effective ascertained facts, without having an opinion. The Internal Audit Mission develops the idea of how an audit mission should be managed from its beginning and until the final internal report is done, as well as the recommendation following. (Mare G., Nicolae D. C., Pitulice M. G., Costinescu C, 2007). The Audit’s Report presents the general aspect of the mission representing the internal audit, these missions objectives together with the ascertains, the conclusions and the auditor’s recommendations. The Ethical Audit , encountered in the specialized literature, has the utility and the relevance in the decisions which are evaluating a case meanwhile the project of the management is being done. To Evaluate means to estimate and establish the object’s value which is done by this project. The evaluation of a project appreciates and estimates all its progresses in comparison with its performance objectives established in the beginning of the project, or in comparison with the evolutions and the performances of other projects which are similar to this, as well as the decisions taken in process of the project’s management. In the Spanish specialized literature regarding the relation audit-evaluation, there are presented some resemblances and differences. Among the resemblances from the project’s audit (auditoria de gestion) and the evaluation activity, we can remember the fact that both activities imply the change of
161 procedures and politics, results of their putting in application, as well as the economy evaluation, efficiency and efficacy of an entity or an activity. Both need abilities and experience similarly and using almost the same methods for collecting and analysing the dates. Their main difference is the way those are realised and their objectives. The project’s audit is part of a responsible arrangement, which means that the committee, the institutions and the ones which are in benefit, must respond on the administration of the European Funds and they should gave important information’s which might be used to determine the way for what they were managed, assuming the responsibility by the way they are settled. Thinking at the fact that all the things which were mentioned out there, normally, in the project’s audit there can be included some material elements. Considering the evaluation systems and the information’s which were obtained for evaluating the quality of those information’s, in case in which those are considered to be satisfactory, there might be used as audit researches.
3. FORESEES OF THE PROGRAMATIC DOCUMENTS CONCERNING THE AUDIT
Now we will present some foresees of the documents, which are staying at the base of receiving a finance which should not be refunded, concerning the project’s auditory. In the matter of the obligatorily of achieving the project’s audit, the finance contact contains the beneficiary obligation to contract an external authorised auditor, member of a recognised mechanism, in order to set up a activity audit report, registration and project’s accounts, realised respecting the audit standards in use today. As well, in accordance with art.9 from Financial Contract, the beneficiary has the obligation to keep all the original documents, including the accountancies documents, concerning the activities and the expenditures which might be done in order to obtain an ad equated way of audit, in resemblance with the communitarian and national orders. The beneficiary has the obligation to ensure the entry without any restriction of national authorities which are having some cheeking attributions, control and audit, of European Committee Services, of European Account Court, of officials from specialized service of the European Committee-European Office for Fighting Against Fraud, as well for the officials from The Department for Fighting Against Fraud, in the limits the law allows them, in the case where they may execute cheeking/examinations/audit at their place and they are asking for declarations, documents or any other information. In case in which those rules are not respected, the beneficiary is obliged to give back all the money that he received, from that project, representing financial assistance which must not be refunded from structural instruments, cofinancing and financing the equivalent value tax on the added value paid with funds from state budget, after case, including the interests/penalties which must be paid. Concerning the change of the auditory, this must be pontificated by writing, to the Management Authority or to the Intermediate Mechanism, with at least 15 days before the date that he wants that his modification may cause effects.
162 4. THE AUDIT FINANCIAL PARALLEL-PROJECT’S AUDIT
In case of projects, the audit is defined as a reexaminationand evaluation of the project with his numerous forms and targets and typical problems which are always met in the management of this project audit or evaluation. As regarding the proceedings used in project’s audit, these are similar with those used in financial audit, each one represents a careful investigation of the subject/object which must be audited, the results are different, the project’s audit is not a financial one. An important difference between those two problems is that that financial audit has a limited scope, focusing at the way in which it is kept, utility and recovery of the actives and passives of the audited organisation, meanwhile the project’s audit it is more generalised as a scope and it may take care of the entire project or distinctive elements of it. In the next table we are emphasize from the project’s audit and the financial audit.
Financial Audit Project’s audit Auditable objectives, financial position, The project with its points, The Mission performances, internal control, internal activities, tasks and its results. audit of the organisation. It does not establish for technical aspects, technologically and Level of It establishes a percentage and absolute involving qual ity. For costing significance cost in order to some indicators (total budgets and time there might be actives, business percentage, and profit). calculated levels of significations with the acceptance of the project manager. It is obvious and it is confirmed that the We must take a look at a actives, the passives and the commercial comparison base ( a plan) and it must Progress/stage operations together with th e standards which be confirmed a stage of realisation in can be accepted. time of any type of project’s target. It has as a main point the economical The status and the future Anticipation situation of the firm(finan cial status and its evolutions of the project. performances) . The appreciation is made in Way of The appreciation of the financial status financia l terms, but in relation with measuring/apreciati and its performances are made, usually in the time factor (project calendar), the on financial terms. use of resources. Keeping/Archiving The system is unstandardi sed, at System and The format of this system is established the entities choice or imposed by the Registering the by the law and the professional standards. foresees from the contract operations There are not com parisons bases Existence of a minimum of Existence of an because each project is unique; for information’s (at least from the financial informational doing an audit must be created a data publicised situations) needed to open an system base which must be taken from audit mission project’s planning. Recommendations are always in Recommendations are referring the task and it may meet the Recommendations usually, at the systems management and expenses or any aspect of the project control to accountancies reflection . or its management.
163 The financial audit ends up usually, with The qualification of the the help of a qualified opinion, with or expressed opinions are referring,, without reserves, regarding the conditi ons usually at the difficulties of the Opinions which are given or by the relations with the audit’s process ( example: the lack of entity’s leadership, in many cases it may technical expertises, the lack of funds appear the impossibility of expressing the or the lack of time which is needed ). opinion . (Source: Dobre E., 2007, p.82,83)
As regarding many factors which are limiting a project’s audit, time and money are representing two of the most frequently and highlighted factors, which are limiting the investigation depth and the level of detailing a presentation used in a audit report. Another important factor is the anxiety made by any investigation, generally, and which determines the persons which are implied to have a defensive attitude. If the report is not written in a constructive tone, team’s moral will suffer. Often, technical audit’s aspect can not be very deep, because the person which investigates does not have the necessary technical knowledge. In this case, a technical audit must be done. The moments in which an audit it is done are different, generally, as later the audit is done as lower would be her immediate value, for the project, but it will have a bigger value for the organisation. Regarding the differences between the audit’s project and the internal project of the organisation, we can remember the fact that the project’s audits might be concerned by any aspect of the project’s management, it is not only a traditional audit of the management and internal control, which is concentrated, principally, above the existence and management’s efficiency. The project’s audit highlights if the project is led appropriate, being used some methods and management techniques different for any kind of project. In the specialized literature from Spain there is a distinction between the project’s audit and the financial audit, the global audit representing a kind of audit which involves the objectives of both concepts. The project’s audit is different, in many aspects, by the financial audit, the table written below is presenting an overall image above the main differences:
Project’s audit Financial audit To evaluate if the financial The evaluation of the handle the operations were executed legally and Scope European Funds, cheeking the economy, constantly and if the accountant evidences the efficiency and the effectiveness. are reliable. Politics, programmes, organizations, Financial accountant ope rations, Application activities, and management systems. key control procedures. Theoretical Economy, Politic Sciences, Accounting and Law basis Sociology, etc. Various methods personalised on the Methods Standard format audit’s type. Less liberty in choosing the standardised criteria’s for the auditor. A bigger discretionary power of the Audit’s citerias The criterion’s imposed by the law and auditor. An unique criteria for each audit. the changes which are reliable for all the audits. Rarely there are met special reports. The report in made annually. Less or Reports Their structure and content is different more standardised. and it varies from an objective to other. (Source: La División de ADAR del Tribunal de Cuentas Europeo, p.11)
164 5. THE AUDIT FINANCIAL PARALLEL-PROJECT’S AUDIT
The global audit is the one which combines elements from both financial and project’s audit. The decision to make a project’s audit or a financial one it depends above the general proficiency approach made for each case separately. The auditors they must take a look at the fact that the audit’s realisation for a pure project, is a very difficult task, but the realisation of the global audit is more complex. Concluding, the management’s audit (the internal audit of an organisation) is based on the existence and the use of management system that we want to choose, while the project’s audit studies the financial, managerial and technical aspects of the project like an integrated set which is applied to a specific project from a separate organizational environment.
REFERENCES
Dobre E., (2007), “ Controlul i Auditul Proiectelor”, Editura Economic ă, Bucure ti; Manolescu I., (2005) „ Managementul proiectelor” , note de curs, Universitatea „Alexandru Ioan Cuza” Ia i; Mare G., Nicolae D. C., Pitulice M. G., Costinescu C., (2007), “Practica auditului intern privind fondurile publice na Ńionale i ale Uniunii Europene” , Editura Contaplus, Ploie ti; Ordonan Ńa de Urgen Ńă a Guvernului nr. 75/1999 privind activitatea de audit financiar, republicat ă în M.Of. nr. 598/22 aug. 2003 ; Manual de auditoría de gestión , La División de ADAR ( Audit Development And Reports, Desarrollo de la auditoría e informes) del Tribunal de Cuentas Europeo (TCE);
165 YIELD MANAGEMENT IN HOTEL INDUSTRY
Liliana GAGIAN Assistant, Phd Candidate Faculty of Economic and Administrative Sciences, Eftimie Murgu University of Re iŃa Romania
ABSTRACT The present paper approaches the yield management system insisting upon its particularities and applicability’s in the hotel industry, taking into account the advantages provided by the use of this system.
KEY WORDS : yield management, planning instrument, communication, and revenue maximisation JEL: L60
1. INTRODUCTION
In the yield management system, the employee’s responsibility in his / her sector of activity is capital, he / she must have the ability to make decisions, being aware that any decision will be analysed afterwards. The liability is clear and well defined; there exists the position of « revenue manager », a person with experience in hotel management, who has extended knowledge about the activity of the hotel, in the sense of afferent business and profits, who says yes or no. He / she fill the supervisor’s position, who has a very clear notion about the hotel’s goals. The computer-organised systems are very sophisticated, they provide all the necessary indications, but they have theoretical values, the human experience will eventually decide if the decisions formulated by the informatics system are valid or must be modified.
2. PARTICULAR FEATURES AND APPLICABILITY OF YIELD MANAGEMENT
Yield management is a planning instrument applied in order to obtain a maximum of revenue per room and the most profitable customers at the hotel level. This instrument was first applied in the air transport industry at the end of the 1970s. Thus, the airlines established for certain periods of time a standard tariff. If the reservation fell within that period one could benefit from the respective price. Moreover, outside the period one introduced a diversified structure of prices able to take into consideration the customers’ characteristics also. The connection between the airlines’ activity and the hospitality industry was done through their characteristics, i.e.: fixed number of products and their perishability. Moreover, both industries sell products to market segments with different needs, witness periods of time that are more favourable than others and offer a wide range of tariffs from among which the customer can choose. Yield management is a mix between the cost-price connection and the distribution system used, aiming at setting the revenue maximisation as a goal. The instrument requires an ensemble view over the accommodation activity, the cost-price
166 relation, the variable cost level and the establishment of different values of the mix of services sale. The reservation system represents the key element allowing the managers in the hotel industry to use the yield management instrument. By using a database containing the supply of products and the reservation systems, each hotel can predict sales over a period of 45-90 days and set its standard tariffs and reservation policy. Thus, yield management represents a process of allotting the customer’s most appropriate accommodation for the adequate price, leading to the revenue increase. One of the main differences in the use of yield management between the hotel and the airlines is the following: for the hotel the customers will create revenues by purchasing additional services during their accommodation period, whereas in the case of the air transport, such a possibility is absent. Due to this feature, the hotel managers should consider the financial potential of a potential customer in comparison to another, when setting the reservation policy. The conditions necessary for the application of the yield management principle are the following: • When a company operates with a relatively limited capacity; • When the demand can be segmented; • When the service is perishable; • When the service is sold in advance, by means of a reservation system; • When the demand fluctuates substantially • When the marginal costs of sales and the production costs are low, whereas the costs of capacity modification are high. The elements influencing the hotel revenues, which represent the applicability factors of yield management, are the following: a) The occupation degree - in general, one remarked that a 55-60% degree of occupation triggers the obtaining of marginal revenues at the hotel level. For some hotel owners, this result is acceptable, especially when they aim at surviving. When the occupation degree decreases below 50% it is necessary to adopt a set of decisions related to the financial characteristic of sales, of the profitableness rate. Thus, with the help of the “occupation degree” indicator one measures the efficiency of the managerial team and of the sales team, by creating hotel attractiveness, consequently one may answer questions such as: • How efficient were the promotion campaigns? • How efficient was the reservation office? • Which were the agencies or tour operators with whom one worked best? Etc. The occupation degree is calculated as follows: - Either at the room level:
Goc = Nco/ Ncd x 100
where: Nco – number of occupied rooms, Ncd- number of available rooms. - Or at the place level: Gol = Nî / Nld x 100
where: Nî – number of nights spent, Nld – number of available accommodation places.
167 The investors use the occupation degree in order to determine the potential gross revenue. For instance, a 100-room hotel predicting an occupation degree of 65% and recording on the average revenue of 89 per room will have potential annual revenue of 2.1 million Euro. Moreover, managers must understand that this 65% potential level does not represent a standard to reach for each night. Thus, if we suppose that the hotel exhibits the following variation of the occupation degree at the level of one week, we may realise the following sales prediction: ► Monday - Wednesday - Goc = 65% •=> 100 x 0,65 = 65x89 = 5785 x 52(weeks) x 3 (days) = 902460 ► Thursday - Saturday - Goc = 40% •=> 100 x 0,40 = 40x89 = 3560 x 52 (weeks) x 3 (days) = 555360 ►Sunday - Goc = 50% •=> 100 x 0,50 = 50x89 = 4450 x 52 (weeks) = 231400 → The total annual revenues taking into consideration the fluctuation of the occupation degree are predicted to reach a value of 1689220 Euro. b) The real average tariff It represents an instrument for measuring the efforts of the staff to sell at the tariffs practised by the hotel. It is a very important statistic indicator for all entities applying tariffs differentiated from the displayed tariff, with the purpose of assuring the most efficient use of the available capacity. The analysis of this indicator will provide answers to questions such as: - What was the structure of the mix of rooms sold at differentiated prices? - Which were the best-sold rooms depending on the tariff practised? - Was the effort of the marketing office efficient or not in the realisation of an attractive weekend package, priced at 80 Euro per room? The indicator is calculated with the following formula:
Tm=CA/Nco
where: Tm – the real average tariff, CA – the turnover The hotel tariff, as well as the restaurant price, is not a purpose in se , but a financial means of reaching the turnover under advantageous conditions. The tariff is a strategy element adopted in order to reach the set goals: the increase of the turnover, the promotion of services, the penetration to a certain market segments, etc. That is why the hotel can develop a wide range of tariffs adapted in relation to the customers and the conditions they require. c) The revenue per available room This indicator allows the understanding of a financial factor, which is crucial for a hotel. In general, through its analysis one will be able to answer the question: How much revenue does a hotel room generally generate at the level of the occupation degree obtained? The indicator is calculated as follows:
Vc= CA/Ncd
where: Vc – the revenue per available room, Ncd – number of available rooms The indicator will play an important part in the analysis of the profitableness threshold of accommodation.
168 By using these indicators, managers can analyse the situation of accommodation from the financial perspective, and it represents at the same time grounding for the application of the yield management instrument. The purpose of the instrument is double, both to maximise the profit form the hotel rooms sale, and to maximise the profit obtained for the hotel services. It is important that both goals exist, because if one aimed only at increasing sales, the most profitable customers may not be attracted to the hotel.. The instrument supposes a simple algorithm by using a combination of prices and methods of administration control. In order to understand the concept it is important to know all its components. Each component is in close correlation with the others and supports the profit maximising goal. The components of the concepts are explained with the help of the following example: → we reach the definition of the concept of yield management. Yield-\x\ is the visitors’ percentage that can be assured if 100% of the available rooms were sold at the standard tariff (maximum).
Y = Obtained revenue / Poten Ńial revenue x 100
where: The obtained revenue – is the amount of the revenue obtained (no. of occupied rooms x tariff practised); The potential revenue – is the revenue that can be received if all the rooms were sold at the standard tariff. By calculating the yield one will be able to analyse the solutions and effort required for reaching a maximum revenue.
3. CONCLUSIONS
The use of yield management is possible only if the Top Management trust the results provided by this system. The top executives are responsible for the implementation of a yield revenue culture, involving and engaging all employees, not only the heads of departments. The main advantages of applying this method in the hotel industry are the following: - improvement of prognosis; - improvement of seasonal tariff setting and of stock decisions; - identification of new market segments; - identification of the market segments’ demand; - intensification of front office-sales division co-ordination; - determination of the discount activity - improvement of the business plan development; - establishment of a value-based tariff setting structure. The role of yield management is to reunite all data and statistics afferent to a 3- year past period, to verify their accuracy, in the sense of considering the special circumstances having generated them. In order to do that one must know all types of tariffs practised, the competitions’ tariffs, the list of facilities they offer. One should clearly define the market segmentation (in the respective area), the sources of reservations and the models of the customers’ behaviour.
169 The yield manager must regularly organise reunions with the marketing department, sales department, reservation office and front office, in order to explain them how yield management should operate and he / she must communicate to the top management if any progress is registered. The communication among all these employees represents the key of the yield management’s success. The yield manager will also collect all the data regarding all special events to be organised in the following year, as well as the seasonal reservations and the capacity allotted to them.
REFERENCES
Snak O., (1994) Management of services in tourism, Romanian Academy of Management, Bucharest, St ănciulescu G., (2003) Management of tourism operations, All Beck Editions, Bucharest .
170 ASSESSMENT STUDY OF THE CONSUMERS’ BEHAVIOUR REGARDING THE “COMMUNITY POLICE” PUBLIC SERVICE OF THE TOWN OF RE IłA
Liliana GHERGHINA Assistant, Phd Candidate Faculty of Economic and Administrative Sciences, Eftimie Murgu University Re iŃa Romania
ABSTRACT In this study we aimed at assessing the community citizens as regards their opinion about the quality of the services provided by the Re iŃa Community Police Public Service. In the first part of the study we pointed out the theoretical aspects regarding the research, in the second part we presented the stages of the study deployment, whereas in the last part we present the study, including the conclusions for each question.
KEY WORDS: field research, opinion poll / inquiry, public service, community police, professionalism quality, promptness. JEL : M31
1. INTRODUCTION
The present survey is done based on the methods and techniques used in the marketing research, and in this case we used the field research. Thus, according to the place of deployment, “ field research” supposes the effective investigation of the phenomena subjected to the marketing researches, making appeal especially to methods for collecting, grouping and processing information. The information is collected directly from source, is processed in the office and is expensive” (Rah ău Loredana (2005, pag.36)). As regards the flux and components of the components of marketing research (adapted apud Zikmund G. William: Exploring Marketing Research. Fifth Edition. The Dryden Press (1994, p.55)), they may be: 1. Identifying and defining the issue to research: identification of topic; choice of the exploratory research methods: secondary data, exploratory surveys, pilot studies, case studies; definition of the topic. 2. Establishing the research hypotheses and goals; 3. Research designing and planning: choice of the basic research methods: inquiry, experiment, observation, simulation, secondary data; establishment of the population subjected to research, of the sample and sampling method. 4. Data collecting; 5. Preparing, processing and analysing the data ; 6. Interpreting the data and formulating the conclusions; 7. Elaborating the research report. Moreover, we must point out the fact the process of marketing research was studied with priority by C ătoiu I. and published in the book Designing the marketing research . That is why Balaure Virgil quotes from C ătoiu I., (2000, p.124)) and delimits the following phases of the process of the marketing research :
171 1. Preliminary phase: identification and definition of the decisional issue; the establishment of the research purpose: identification of the research goals, elaboration of the hypotheses; the prior establishment of the value of information obtained from research. 2. Design phase: choice of the sources of information; selection of the modality of collecting and systemising information; establishment the budget and research time scheduling. 3. Performance stage: collecting information; processing information; analysis and interpretation of information; drawing up of the research report. We must mention that in the marketing research one must correctly sample the researched population, and this represents a distinct stage of research. Thus Catan ă I. claims that sampling supposes (Catan ă I. (2003, pag. 231)): the establishment of the population subjected to research and the identification of the frame population or of the sampling basis from which one will choose the units of the sample (in the case of the sampling probabilistic methods). It is known that the sample representativity depends also on the manner in which selection is done and the methods (or groups of methods) are: probabilistic or non- probabilistic methods, each of these two techniques containing several methods. As regards the opinion poll /inquiry, it is a method for collecting primary data, based on a questionnaire applied to a representative sample of respondents. The poll- type selective research is a method frequently applied in the field of marketing research. “The poll inquiry is an inquiry effected in view of knowing the characteristics and / or the opinions of a given population, interrogating a limited number of its members, i.e. a sample” (Negru Ń C., Dobre C., Venczel M. (1995, pag. 152)). Cătoiu I. affirms that the “poll, as research method, has, in comparison to other methods of data collection, the following particularities : communication with the respondent, sample representativity, the preponderantly descriptive character and the preponderantly quantitative character” (C ătoiu I., coord. (2002, pag. 46)). In this respect, C.A. Moser claims that “an inquiry cannot be better than its questionnaire” (Mores C.A. (1967)). It is considered that a quality questionnaire meeting the requirements of research is the result of a combination of science and art. “The questionnaire is, in essence, a formalised set of questions, designed to generate the data necessary for the reaching of the goals of a marketing research” (Frasineanu I., (pag. 133. (available at http://facultate . regielive.ro)).
2. PRESENTATION AND ANALYSIS OF THE QUANTITATIVE STUDY OF THE RESEARCH
The present study was carried on along several stages, presented below. Thus, in the first stage one defined the research purpose of the present study. The present study aims at improving the quality of the guarding and public order services provided by the Re iŃa Community Police. The second stage aims at elaborating the research goals and hypotheses. The main purpose of the research is to inform if the Re iŃa’s consumers (citizens) desire the improvement of the quality of the services provided by the Re iŃa Community Police. As regards the research hypotheses, one may suppose that the citizens of the town of Re iŃa would wish high-quality services of guarding and public order. In order to
172 outline the attitude of the Re iŃa’s consumers towards guarding and public order services one resorted to methods of directly study, based on information obtained directly from the subjects, as this study is focused on the public safety of the Re iŃa citizens. In the third stage one will estimate the value of the information obtained through research. The information obtained by research are information collected through quantitative direct studies performed from a poll-type occasional inquiry , based on a questionnaire containing a set of closed, open, mixed, philtre and introduction questions about or in relation with the services provided by the Re iŃa Community Police. As method of communication with the subjects, our poll it is based on direct personal inquiries with the subjects (face to face), which offers us the advantage to be able to persuade the subjects to participate in the interview (inquiry) and to answer the question which would otherwise remain unanswered, assuring thus a high rate of subjects’ participation in the inquiry deployment. The drawback of this type of inquiry is the fact that filling in the questionnaire requires a longer period of time, which leads to very high costs. We may say that the information (answers) obtained from the subjects are quality answers if the interview operator does not influence the subject’s responses. The fourth stage is the stage of choosing the sources of information. In the present study the information is obtained from natural persons, i.e. individuals (individual inquiries), selected based on the sample structure from the total number of subjects of the Re iŃa population. In this respect one must apply the adequate sampling methods, and thus we opted for the shares’ method and one determined the size of the sample. Thus one established how many subjects should be questioned in order to get the necessary information. In the fifth stage one performs the selection of the modality of data collection and systematisation. Keeping in mind that the poll of the present study is carried on based on personal interviews, the questionnaire management will be as follows: students within the high school or universities; workers, intellectuals, clerks, at their places of work; other occupations, including the unemployed, in commercial areas with intense circulation; pensioners, in the park or at home. Based on the sample structure, the information will be systematised in accordance with the subjects’ selection criteria, i.e.: - the gender criterion - 2 levels: male: M, female: F. - the age criterion - 4 levels: under 20, between 20 and 39 years of age, aged 40-59, over 60. - the occupational criterion - 6 levels: students, workers, intellectuals, clerks, other occupations (including unemployed) The pilot sample for the questionnaire application will be of: n. of p. = 2 lev. x 4 lev. x 6 lev. = 48 (subjects) The sixth stage implies the information collection (the field activity). The data collection is performed by the interview operators who must be well trained so that they can stir the subjects’ interest for the researched matter, and can convince them that their co-operation brings about an important contribution to the solving of the researched issue. As for the analysis of the research quantitative study, the structure of the quantitative study means passing through the following phases: Establishment of the researched population and of the sampling method
173 The establishment of the researched population is done in accordance with the purpose and goals of our research, assuring the representation of several socio- professional categories from the total of the Re iŃa population. The choice of the sampling method was performed taking into account the following factors : a) The period of the population sampling should of maximum 2 hours, i.e. as short as possible. b) The cost of sampling should be as low as possible, so that a limited number of inquirers are involved, so that the cost for their payment remains low too. c) the identification of the basic units in the poll was done according to the selection criteria used, focusing on the socio-professional criterion as main criterion, as it is easier to identify individuals at their work place. Taking into consideration the above aspects, one considers as opportune to choose an empirical sampling method, based on a rational selection of individuals from among the researched population, in our case natural persons, we considered the shares’ method as being the appropriate one. This method implies the following: - constituting a reduced pattern of the researched population according to the characteristics that will serve for setting the shares, in our case: gender, age and occupation.. - elaborating the poll plan: in order to do that one takes into account the structure of the mother population, the size of the sample and the number of operators. This type of sampling implies the necessity of certain statistic data regarding the studied population. They were taken from the Cara -Severin Statistics Department, the size of the mother-population being of de N=92,752 persons, of which: - 45,058 males and 47,694 females; - under 20: 11,461 males and 10,824 females (total: 22,285); - in the range 20-39 years of age: 15,033 males and 15,532 females (total: 30,565); - aged 40-59: 12,815 males and 13,691 females (total: 26,506); - over 60: 5,749 males and 7,647 females (total: 13,396). Determining the size of the part share sample According to the updated statistic data, we established the sample site in accordance with the polling rate, i.e. n = 384 persons (subjects). Determining the structure of the part share sample The calculus algorithm of the sample structure is done based the statistic data according to the 3 selection criteria, i.e. gender, age and occupation, which will be taken into consideration in realising the study. Designing and drawing up the questionnaire As research form we chose the individual inquiries structured with a questionnaire made of 19 closed questions, 2 mixed questions and 1 open question, plus 3 identification questions. All closed questions must have a single answer, i.e. the questioned persons will make one single choice from among 2 or more variants of answers. When drawing up the questionnaire one must take into account the order of the questions, so that the first questions are philtre and opening questions, followed by warming-up questions, and then types of questions more representative for our research, and in the end we shall ask the subjects’ representation questions. The questionnaire application It is done according to:
174 - the timetable of the interviewed persons; - the time allotted for the inquiry; - the financial budget allotted for the multiplication of questionnaires, payment of personnel (interviewers and analysts), and other costs. The questionnaire will be applied in schools, universities, at work, at the domicile of the subjects and in intensely circulated locations. The interviewers and analysts were selected as follows: 18 interviewers and 4 analysts. Processing and analysing the obtained data, conclusions The processing and analysis of the data obtained were done based on the statistic data and of the calculus algorithms at the beginning of the research and during the research. One realised the general centraliser per ages, occupations and genders, from which one extracted the number of subjects according to questions and variants of responses, after which one realised the presentation of the results of the research against the set criteria.
3. DATA PROCESSING AND ANALYSIS; CONCLUSIONS
As regards the study realised through inquiry regarding the evaluation of the consumers' of the Re iŃa community police public, we performed the data processing and analysis, and then we drew the conclusions (Gherghina L. (2009, pag. 71, 88, 116)). They are presented below. Question no.1: Do you live in the town of Re iŃa? Variants of answers: a) yes b) no Data processing: a b 333 51 86,719 13,28
Analysis of the data obtained: Of the total of 384 interviewed subjects, a number of 333 subjects representing 86.72% of the total declared they live in the town of Re iŃa, and a number of 51 subjects, representing 13.28% do not live in this locality. Conclusions: Thus, almost 90% of the questioned subjects have the domicile in the town of Re iŃa, which is beneficial for the performance of our study in optimum circumstances. The other citizens live in the districts belonging to the municipality of Re iŃa (villages of Doman, Cuptoare, Moniom and Secu) or in vicinity localities, but work in Re iŃa and so they were taken into account by our study. It is known that the Community Police Public Service provides services also in the neighbouring districts. Moreover, in its capacity of public service, it is known from the theory that the public services and public assts are non-rival and non-exclusive. So all the citizens of Romania operating in Re iŃa or passing through Re iŃa may benefit from the services provided by the Re iŃa Community Police. The difference consists in the fact that they are more or less informed about the activities carried on by the respective service.
Question no.2: Have you resorted to the services of the Re iŃa Community Police in these past three years ? Variants of answers: a) yes b) no
175 Data processing: a b 87 297 22,656 77,344
Analysis of the data obtained: As regards the appeal made to the services of the Re iŃa Community Police in the past three years, a number of 87 subjects, representing 22.66%, said yes, whereas a number of 297 subjects representing 77.34% claim not to have resorted to the services of the Re iŃa Community Police. Conclusions: We remark that the majority of the questioned subjects have not resorted to the services of the Re iŃa Community Police, perhaps they have not needed the serviced provided by this institution, and this is considered to be a favourable situation from the viewpoint of the citizens’ safety. Question no.3: In case of need, will you make appeal to toe services of the Re iŃa Community Police ? Variants of answers: a) yes b) no c) I don’t know Data processing: a b c 206 46 132 53,646 11,979 34,375
Analysis of the data obtained: In case of necessity, a number of 206 subjects of the total, representing 53.65% declare that they shall resort to the services provided, a number of 46 subjects, representing 11.98% do not agree to make appeal of the services provided, while a number of 132 subjects, representing 34.37% declare they don’t know if they will make appeal or not to the services of the Re iŃa Community Police. Conclusions: We find that the largest share of subjects’ answers are affirmative, which makes us conclude that the services of the Re iŃa Community Police are appreciated by the citizens. This conclusion is also strengthened by the fact that among the variants of answers the second place is taken by the third variant “I don’t know”, because part of the undecided subjects shall be persuaded in time that this institution (public service) was established in order to perform quality services in the interest of the community’s citizens. Question no.4: Do you consider that the equipment in the endowment of the community policemen assures the protection of citizens in optimum conditions ? Variants of answers: a) yes b) no c) specify why yes / why not Data processing: a b c 166 218 209 43,229 56,77 54,427
Analysis of the data obtained: As for the equipment of the community policemen, a number of 166 subjects, representing 43.23% consider that the equipment in the endowment of the community policemen assures the citizens’ protection in optimum conditions, whereas most of the subjects, i.e. 218 representing 56.77% do not agree with the equipment of the community policemen. As regards the specification, a number of 209 subjects, representing 54.42% specify why they agree or disagree with the equipment of the community policemen. For instance, why yes:
176 - the complete service uniform has components similar to that of the Romanian Police, which confers safety to citizens, as well as respect for the community policemen; - all community police members have batons or rubber bats for self-defence or citizens’ protection; - most community policemen wear guns. For instance, why not: - the service uniform is worn out, untidy (not pressed), part of the community policemen are equipped with pieces of clothing not belong to the service uniform. This triggers a lack of respect of the citizens for the community policemen; - part of the community police members are not endowed with self-defence means such as: tear gas sprays, handcuffs and guns; - part of the community policemen are not endowed with communication means such as: walkie-talkies and telephones; - part of the community policemen are not equipped with flashlights (at night) and folders in which they could carry the document necessary for their activity. Conclusions: We can remark rather easily that most subjects consider that the equipment (service uniform and self-defence means) in the endowment of the community policemen cannot assure the protection of citizens in optimum conditions, which means that they should be better endowed. Moreover, if the equipment does not comply with the norms imposed by the legislation in vigour, it means that this equipment does not assure the mere protection of the community agent.. Question no.5: Do public order and citizens’ safety in the urban environment seem important to you? Variants of answers: a) very important b) important c) not quite d) not at all Data processing: a b c d 250 116 16 2 65,1042 30,21 4,167 0,521
Analysis of the data obtained: Public order and citizens’ safety of the citizens in the urban area is considered as being very important by the majority of subjects, a number of 250, representing 65.10%, it is only important for a number of 116 subjects, representing 30.20%, not quite important for a number of 16 subjects, representing 4.67% and not at all important by 2 subjects, representing 0.52%. Conclusions: We may conclude that most citizens are concerned with public safety, wish to live in peace and harmony in the community to which they belong. Question no.6 : Is the presence of the community police remarked in your district ? Variants of answers: a) yes b) no c) I don’t know Data processing: a b c 96 205 83 25 53,385 21,615
Analysis of the data obtained: A number of 96 subjects, representing 25% affirm that the presence of the community police is remarked and felt in their district, 205 subjects, representing 53.39% claim it is not, while 83 subjects, representing
177 21.61% say they are not aware of any community policemen patrolling in their neighbourhood. Conclusions. Because part of the citizens are not aware of the community police agents patrolling in their district, we suggest the updating of the plan and schedule for patrolling and public interest assets guarding, that should comprise more streets and alleys in the town, not only the main avenues and the intensely circulated public locations. Question no.7: What are your particular discontents regarding the services provided by the Re iŃa Community Police ? Variants of answers: a) lack of patrolling posts in the town b) endowment and uniforms of the community police agents c) lack of promptness in case of solicitation d) professional training of the community policemen e) the language they use in their relations with the citizens f) the abuse made by the community police agents during their service Data processing: a b c d e f 149 51 57 69 28 30 38,8021 13,281 14,844 17,969 7,2917 7,8125
Analysis of the data obtained: The lack of the patrolling posts in the town is the most important aspect discontenting most subjects, i.e. a number of 149 subjects, representing 38.80%. A number of 51 subjects, representing 13.28% claim that the endowment and uniforms of the community police members do not meet their requirements, 57 subjects, representing 14.84% say that they dislike the lack of promptness in case of calls, 69 subjects, representing 17.98% are not content with the community police agents’ professional training, 28 subjects, representing 7.29% do not agree with the language used by the community policemen in their relations with the citizens, and 30 subjects, representing 7.81% claim that they abhor the abuse (verbal manner of addressing) made by the community police agents during their activity. Conclusions: From the above analysis, we can remark that the number of community policemen should be higher, in order to assure public order, and thus we need more patrolling posts. Moreover, the community police agents should have a better technical and physical endowment, as well as an appropriate service uniform, and high- performance self-defence means. As for the lack of promptness in case of calls, professional training and language in the communication with the citizens, they are below expectations. These are characteristics that they can be acquired through perseverance and a better training, that should be cultivate during their professional training and specialised courses, that should be done monthly through the Training Office of the institution. Question no.8: Do you think it necessary for the community policemen to have a better physical training ? Variants of answers: a) yes b) no c) specify why yes / why not Data processing: a b c 308 76 213 80,208 19,79 55,469
178 Analysis of the data obtained: A number of 308 subjects, representing 80.20% consider that the community police agents should have a better physical training, and 76 subjects, representing 19.80% think that this is not necessary. Part of the subjects, 213, representing 55.47 % specify why yes or why not. . Conclusions: As remarked, most of the subjects consider that the physical training of the community policemen leaves much to be desired,. And thus we suggest a gym endowed with the equipment necessary for the physical training and a physical trainer. At present the community police agents are not provided with the conditions for physical trainig, not even in the open air, on a sports ground, as the institution does not have the necessary funds. Question no.9: What are the factors influencing in a negative way the public order and the citizens’ safety ? Variants of answers: a) The small number of community policemen b) The inadequate endowment c) The lack of professionalism d) Corruption Data processing: a b c d 92 70 107 115 23,958 18,229 27,86 29,948
Analysis of the data obtained: Of all the questioned subjects, 92 subjects, representing 23.96 % affirm that the small number of the community policemen is a negative factor, 70 subjects, representing 18.,23% claim that this factor is the inappropriate endowment, 107 subjects, representing 27.86% consider the lack of professionalism as a negative factor, and most of the subjects, i.e. 115 subjects, representing 29.95% consider that corruption is the factor influencing the most the public order and the citizens’ safety in a negative way. Conclusions: We may remark that the first place on the negative factors’ list is occupied by corruption, followed by the lack of professionalism, the small number of the community agents and the inadequate endowment. Question no.10: What elements are important for you when making appeal to the services of public order provided by the Re iŃa Community Police ? Variants of answers: a) promptness b) seriousness, credibility c) quality – in relation with the quality of other services d) the conduct of the community police agents e) the degree of involvement and commitment of the community policemen in helping people Data processing: a b c d e 107 103 52 47 75 27,86 26,823 13,542 12,24 19,531
Analysis of the data obtained: Promptness, as element of importance in the appeal to the service of public order provided by the Community Police, is present in a significant part of the subjects’ answers, i.e. 107, subjects, representing 27.86%; it is closely followed by seriousness and credibility, for a number of 103 subjects, representing 26.83%. A number of 52 subjects, representing 13.54% claim that the most
179 important element is quality, in relation with the quality of other services, a number of 47 subjects, representing 12.24%% consider as important the behaviour of the community policemen, whereas the degree of involvement and commitment of the community policemen in helping people is considered important by 75 subjects, representing 19.53%. Conclusions: We suggest that in the future a more pregnant stress should be placed on the conduct of the community policemen, on the involvement of the community policemen in helping people, on seriousness and credibility. as well as on promptness, all the above leading to a better image and thus to higher-quality services in relation with the services provided by other institutions with competence of public order preservation. Question no.11: From your information, do you consider that the community police agents intervene in the shortest delay at the citizens’ appeal ? Variants of answers: a) yes b) no c) I don’t know Data processing: a b c 76 129 179 19,792 33,594 46,615
Analysis of the data obtained: A number of 76 subjects, representing 19.79% claim that the community policemen intervene, at the citizens’ request, in the shortest delay, a number of 129 subjects, representing 33.59% do not agree that they come as quickly as possible, whereas most of the subjects, i.e. 179, subjects, representing 46.61% are undecided as regards the information related to the amount of time needed by the community policemen to intervene at the citizens’ appeal. Conclusions: Following the analysis of the above data we may conclude that because of the small number of community police agents and of the scarcity of the technical-material endowment (cars), they cannot intervene in the shortest of delay at the request of the citizens, and thus the number of personal should be increased, considering the size of the Re iŃa population. Question no.12: How do you assess the behaviour of the community police agents in their relation with the citizens ? Variants of answers: a) very good b) good c) acceptable d) unsatisfactory Data processing: a b c d 14 104 206 60 3,6458 27,083 53,646 15,625
Analysis of the data obtained: Most of the subjects, 206 subjects, representing 53.65% consider that the conduct of the community police agents is acceptable, followed by a number of 104 subjects, representing 27.08% who think that their behaviour is good. Obviously, there are also discontent citizens in number of 60, representing 15.62%, who consider the behaviour to be unsatisfactory. A very small number of subjects, i.e. 14 subjects, representing 3.64% think that they have a very good conduct. Conclusions: We remark that most subjects consider that the behaviour of the community police members is acceptable, with tendencies towards good. Certainly, as this is only their fifth year of activity, they can be moulded to adopt a more appropriate
180 behaviour towards the citizens. Moreover, the community policemen must be implemented the idea that the citizens should be regarded as clients benefiting from the services they provide, and who, in their turn, pay a tariff like for any other service, tariff represented by taxes and fees collected to the local budget, and the community policemen are paid from this budget. So they are in the service of the citizens and thus the citizens must be respected. Question no.13: Please describe briefly the behaviour you consider a community police agent should have ? Variants of answers: x - serious, correct, prompt, polite, to observe his duties; y – others did not specify anything Data processing: x y 241 143 62,76 37,24
Analysis of the data obtained: A rather high number of subjects, 241 subjects, representing 62.76% describe how the behaviour of a community policeman should be, surely characteristics found also in the variants of answers given to the other closed questions. Conclusions : The community police agents are required seriousness, correctness, promptness, respect, as well as the fulfilment of their job tasks in accordance with the legal norms. Question no.14: How do you appreciate the services of the community police agents from the quality standpoint ? Variants of answers: a) very good b) good c) satisfactory d) unsatisfactory Data processing: a b c d 34 113 168 69 8,854 29,427 43,75 17,969
Analysis of the data obtained: The services of the community police agents from the quality viewpoint, are unsatisfactory for 168 subjects, representing 43.75%, good for 113 subjects, representing 29.43%, unsatisfactory for 69 subjects, representing 17.97% and very good for 34 subjects, representing 8.85%. Conclusions: We find that almost 50% of the interviewed subjects consider that the services provided by the community policemen are satisfactory from the quality standpoint. In order to increase the quality of services one must invest in the material endowment, in equipment and in the human resources. The increase of quality depends not only on the community policemen, but also largely on a good management of this institution. Question no.15: Do you think that a higher quality of the services provided by the Community Police depends also on the leaders of this institution ? Variants of answers: a) definitely yes b) yes, largely c) to a small extent d) definitely not Data processing: a b c d 189 151 40 4 49,219 39,32 10,42 1,042
181 Analysis of the data obtained: Obtaining a higher quality of the services definitely depends on the leaders of the institution, in the opinion of the majority, i.e. 189 subjects, representing 49.21%. A number of 151 subjects, representing 39.32% consider that the quality of services provided largely depends on the top executives of this institution, whereas 40 subjects, representing 10.42% think that it depends on them to a small extent. The least subject, a number of 4 subjects, representing 1.04% think that it does not depend on the leaders of the institutions.. Conclusions: As concluded in the previous question, the high quality of the services provided largely depends on those who lead the public institution through methods and techniques specific to the high-performance management, focused on the strategic marketing, i.e. on the improvement of the services provided. Question no.16: How do you assess the evolution of the Re iŃa Community Police ? Variants of answers: a) very good b) good c) satisfactory d) unsatisfactory Data processing: a b c d 19 154 134 77 4,948 40,104 34,896 20,052
Analysis of the data obtained: The evolution of the Community police is seen as good by a number of 154 subjects, representing 40.10%, closely followed by the variant c.) i.e. satisfactory, supported by a number of 134 subjects, representing 34.90%. An unsatisfactory evolution is claimed by 77 subjects, representing 20.05%, whereas a very good evolution is supported by 19 subjects, representing 4.95%, which is a very low figure. Conclusions: People foresee a favourable evolution of the Re iŃa Community Police in the future in proportion of approximately 75%. This is considered to be a good thing for this institution (public service). Question no.17: Do you consider that the present system of guarding premises, assets, values and public order of the Re iŃa Community Police should be changed ? Variants of answers: a) yes b) no c) I don’t know Data processing: a b c 111 77 196 28,906 20,052 51,04
Analysis of the data obtained: Among the interviewed persons, 111 subjects, representing 28.91% consider that the Re iŃa Community Police should change its present system of guarding premises, assets, values and public order, 77 subjects, representing 20.05% do not agree with the change of the system, while 196 subjects, representing 50.04% are undecided as regards the possibility of changing the present system of public guarding. Conclusions: From the subjects’ answers we can propose an improvement of the present system of guarding premises, assets, values and public order by creating more patrolling posts in the town of Re iŃa, and also by assuring the guard of premises with the help of video surveillance systems, that can be managed by the employed personnel, assuring the intervention through the Community Police’s own dispatching system.
182 Question no.18: Does the physical appearance of the community police agents influence the quality of the services provided ? Variants of answers: a) yes b) no Data processing: a b 213 171 55,469 44,531
Analysis of the data obtained: The physical aspect of the community policemen influences the quality of the services provided for a number of 213 subjects, representing 55.47%, whereas 171 subjects, representing 44.53% consider that it does not . Conclusions: It is known from the marketing of services that the physical appearance of a person is also a part of the favourable service provided by a public institution, the physical appearance of the employees must be as pleasant as possible so that the client makes further appeal to the services, otherwise many a time it rejects clients. So in the case of our institution, we should also strengthen the stress on the physical appearance of the community policemen, for instance an appropriate height (over 1.70 m), they should not be overweighed, because they are no longer fit to pursue and stop the wrong-doers, they should have a tidy uniform (clean and pressed), to have an adequate haircut and to be freshly shaven (in the case of men), to wear their hair tied back and to avoid excessive earrings (in the case of women) etc. Question no.19: What are the aspects of your life where you felt the need for the assistance of the Re iŃa Community Police ? Variants of answers: a) unpleasant events in the community life b) unpleasant events in the family life Data processing: a b 295 89 76,823 23,177
Analysis of the data obtained: A number of 295 subjects, representing 76.82% consider that in the case of unpleasant events in the life of their community they felt the need to make appeal to the assistance of the community police agents, while 89 subjects, representing 23.28% consider that unpleasant events in their family life required the intervention of the community policemen. Conclusions: We remark that most citizens, nearly 77% resorted or wanted to resort to the services of the community police when they witnessed the occurrence of unpleasant events in the life of their community. So the Community Police as public institution is considered to be a necessity for the community. Question no. 20: What are the public order institutions most highly trusted or best liked by the population ? Variants of answers: a) The Romanian Police b) Emergency Services c) The Community police d) The Frontier Police e) The Gendarmery Data processing: a b c d e 150 118 41 12 63 39,063 30,729 10,677 3,125 16,406
183 Analysis of the data obtained: The Romanian Police benefits from the highest degree of trust among the population, according 150 subjects, representing 39.07%, while 118 subjects, representing 30.74% consider that the most trusted is the Emergency Service, followed in the order of preferences by the Gendarmery ( a number of 63 subjects, representing 16.40%). The fourth place is occupied by the Community Police, supported by 41 subjects, representing 10.67%, and the last ranked was the Frontier Police, supported by a number of 12 subjects, representing 3.12%. Conclusions: As it results from the above percentages, the Community Police ranked fourth in the preferences or public institutions, and this is a favourable thing, because, even it is a recently established institution, it is nevertheless trusted by the population, and did not rank last. Certainly, the percentage of trust must increase, and thus the institution must adopt a strategy of promoting its image among citizens, in relation with the services provided by the other public institutions, keeping in mind the mission, goals and task of the Community Police at the local level. Question no. 21: How content are you with the public services provided by the Re iŃa Community Police ? Variants of answers: a) very content b) content c) discontent d) very discontent Data processing: a b c d 15 243 114 12 3,906 63,281 29,688 3,125
Analysis of the data obtained: A considerable number of subjects, 243, representing 63.28% of the interviewed persons, declare to be content with the public services provided by the Re iŃa Community Police, but they are closely followed by a high number of subjects, 114, representing 29.69% who declare to be discontent. Certainly, there are subjects who are very content, 15, subjects, representing 3.97% but at the opposite pole there are 12 subjects, representing 3.12% who are very discontent with the services provided by the institution.. Conclusions: We remark that the highest percentage, i.e. 63.28% + 3.97% = 67. 18% declare to be content with the services provided, which means that the citizens, in time, have become accustomed with the presence, in the streets or at fixed posts (children’s playgrounds), of the Community Police agents and their actions. They are permanently present there and able to intervene as promptly as possible at the citizens’ request. Question no. 22: Are you willing to renounce to the services provided by the community police agents and resort to a new service? Variants of answers: a) very willing b) willing in a small degree c) not willing Data processing: a b c 96 178 110 25 46,354 28,646
Analysis of the data obtained: Most subjects, i.e. 178 subjects, representing 46.35% are willing in a small degree to renounce to the services provided by the community policemen and to make appeal to a new service, 110 subjects, representing
184 28.65% are not willing to renounce to these services, whereas a relatively small number of subjects, 96 subjects, representing 25% are very willing to renounce to the services provided by the community agents. Conclusions: The citizens of the Re iŃa community, in proportion of 25% + 46.35% = 71.35% are very willing and willing in a small degree to renounce to the services of this institutions, because of the lack of information through media or other information channels regarding the activity carried on by the community police agents and the amount of fines entering the local budget of the City Hall. Practically speaking, the Re iŃa Community Police is self-financed from the fines applied to the persons who infringe the law. . Consequently, it can be very well regarded as an institution with favourable prospects, institution which, with little money, succeeds in administering itself so that it can meet the requirements and provide citizens with high-quality services, well appreciated by the citizens living in the Re iŃa community.
REFERENCES
Catan ă Gh. Alexandru, (2003) “Marketing – The philosophy of market success”, Dacia Editions, Cluj-Napoca, Cătoiu I., (coord.), (2002) “Marketing researches”, Uranus Editions, Bucharest, Cătoiu I., (2000) “Designing marketing researches”, quoted by Virgil Balaure (coord.), Marketing, Uranus Editions, Bucharest, Frasineanu I., “Marketing researches, electronic format course of lectures” (available at http://facultate . regielive.ro), Gherghina Liliana, (2009) Report of scientific research no. 2 entitled: Marketing researches specific to the Community Police Public Service, Case study: Assessment of the consumers’ behaviour regarding the Community Police Public Service of the town of Re iŃa, Western University of Timi oara, Faculty of Economics and Business Administration, Moser C.A., (1967) “Inquiry methods in the investigation of social phenomena”, Scientific Publishing House, Bucharest, Negru Ń C. Dobre C., Venczel M, (1995) “Marketing”, Amphora Editions, Re iŃa, Rah ău Loredana (colab.), (2005) “Marketing”, RisoPrint Editions, Cluj- Napoca, Zikmund G. William, (1994) “Exploring Marketing Research”, Fifth Edition. The Dryden Press.
185 QUALITY SERVICE – THE GUARANTEE OF CUSTOMER SATISFACTION
Florentina H ĂLM ĂGEANU Lecturer Phd Dr ăgan European University Lugoj Romania
ABSTRACT Along time, a tight connection was noticed between customer satisfaction, the quality of services and products and the profitability of the company, because a higher level of quality leads to an increase in the level of satisfaction of customers, which involves higher prices and sometimes lower costs. Thus, programs of quality improvement usually contribute to a raise in profitability. Quality represents all the features and characteristics of a product or service, which is its capacity to satisfy the expressed or implicit needs, a notion that has as central component the customer. Thus, a company that manages to satisfy the needs of its clients in most situations is a quality company.
KEY WORDS: quality, service, marketing, devoted customers, satisfaction of employees. JEL: M31
1. INTRODUCTION
Service providers often face the problem of differenciating their own services from those of their competitors. The elimination of all rules in some domains of service providing, such as communication, transport, electric energy supply and the banking system, contributed to the raising competition in the field of prices.
2. SERVICE QUALITY
Service quality is sppreciated by the essential characteristics perceived by the client. There are two generic categories of quality: technical and functional. Research in the domain of service quality has revealed the following characteristics: trust, sensitivity, competence, politeness, communication, credibility, security, knowing and understanding customers. The meaning of these characteristics of the quality may vary from one service to another and according to the customer. Research on service quality has shown the existence of some disparities between: • The expectations of consumers and the perception on the management; • The perception of the management and the specification of service quality; • The specification of quality and service supply; • Service supply and external communication; • Expected service and perceived service.
186 The prevention of faults must occupy an important place in the quality policy of the service-offering enterprise, because the cost of error research raises when the distance from the source which generated the fault grows.
2.1. The quality perceived by the client
The quality perceived by the client is a concept that joins the subjective and the objective characteristics af a service. The arguments which support the concept of „quality perceived by the client” are theoretical, but especially practical, a result of the experience of economic organisations which applied the principles of total quality (of the management). The client who wishes to buy products or needs the service of a company already has formulated in their mind the needs and even the level of satisfying these needs, thus, they have expectations. If the main characteristics of the required service satisfy the client’s expectations or frequently surpass them, then, in the mind of that consumer, the quality level of that service gets shape. The success of a company’s business depends on the perception of the quality of the paid-for service. The perception of the customer is that of determining his attitude to buy from the same company in the future. That is why the entire activity of an organisation must be directed towards the consumer’s desires. Business must be seen from the point of view of the customer from the very beginning and, then, it is necessary to permanently observe the reaction of the consumer towards the quality of the required service, as well as the way he is being treated during the sale – purchase process. Service quality improvement must be a constant preoccupation of the company management, in order to prevent a higher level of the clients’ expectations, a level which frequently changes according to some objective or subjective factors. The quality of services is, for today’s consumer, now more than ever, the essential criterium for preferring a certain company which imposed itself on the market through quality. Recent surveys show that most of the consumers change their preference for oen company or another first of all because of poor quality services and only then because of prices or other motives. Usually, the customer is willing to pay extra for better quality. It has been proven by market research that the unsatisfied customers will tell another ten people they know about the poor quality service, thus, those people will definitely not become clients of that company. Permanently observing the consumers’ reaction towards the quality of the products or services offerred by the company is a must for survival, but also for prosperity. Thus, each business must start with an activity aimed at future customers, such as knowing their needs, with the purpose of satisfying or even surpassing their expectations regarding quality. All these arguments support the idea that the most important assetts of a company are its permanent clients who prefer a certain level of quality. They are a valuable assett which, if maintained, will multiply and will ensure the company’s survival in the competition. Promoting in practice the concept of „quality perceived by the client” brings a series of advantages, among which:
187 • Raise of profits • Raise in the percentage of devoted customers • Cost reduction through loss minimisation • Raise of stocks • Raise in the implication and satisfaction of employees • Decrease in personnel fluctuation People’s satisfaction for well-done work has always generated a feeling of pride and which got different dimensions according to the historical background of the services. Regarding the evolution of the concepts referring to quality, concepts that have turned into different ways of enterprise organisation, the most important are: inspection, control, ensuring quality, total quality. Inspection is an activity that is meant to identify services which are not according to the specifications in the technical references, applying specific methods of measurement, estimation etc. The first companies specialised in the field were founded at the end of the last century, decisions taken by the inspector of these organisations were, most of the times, compatible with those of the manager. Control is an activity of supervising accomplished services. The departments organised for these tasks keep the attributes of inspection, but transfer to the executives the responsibility for quality through self-control. Ensuring quality appeared in the late 1940s and is a process of constant improvement through the assimilation of the „control” stage, emphasising the first and the last phases of the quality cycle (conception control and observing the quality for the client). Thus, the quality system and quality control appear as a model of organisation and management. The notion of quality ensuring has two functions: building and check. In Japan, where a real cult of quality has developed, two other functions were introduced: training the staff and continuous improvement in the quality of activities.
2.2. Total quality
The measurement of customer satisfaction is determined by taking into consideration not only the quality perceived by the customer, but also total quality. Total quality expresses the degree to which a customer’s needs are satisfied, not only from the point of view of the proper quality of the service, but also through the contribution of other extra-quality characteristics which can directly or indirectly influence the customer’s expectations, the degree to which a need is satisfied. Among these characteristics, there are also: accomplishing the required service, at the lowest price, inside the time limit, in the desired location. This concept also includes relations with present and potential customers and administrative activities. Total quality is a wider notion than service quality, it shows the degree to which the customer’s needs are satisfied. The meaning attributed to this concept suggests that it expresses more than the common satisfaction of a need, that is surpassing the customer’s needs in order for a market to appear and develop.
188 For example, after repairing a car at the request of the customer, other operations can be performed, such as washing and vacuum cleaning it on the inside. Thus, the customer will be pleasantly surprised and will surely return to the same company. The concept of total quality is not limited only to the external customer of the company, but to all the activities of the internal customers, who make up a chain of qualities. Each employee, service or department is a part of this chain whose resistance depends on the weakest link. It is enough for one employee to make a single mistake for the efforts for quality of the other employees to be in vain. Total quality dwells upon relations of inter-conditioning between product quality and service quality. In order to achieve total quality, it is necessary to take into consideration the activities that start with knowing the customer and their needs, in order to satisfy them or even to surpass their expectations. In the context of market economy, it is not enough to deliver quality services, but they need to be superior to the quality of the competition. This is a strategy that has as a permanent goal the continuous improvement of quality, not to expect the competing companies to bring onto the market superior services, because that will create a hard to overcome disparity. An important objective of total quality is also the decrease, up to the point of elimination, of non-quality and over-quality. Some of the causes of non-quality are even among the components of total quality, that is: exigencies of terms, location, cost. That is why the concept of total quality has as its main goal the accomplishment of proper quality in correlation with the other characteristics, in order to exceed the customer’s expectations. Other causes of non-quality are those related to the complexity of quality, which determines the difficulty of accurately measuring it, because it also has subjective aspects, which are hard to quantify. Because there are more elements which make up quality and because they are of different natures, coming from both the inside and the outside of the company, total quality depends on one of the weakest links in the chain of quality, regardless of the efforts of the other employees. Research conducted in service-providing companies show that the costs of non- quality may reach as high as 40 – 50% of the income. It is estimated that half of a company’s employees work to correct the errors of the other half. Over-quality is attributed to unnecessary functions that are found in most products and services. It represents that part of quality which was specified in the documents and was made into production without it being requested by customers, thus being considered useless. The main causes of over-quality are the misunderstanding of quality requirements, formulated by customers through market surveys, the value of properties or their number. The effects of over-quality have a negative impact on the competitive aspect of the company, because it generates useless costs of services which the customers are not willing to pay for, because they do not benefit from the over-sized estates or their great number.
189 The service needs to carefully study the requests and the quality – cost report in order to be defined, and it was noticed that the price that the customer is willing to pay for a certain level of quality is not in proportion as the costs necessary to achieve that certain level. Service quality lacks one element, a specific characteristic which is harder to define. It can be described in several words: love for the job, a sense ok knowledge, understanding, affection. It can be called the L factor and it has a special meaning in the field of tourism, the public food sector, in spa units. It is a great mistake not to include this element in service quality, that is why the selection and the training of workers in the fields of tourism, commerce, health should also take into consideration these criteria: specific abilities and love for a work well-done. One of the most important ways for a company to make itself noticed is the continuous improvement of its services compared to those of the competition. In order to do that, it has to provide the service at the level required by the customers, and even to surpass that level. Consumers’ expectations are determined by their previous experiences, by communication regarding that particular service and by the publicity made by the providing company. They choose one service provider or the other by taking into consideration these three criteria and, after the service had been provided, they compare the received service with the desired service. If the level of the former provider is inferior to that of the latter, the customer drops out its services; only if the received service is on a higher level than the customer’s expectations, he is willing to resort to the same provider in the future. Service-providing companies are forced more and more to improve the level of productivity of their catering. A consequence of the intensity of work necessary for the activities in the service sector is that the costs of service-providing companies have raised at a high rate. There are six possibilities to raise the productivity of service- providing companies. The first one is that of hiring staff who are more resistant to long-lasting efforts or have high qualifications. Increasing the work volume is not a desired solution, though, while increasing the level of qualification of employees can be achieved by applying some perfected methods of selection and training. The second possibility is the increase in the volume of service providing to the detriment of their quality. The third possibility to increase productivity in the service sector is the “industrialisation of the service” by the use of additional equipment and the standardisation of the process of delivery. The fourth possibility is reducing or quenching the need manifested for a service by partially/totally replacing it with the need for a product. The fifth possibility is designing a more efficient service. A company that hires workers specialised in the performance of certain operations reduces its need for professional services, which are extremely expensive.
3. CONCLUSIONS
The sixth possibility is that of presenting to the consumers the advantages of providing a service on their own (or some parts of the service), with the purpose of substituting the company’s effort with the effort of customers.
190 Companies should avoid a too greater growth in productivity, which is bad for the quality of the service received by the consumer. Some actions in this matter lead to the standardisation of the quality of some catering services, determining a raise in the satisfaction of the consumer, while others cause a too greater standardisation and contributes to the dissatisfaction of personal service consumers. “The high degree of materialisation” of the service is replaced by “the perfected execution technology” of the service.
REFERENCES
I. Fruja, Al. Jivan (2003) – "Services – a domain of specific marketing", Timi oara: Ed. Nero S. Prada, M. Bota (2005)– "General marketing", Timi oara: Ed. Mirton V. Danciu (2005) – "Modern marketing strategies", Pite ti: Ed. Independen Ńa Economic ă *** Capital collection, 2006 – 2007.
191 PROFESSIONAL DEVELOPEMENT IN THE FINANCIAL AUDIT ACTIVITY
Poliana Alexandra IOVICESCU Assistant European University “Dragan” Romania
ABSTRACT The aim of this article is to present the evolution of the audit profession, the necessary requirements in order to achieve the quality of financial auditor and the definition of the ethical principles of the financial auditor profession. The research method had a theoretical approach, of consulting the dedicated literature and also of national and international requirements concerning financial audit and it was made up from the summarisation of the elements that contributed to the professional developments in the financial audit requirements.
KEY WORDS: financial auditor, professionalism, quality, financial statements. JEL: M42
1. INTRODUCTION
Financial audit may be executed by individuals or entities with a certain degree of theoretical advanced preparation, qualification and with a certain authority and competence and legal skills, which are called auditors, and which analyze and evaluate, in a professional manner, information of a certain company using techniques and procedures called auditing evidence, based on which the auditors issue a document named audit report, an independent and unbiased opinion on the financial statements. The audit activity comes from the need of enhancing the degree of transparency and control of the accurateness of the financial statements. These have to present a real and accurate image in order not to mislead the users. The users of these financial statements can be both the shareholders and managers of the company, as well as the thirds parties with which the company interacts: fiscal services, banks, suppliers or creditors. The auditor may use the audit procedures according to the professional reasoning, respecting the audit norms, fundamental principles, code of ethics and legislation. The process of audit requires both the use of accounting knowledge and the knowledge from other fields, such as law, ethics, IT, financial and economical analysis, turning it into a challenge for any accounting professionals The auditor may be considered the „best family (entity) doctor, that puts the adequate diagnosis to the financial health and who writes the prescription in order to ease the financial state. The treatment prescribed by the recommendation of the auditor may be followed by the patient (client) in order to present accurate financial statements” (Ana Morariu and Flavia Stoian (2007))
192 2. THE EVOLUTION OF THE AUDIT PROFESSION
The beginning and development of the audit profession was undoubtedly linked to the evolution of accounting, having a century old tradition. Until the beginning of the 18th century, audit was imposed by kings, emperors, church and state with the purpose of punishing thieves for fraud and to prevent such acts in order to safeguard the active of the respective entity. In that period the audit practices had as main objective the verification of the individuals with financial responsibilities and the audit technique supposed the checking of all transactions completed. Between 1700-1850 the requestors of audit were state institutions, court houses and stakeholders, and auditors were among the best accountants. The objectives of this period were fraud prevention, the punishment of those that performed them and the research of solutions meant the safeguard the company’s active. The relationship between the auditors chosen from the category of accountants or attorneys and the auditees is developing between 1850-1900 when the objective was to certify the accurateness of the financial statements in order to prevent errors and fraud. After 1930 the objective of the audit was directed towards the identification and prevention of fraud, the certification of financial statements and the company’s profit. Immediately after the financial crisis that occurred in that period, due to its disastrous effects the New York Stock Exchange imposes listed companies to have their financial statements certified by an independent accountant and to attach an audit report by an independent auditor. All of these had an important effect on the evolution of the profession of internal auditor. In the next period the evolution of the audit had a slower rhythm. Nevertheless due to the development of international trade between 1940 -1970, the requesters of audit expanded to the banks, associations and financial institutions due to capital markets. Two decades later important progress in the evolution of audit has been made, the objective of which was oriented towards the certification of internal control and audit norms and the auditors came from the category of professionals in accounting, consultancy as independent professions, consulting companies and audit. Nowadays we are the witnesses of a combination of accounting knowledge of the auditors with the knowledge of a diversity of subjects such as fiscality, law and management. Due to the continuous development of business and the globalization process, the objectives and the types of audit are expanding, a growing importance being attributed to internal control and to the accurateness of financial statements in accordance with regulations in place. At the same time, the way in which the management of the companies gives an importance to the efficiency of the financial resources, economy is evoling also. Like this the basis of an modern audit are set, a performance audit, one of the last activities appeared on historical scale.
3. PROFESSIONAL CERTIFICATION IN THE AUDIT ACTIVITY
The professional certification for the activity of financial audit represents a form of recognizing the experience, knowledge, skills as well as professional experience of
193 the auditors. The certification is also targeted to improve the quality in the financial auditing profession. In Romania, the quality of financial auditor and the right to practice is awarded by the Institute of Internal Auditors. The activity of the Institute is run under the supervision of Finance Ministry which will always ensure that the professional rules do not contravene the laws in place. The quality of financial auditor is awarded to the members of the Institute following the sustainement of the exams held by it. There are the following categories of financial auditors: Financial auditors active individuals; Financial auditors performing an internship; Financial auditors non active individuals; The first category is made up of the individuals that earn the quality of auditor and meet the following conditions: For individuals: must hold a Bachelor in Economics and/or have four years of experience in financial accounting or have the quality of expert accountant or certified public accountant; pass test of finance and accounting in order to aced to a internship; perform a three years audit internship under the guidance of an active financial auditor; the internship may begin only after the two conditions specified above are met; during the internship, the individuals must meet the requirements of the Code of ethics for the profession of financial auditor; pass the examination of specifically skills within the condition of law. The rules regarding the planning and running of the examination of finance and accounting knowledge in order to aced to the internship as well as the ones related to the planning and running of the professional skills examination are issued and published by the Institute of Internal Auditors. Conditions applicable to entities: Individuals who exercise financial statements audit, in the name of an auditing company have to have the financial auditor designation; The majority of voting in an auditing company have to be held, directly or indirectly, by practicing financial auditors, who meet the requirements of this position; The majority of the boards of an auditing company have to be practicing financial auditors or auditing companies who meet the requirements of this designation. The Institute of Financial Auditors can grant the designation and rights to exercise the profession of financial auditing, to individuals who cumulatively meet the following conditions: Conditions applicable to individuals: Individuals must have the financial audit certification or other certification similar to this; Individuals must have at least three years of experience of financial auditing either as an individual or as an employee of an auditing company or as a shareholder in an auditing company;
194 Individuals must meet the conditions required by the IAA (International Associations of Accountants) Individuals must proof they have the necessary knowledge to exercise the profession in Romania, as requires by the Romanian Authorities. This condition is met by passing the test-interview organized by the Associations of Financial Auditors (AFA) as per the curriculum established. The financial auditor can exercise the profession only if he meets cumulatively, the following conditions: is an active member of the Association of Financial Auditors and meets the requirements established by its rules. An individual can not act as the financial auditor of an entity if he is its employee or it has relationships with the entity or with any other individual with whom the entity has relations that can lead to conflict of interests. If during its mandate, the financial auditor does not meet anymore the requirements to exercise the profession, he has to give up his mandate and notify its client.
4. ETHICAL PRINCIPALS IN THE FINANCIAL AUDITING PROFESSION
The code of professional ethic of financial auditing is made out to set the highest standards of professionalism, with the purpose of reaching the highest level of performance and to answer public interest requests. The basic requirements to fulfil the financial auditing objectives are: Credibility: within the entity there is a need of credibility of the information and its systems. Professionalism: there is a need of the clients, employees or other parts involved to identify the professionals in the financial auditing field; Quality of services: all services provided by a financial auditor must meet the highest standards of performance; Trust: the users of the services provided by financial auditors must trust that there are ethical rules that govern this activity; With the purpose of meeting the objectives of the financial auditing profession, financial auditors must obey the following principles, which are crucial in the achievement of an audit : Integrity – asks financial auditors to be fair, honest, without being involved in any conflict of interests. Objectivity – a financial auditor must be fair and must avoid that his objectivity is affected by prejudice, conflicts of interests and or other external influences that can appear during an auditing mission and that can make the auditor express an opinion, other than the real one; Professional competency – asks the financial auditor to perform its services with the due attention, competency and diligence and has to maintain and continuously improve its professional knowledge to the level that ensures its client or employer benefits from professional service, competent, based on the newest practical and technical aspects. Professional competency can be divided in two different phases: 1. Reaching professional competency: the development of the financial auditing profession supposes initially, a high standard of general education, followed by specialized education. The professional education is validated through relevant professional examinations and a vast experience in the field.
195 2. Maintaining the professional competency: implies the continuous knowledge of the accounting and auditing profession, including relevant rules and regulations both at national and international level; The financial auditor program must be oriented to ensure the quality of the services performed according to the national and international regulations. Confidentiality – implies the confidentiality of the information obtained during the professional services performed and it cannot be disclosed without proper approval, with the exception of the situation where there is a legal or professional obligation to reveal these information. The confidentiality must be respected also after the end of the auditing mission; Professional behaviour - the behaviour of a financial auditor it is characterized by a good reputation of the profession avoiding any behaviour that would discredit the profession; Complying with the technical standards – the financial auditor must perform professional services in accordance with the relevant technical standards. While the attributions received meet the integrity, objectivity and independence requirements, the financial auditor has the responsibility to respect with diligence and professionalism the technical and professional standards set forth by the international auditing standards, committee of international accounting standards and regulations in force.
5. CONCLUSIONS
The evolution of financial auditing is gradual, and was determined by the continuous development of the economical environment, the complexity of the economical transactions performed by an entity. The scope of the financial auditor is to critically evaluate the financial statements, to note the errors and frauds, and to certify the documents that reflect the financial-economical processes of an entity. The financial auditors must exercise the professional auditing services according to the technical and professional standards and to avoid any actions that can discredit the auditing profession. A financial auditor must exercise the auditing profession with the highest level of its capacity, improving the services he performs through a durable and continuous preparation. Financial auditors have the obligation to diligently and competently meet the requirements of its client by complying with the due integrity, objectivity and independency requirements. Performing high standard professional services by an auditor implies a solid reasoning in applying the professional knowledge and skills .
REFERENCES
Dobro Ńeanu L. & Dobro Ńeanu C.L. (2002) „AUDIT Concepts and practices”. Economic Publishing House, Bucharest. Stoian A. & łurlea E. (2001) “Financial accounting audit”. Economic Publishing House, Bucharest.
196 Prof. univ. dr. Morariu A. & Prep. Univ. Stoian F. (2007) “Prolegomena for the financial audit – the economic risk and the audit risk”. Financial audit, no. 2: 16 - 21. Prof.univ.dr. Mih ăilescu I. (2007) ”Financial Auditors Ethics Rigors and Principles in the Audit Engagement”. Financial audit, no. 7: 7 - 14. Prof.univ.dr.Morariu A. (2007) “About Competency, Confidentiality and Professional Behaviour in the Context of the Code of Ethics”. Financial audit, no. 11: 19 - 22. Prof.univ.dr. Mih ăilescu I. (2009) “Professional Conduct – Essential Condition of the Reputation of the Financial Auditor”. Financial audit, nr.2: 45 - 49.
197 THE GUARANTEE FUND FOR THE PAYMENT OF SALARY CLAIMS – A REQUISITE DURING FINANCIAL CRISES
Claudia ISAC Associate professor, University of Petrosani Romania Codruta DURA Associate professor, University of Petrosani Romania
ABSTRACT Emerged as a necessity in the context of EU integration and international financial crisis, the guarantee fund of outstanding claims is an effective tool to protect employees if the employer is declared insolvent. Thus, the contents of the paper I addressed, on the one hand the tax and accounting aspects of setting up this fund and secondly an analysis of the evolution of its value since its implementation in 1997.
KEY WORDS: insolvency, the guarantee fund for the payment of salary claims, budget. JEL : G01
1. INTRODUCTION
According to legal dictionaries, insolvency is defined as the inability to pay one's debts as they fall due. Insolvency is presumed to be obvious when the debtor fails to pay its debt over one or more creditors within 30 days of maturity. Bankruptcy is imminent when it is shown that the debtor can not pay the due debts incurred with the funds available at maturity. The mechanism of the market economy, the economic globalization and last but not least the EU membership required the adoption of a law regulating the effects arising from insolvency in Romania, as well. Thus, in April 2006, a modern legislation act was published, which corresponds to European regulations in commercial insolvency - Law no. 85/2006 on insolvency proceedings. The law establishes two procedures: a general one and a simplified one, which apply to the categories of debtors established by law in the state of insolvency or imminent insolvency. This legislation act tries to rectify the following issues: The lack of efficiency and complexity of judicial reorganization and liquidation procedures the uneven application of legislation, reduced protection of the creditors’ benefits.
2. PRINCIPLES OF SETTING UP AND USING THE GUARANTEE FUND FOR THE PAYMENT OF SALARY CLAIMS
In conjunction with the adoption of the insolvency law and in order to be able to implement the Council’s Decision no. 80/987/EEC regarding the protection of the employees in case of insolvency of their employer , Law no. 200/2006 was adopted and
198 it refers to the setting up and the use of the Guarantee Fund for the payment of salary receivables which came into force on January 1st, 2007. This fund covers the salary receivables resulting from individual employment contracts and from collective labor contracts signed by employers and employees; the former, who was given final court ruling for opening the insolvency proceedings, no longer has the right to continue trade. A Guarantee Fund is based on the following principles: the principle of contribution, according to which the Guarantee Fund is based on contributions paid by employers, the principle of obligation, under which employers are required by law to participate in setting up a Guarantee Fund, the distribution principle, according to which the fund is divided in order to pay salary receivables owed by employers in a state of insolvency, the universal obligation to pay salary receivables, regardless of whether the employer paid or failed to pay the contribution, the Guarantee Fund is independent of the resources managed by the board of administrators the Guarantee Fund cannot be subject to precautionary measures or forced execution.
3. ACCOUNTING ASPECTS
The contribution to the guarantee fund for the payment of salary receivables is paid only by the employer and it is recorded as an obligation as shown in group 43 "Social security” and it is simultaneously highlighted as an expense in an account of expenditure regarding insurance and social protection. Thus, these obligations are registered together with the employees’ wages and the employers' obligations in the expense account 4373 "The employer’s contribution to the guarantee fund for the payment of outstanding salaries. According to the expense account that is used to record this contribution we can consider three possible alternatives: either a 2nd degree synthetic account within the expense account 645 "social security contributions" such as 6456 " the employer's contribution to the guarantee fund"; or a separate analytical account within 6458 "Other social security and welfare contributions"; we can also create an analytical account for 6452 “Company’s contribution to unemployment fund", given the fact that these contributions are managed by the National Employment Agency. Registering the monthly contributions of employers to the guarantee fund for the payment of outstanding salaries:
6456 = 4373 “The employer's contribution “Employer’s contribution to to the guarantee fund „ the guarantee fund for the payment of outstanding salaries „
Registering the payment of debts to the guarantee fund for the payment of outstanding salaries:
199 4373 = 5121 “Employer’s contribution to the “Cash at bank in lei„ guarantee fund for the payment of outstanding salaries „
4. THE NATIONAL BUDGET OF THE GUARANTEE FUND FOR THE PAYMENT OF OUTSTANDING SALARIES
The guarantee fund for the payment of outstanding salaries consists of the monthly contribution of employers which represents 0.25% applied to the salary fund and the management of this fund lies with the National Agency for Employment, including the employment agencies of each county and Bucharest. The amounts collected and distributed according to their destination represent a separate part of the unemployment insurance fund. The amount of contributions paid by employers to the Guarantee Fund in 2007 reached 167,387,000 lei, and the value of outstanding claims paid was 1,437,000 lei.
221.920.000 lei 201.503.000 lei 250.000.000 lei 167.387.000 lei 200.000.000 lei
150.000.000 lei
100.000.000 lei
50.000.000 lei
0 lei 2007 2008 2009
Figure 1 - The value of contributions to the guarantee fund for the payment of outstanding salary during the years 2007and 2008
Things have radically changed in 2008 when the outstanding payments to cover salary claim increased by 2.73 times, reaching almost 4 million lei, and the revenues were increased only by 20% to 201.5 million lei. In December 31 st , 2008 the total revenues amounted to 201,503,000 lei, out of which the employers' contributions were 185,945,000 lei. Total payments of 5,042,000 lei were made, the payments for outstanding salaries representing 3,932,000 lei. Estimations made for the year 2009 show an increase of the unemployment fund by almost 20% of the sums collected from employers which amount to 221,920,000 lei.
200 97.460.000 lei
100.000.000 lei
80.000.000 lei
60.000.000 lei
40.000.000 lei 1.437.000 lei 3.930.000 lei 20.000.000 lei
0 lei 2007 2008 2009
Figure 2 - Payments made from the guarantee fund of outstanding salaries during the years 2007 and 2008 and forecasts for 2009
The number of beneficiaries of compensatory payments has increased from 618 in 2007 to 2578 at the end of 2008, that is to say that they increased by four times. On December 31 st , 2008, the available funds were, according to NAE, of 363.48 million lei. Estimations of the Fund budget for 2009 reveal an increase of no more than almost 25 times the outstanding claims that are going to be paid, from 3, 93 million in 2008 to 97,46 million lei at the end of 2009.
97.460.000 lei
100.000.000 lei
80.000.000 lei
60.000.000 lei
40.000.000 lei 1.437.000 lei 3.930.000 lei 20.000.000 lei
0 lei 2007 2008 2009
Figure 3 - The rate of unemployment during the years 2007 and 2009
The worsening of the economic crisis forecasted for 2009 will affect the Guarantee Fund in two ways, simultaneously. On the one hand, more and more companies are to enter into insolvency and they will not be able to pay salaries as a result of demand reduction, of the difficulties to obtain a credit and of a general financial blockage. On the other hand, the same problems will deteriorate seriously the ability of companies to pay their contributions to the budget, which includes the share to
201 the Fund. This can be demonstrated in the following table which shows that while the unemployment rate has increased by 42.5%, the contributions collected have decreased and expensed have gone up in 2009.
Table 1 Indicators of the unemployment rate, of incomes and expenditures of the guarantee fund for the payment of outstanding salaries
No. Indicator 2008/2007 2009/2008
1 Unemployment rate 93 142,5 2 The value of contributions to the 120 110 guarantee fund for the payment of outstanding salaries 3 The value of payments from the 273 2479 guarantee fund for the payment of outstanding salaries (Sources : http://www.anofm.ro/1043_bugetul-asigurarilor-pentru-somaj-pe-anul-2009)
The National Agency for Employment could not capitalize on the extra resources accumulated in the Guarantee Fund during 2007 and 2008, when neither the economy nor the budgetary contributions were faced with problems. The law provides that available funds shall be kept at the State Treasury and shall bear interest. However, in 2008 the State Treasury made a reduction of 0.50% on an annual interest rate, when the average interest on deposits in commercial banks with maturity between 6 and 12 months increased from less than 6% to over 10%. In December 31 st , 2008, the total interest reduced was of 1,097,000 lei, thus it was 20 times lower than in the case of a bank deposit with an interest of 10%.
5. CLOSING DOWN A BUSINESS - A FIRST STEP TOWARDS INSOLVENCY PROCEEDINGS
Since the beginning of this year, approximately 35,000 companies from the total of 600,000 firms registered in Romania, have opened insolvency proceedings, i.e. 5.83% and 95% of them will go bankrupt; we can state that the guarantee fund will have to cover a large amount of outstanding salaries. This will continue in the following years as well, taking into consideration the financial crisis and the fact that an increasing number of businesses will be closed down for a period of 3 years at the most. This increase was due to the introduction of the minimum tax, a measure which was heavily criticized, since it does not bring more money to the budget, considering that small firms suspend their activities and thus, the state must pay the unemployed. Thus, according to the National Trade Register Office during the first eight months of this year, 105,500 companies have suspended business activities, 10,000 of which did that a month ago; the number of businesses closed down for the period January-August was almost 12 times higher than the level for the same period last year. Since the maximum period of interruption of business is 3 years, many of them will
202 have gone into insolvency by the end of this period and they are not going to resume their activity. This phenomenon is faced by all EU countries, for example in Germany the number of companies in insolvency increased by 14.8% during the first half of this year as compared to the same period last year, reaching 16,142 operators.
6. CONCLUSIONS
In conclusion, one can appreciate the usefulness of the organization, the management and the use of the guarantee fund for outstanding salaries, especially during a financial crisis. We must also add some necessary aspects of the efficiency of this fund, especially in terms of how liquidities are placed in treasury accounts, at least during for the period when there will be a budget surplus in the fund. According to Government Decision no. 630/2009, the rate of contribution to the Guarantee Fund for the payment of outstanding salaries owed by employers will be applied to the amount of income which represents, under the law, the calculation of individual contributions to the unemployment insurance budget paid by employees having and individual labor agreement. Up to now, the rate of contribution to the Guarantee Fund for the payment of outstanding salaries owed by employers applies to the total fund of gross salaries of employees hired under an individual labor agreement. Legal provisions refer to employees with full time or part-time individual labor agreement or with labour agreements which enables them to work at home, temporary employment contract or contract of apprenticeship in the workplace, regardless of their duration, including employees who accumulate both pension and salary.
REFERENCES
Dura Codru Ńa, Isac Claudia (2007), „Enterprise economy”, Universitas Publishing House, Petrosani, 2007; The Guarantee Fund For The Payment Of Outstanding Salaries, Best Publishing House, Bucharest, 2007; National Agency for Employment “Unemployment Insurance Budget 2007, 2008, 2009” http://www.anofm.ro/economic
203 THE FLAT TAX – TAX EVASION OR BUDGET INCOMES
Roxana ISPAS Lecturer PhD Faculty of Economics and Business Administration, University of Craiova Centre Drobeta Turnu Severin Romania
ABSTRACT Flat tax has been introduced for companies which record losses and thus pay no state income tax. Initially, this concerned companies that enrolled their activity in six areas of national economy: food industry, beverage industry, wholesale and retail trade, hotels and restaurants, real estate transactions and construction, later on the construction companies being subjected to flat tax as well. This decision to introduce flat tax is justified by the fact that of the approximately 680,000 of companies operating at national economy level, 12,000 provide over 85% of government revenues, and companies that act in the six sectors are responsible for 70% the net loss of 2007 of all the companies in Romania.
KEYWORDS: flat tax, budget revenues, tax evasion, small and medium-sized companies, profit, loss JEL: E60, G32, H11
There have been issued many opinions regarding the intention of the Ministry of Public Finance to introduce the flat tax, but the most relevant are the ones expressed by the business environment in Romania. Thus, according to information found on the Internet, the president of the National Council of Private Small and Medium-Sized Companies supports the introduction of the flat tax provided that it be settled on the average profit by activity branches as an opportunity to avoid the over-dimensioning of the flat tax. On the other hand, the president of the Businessmen Association in Romania says that the introduction of the flat tax would be a long overdue measure, the countries that apply this system are trying to eliminate this method of taxation, under the conditions of the financial crisis, since it could “pull down” fields such as construction, where most companies are at lossIn his opinion, setting a fixed amount which the economic operator would have to pay would mean to pay this money whether or not the company recorded a profit or not. Regarding the flat-rate taxation system, the flat tax was applied in our country until the end of 1999, but only for individuals who carried out certain economic activities. Introducing a flat rate tax for commercial companies represents a novelty in the Romanian tax system. Although the flat tax for individuals was applied for several decades, no legislation which governed this tax defined it. Thus, Decree no. regarding the tax on the people’s revenue provided the application of the flat tax for certain categories of activities, but without the definition of the notion of "flat tax". Sometimes, for certain categories of taxpayers have been issued special laws, such as Government Ordinance no.on how the taxi driving activities are carried out which has set forth that the authorized individuals in the field of taxi driving are subject to quarterly flat tax of 30,000 lei.
204 Subsequently, the Government Emergency Ordinance no. regarding the taxation on revenues made by individuals, in force between January 1, 1998 to December 31, 1999, abrogated all the normative acts regulating taxation of income of individuals obtained from carrying out economic activities, but the scope of the flat tax has expanded. Thus, taxpayers who carried only trading activities, transporters with means of transport with animal action and the door to door salespersons were subjected to pay a flat tax quarterly, established by the decision of the County Councils or the General Council of Bucharest. The authorized natural persons, as well as company collaborators that carried out taxi driving activities using their own cars, were subjected to pay a quarterly flat tax in the sum of 400,000 lei, which could be increased or decreased, depending on the concrete conditions of practicing this activity in each locality, with up to 50%. The explanatory dictionaries of Romanian language mention regarding the word "flat" that it is used when it comes to prices, taxes, payments; it is set in advance in a lump and invariable, fixed or uniform sum. As a definition, the tax is the mandatory, general and permanent cash collection performed by the state from the income or the wealth of individuals and / or legal persons in the quantum and at the deadlines provided by law, to cover public expenses and state intervention in the economy and society, without the obligation from the state’s part to provide an equivalent direct and immediate service. So the flat tax can be defined as a compulsory payment, set as a fixed amount by public administration bodies according to the law, in the responsibility of individuals and / or legal persons and supported from their income. The flat tax introduction is not a new idea in Romanian fiscal policy. So early in 2001, an income tax in a fixed amount (lump sum) for firms with fewer than 20 employees and a turnover of maximum 100,000 euros was introduced. Later the idea was abandoned and, as of 01/09/2001, the small companies’ income tax by applying a percentage rate on the income made was introduced. The motivation at that time was the high rate of income tax (25%), which would have determined the increase of the turnover in the underground economy, ways to avoid the tax burden. The motivation then, just as now, was that the introduction of the flat tax will reduce tax evasion. Flat tax introduction was abandoned by the summer of 2007, when this type of tax was introduced for bakery businesses; the argument being that tax evasion in this sector reached alarming levels by 60-70%. The idea of introducing flat tax in 2009 was repeated and applied to six types of business, the purpose being the increase of the revenues to the state budget and the motivation - the fact that most firms are evading income tax. Of approximately 680,000 companies that have submitted financial statements for the year 2007, about 12,000 provide around 85% of government revenues, which means that the vast majority of companies do not contribute anything to the state budget. According to the tests conducted by the Ministry of Public Finance for 2007, about 242,000 firms (about 39%) of the registered companies recorded losses. If we report the number of firms with losses that submitted annual financial statements, the percentage is about 35.6%, but even this percentage does not reflect the profitability of firms in Romania. We made an analysis of the financial statements for the 1 st semester of 2008 submitted by companies in Dolj County.
205 Thus, from the total of 17,481 companies which submitted statements in the first half of 2008, 2389 were taxable on the small companies’ income paying an average monthly tax of 224 lei, and 4912 companies paid income tax, a monthly average of 1813 lei. On the other hand, of all companies that paid income tax, about 1,600 companies have no employee, which distorts and makes any analysis of the profitability of firms in Romania difficult. At first glance, it would mean that about 11,000 companies recorded losses from activities in the first half of 2008. It is a false impression, because about 5,500 companies filed financial statements on "zero", meaning that they had no income, no expenses, so they did not develop activities. Therefore, from this it results that firms with tax loss were around 5500, which represents approximately 46% of the total active companies of around 11,970 firms. The question is: These companies may run at a loss for long periods without resorting to credit? It is well-known the fact that companies which are at a loss are restricted the access to bank loans and then, to finance their work, their owners of companies credit them with their own money. As long as companies have recorded losses year after year, this money can come only from tax evasion. If we make an analysis of tax paid by companies in Dolj County in the first half of 2008, we can draw relevant conclusions to support the introduction of the flat tax. Thus, in case on the small companies, at a monthly tax of 224 lei, there results an average monthly income of about 8970 lei. Given that most firms (about 51% in the Dolj County) operate in trading field, to ease the analysis, assuming a trade discount of 10%, there results an income earned from trade margin of about 900 lei per month. It provides a very simple and pertinent question which I think cannot be answered with any credible arguments not even by the greatest “expert in financial engineering”: if the company had at least one employee to whom it paid the minimum wage, the social security contributions due by the employer, paid utilities as well (energy, water, sewer, gas, etc..), the owner – sole associate, in most cases, from which does he/she ensure his/her existence and, in most cases, his/her family as well? The answer can be only one: tax evasion. Tax evasion is a widespread phenomenon in Romania and difficult to control by the fiscal authorities. The only solution to get the hundreds of thousands of escapists to pay "some" taxes to the state budget was the introduction of a minimum tax, established according to certain criteria. The reaction of business people on the flat tax introduction was different, most strongly criticizing the opportunity for such a measure, arguing that in times of crisis in which Romania was found, this could lead to tens of thousands of bankruptcies, as a consequence, and to the increase of the number of unemployed people with several hundred thousandIf we make an analysis of the flat tax, as negotiated between government and business representatives and adopted by emergency ordinance, we see that their claims are exaggerated. Before this analysis, I believe that some observations are needed on what has beennegotiated, which has been published in the media and what has been adopted by emergency ordinance of the government. Thus, if the views expressed by the negotiators (government, employers, unions) have hinted that the new tax system for businesses is the flat tax, after considering the provisions of the normative document, we may conclude that "flat tax" is a minimum tax, already charged in the case of companies that
206 are active in the field of night bars, night clubs, discos, casinos and sports betting, mandatory to any company registered in Romania, whether it has recorded loss or profit, if the income tax or the tax on the income recorded in the current year is less than the minimum (5% of such income). Another observation is that the Government has imposed this measure on the companies without activity, which has brought some criticism from various businessmen and specialists in the economy. On this measure, I think a little comment should be made. As I have said before, over 30% of the firms that submitted financial statements, are not engaged in any activity. In terms of law, very lax, these companies operate: they submitted financial statements, tax returns were filed, but all on "zero"; why? Not to be contraventionally sanctioned and, primarily, not to be removed from the Trade Register Office for failure to submit financial statements. Given the unnecessary costs incurred by the tax administration to manage these tax payers as long as there is no legal provision to "clean" such companies that are not beneficial for the Romanian economy (the costs with the management of these companies can be estimated by state institutions: the National Agency of Tax Administration, Trade Register, etc..), as initiated by the Ministry of Public Finance and approved by the government to tax these companies, although it does not respect certain principles of taxation, I think it is a coercive measure applied to these companies so that it leads them to act accordingly: either they start to work, or they are radiated from the Trade Register.
Total annual Annual Tax share Profitability rates revenue minimum Taxable of the revenues tax (lei) 1 2 3 = 2/ maximum 4 = 2 / 5 = 4/maximum revenue of the 16% revenue of the scale scale 0 to 52,000 2,200 4.23% 13,750 26.4% 52,001 to 4,300 2% 26,875 12.5% 215,000 215,001 to 6,500 1.5% 40,625 9.4% 430,000 430,001 to 8,600 0.2% 53,750 1.25% 4,300,000 4,300,000 to 11,000 0.05% 68,750 0.32% 21,500,000 21,500,001 to 22,000 0.017% 137,500 0.11% 129,000,000 More than 43,000 0.033% 268,750 129,000,001
In the present situation, it is difficult to assume that there will be many companies that will begin to function, the only way to escape the tax is the dissolution
207 of these companies, this procedure bring cumbersome and long lasting, according to the laws in force. If the debts will set upon taxpayers, it is difficult to assume that they will be recovered. Therefore, I think that making a normative act is necessary to impose the dissolution of these companies, except those in the evidence of fiscal bodies with debts, as well as those which have not undertaken activities from date of their establishment (have not submitted financial statements, according to the legislation in force). To investigate the effects of the flat tax application on the operators, I will present the tax rate, taxable profit and the return rate at the maximum revenue from the scale, flat tax" set on the revenue portions as follows: If we look at the established minimum tax and related to the maximum turnover, according to the tax scale, we notice that huge discrepancies of this tax which can not be accurately justified from the economic or financial point of view. Thus it appears that small enterprises as defined by the tax laws have been divided into 3 scales of taxation. There results that companies which have recorded a positive income, but less than 52,000 lei, and the vast majority of those which derive income from 52,000 to 215,000 lei cannot survive without the wide-scale practice of tax evasion and in this regard the relatively large amount of the flat tax can be justified. If we compare the current rate of 3% applied to the maximum turnover of small businesses (100,000 euros = 430,000 lei x 3% = 12,900 lei), in case of the flat tax, we see that it is of 50% tax rate on incomes of small companies (6500 lei), which can only be a measure of fiscal relaxation, valid not only for small enterprises. If for the first three scales of taxation the degree of regression of the tax is acceptable, starting with the fourth portion of laying flat tax, the gap between revenues and the minimum tax are, in economic and financial terms, without justification. The analysis of the data in the table above shows that companies which in the previous year achieved revenues of more than 100,000 euros are more advantaged in terms of the "flat tax" compared to the small companies, and, thus, the fiscal loosening we are speaking about is more consistent. Naturally that the brief analysis above excludes companies which, only in writing, have recorded and / or record losses. If we look at companies with revenues of over 260 million lei, where the revenue performance is 0.10%, we see that the fiscal relaxation is directly proportional to the recorded income. Analyzing the data presented in the table, we see that there is no correlation between the portions of incomes on tax scales and the set tax. Thus, the maximum income from the 4 th portion is 10 times higher than that of the 3 rd portion, and the annual minimum tax of only 1.32 times, that of the 5 th portion is 5 times higher than that of the 4 th portion, and the annual minimum tax of only 1.28 times, and revenues from the 6 th portion are 6 times higher than those of the 5 th portion, the minimum tax is 2 times bigger.
Conclusions
Given the scale of tax evasion, held up and justified not only by the state authorities or the international organizations, but also by businessmen and specialists in the field of economy and finance, the introduction of the flat tax is a "welcomed" measure, regarding the absence of legal provisions to attract revenue to the state budget from the grey economy, at least regarding the income tax or the tax on the income of small companies, as other incomes due to the general consolidated budget (tax on
208 income from wages, social contributions, VAT, excise, etc.) cannot be attracted by such measures. The methods of determining the flat tax should be substantially improved, within the meaning of the elimination of the disparities presented, so that the tax which must be paid by the companies should follow as much as possible one of the basic principles of the taxation, i.e. that of tax equity. I also believe that the reduction of tax evasion may take place only by fiscal measures, these measures going hand in hand with the measures from other areas of the economic and social life.
REFERENCES
Government Emergency Ordinance no.on the 2009 budget rectification and the regulation of some financial-fiscal measures Article 103 Tax Code Article 36. (3) of the Accountancy Law no. , republished Official Gazette no. 454 / June 18, 2008 Official Gazette no. 249 / April 14, 2009 www.mfinante.ro
209 BARRIERS TO THE INNOVATION ACTIVITIES OF THE COMPANIES
Milena KIROVA Phd Candidate, University of Rousse Svilena RUSKOVA Phd Candidate, University of Rousse Bulgaria
ABSTRACT The paper presents results of a survey carried out in 2009 among the companies in the region of Rousse in The Republic of Bulgaria about the factors hindering their innovation activities. The main obstacles for all the companies are the undeveloped infrastructure and the lack of consumer interest. The suitable sources for financing during the last ten years were considered a serious barrier for the innovation activities while in this survey they are pointed out as a stimulus.
KEY WORDS : Factors, innovation activity, Rousse region, barriers, stimulus JEL: L25, L26
1. INTRODUCTION
There is no doubt in the importance of the innovation activity for the market success of each company. Many factors are given in the publications, some of which are classified as stimuli, some as barriers for the innovations. The factors with the positive influence are: company size, degree of diversification, the economic branch, competitiveness, type ow ownership, participation in production alliances, partnership for innovations with other companies, universities, etc [Velev, 2008]. The negative factors are: economic risk; huge investment expenses; lack of proper funding and qualified staff; lack of information about the technologies and the markets; lack of consumer interest; legislation problems. [Velev, 2008; Kirova, 2008; Agency …2009]. There is a tendency, shown in the above mentioned surveys, according to which during different periods of time the pointed factors have different degree of influence, depending on the external and internal environment of the companies. This fact inspires the aim of the present paper to carry out survey about the level of influence of the barriers to the innovation activity of different firms from the Rousse region. The following objectives are determined: • presentation of the processed data from similar surveys from previous years • specifying the methodic of the present survey • analysis of the results and conclusions.
2. TENDENCES FROM PREVIOUS SURVEYS
The strategy of the European countries to increase their competitiveness through innovation and entrepreneurship leads to many surveys dealing with the conditions, factors, organizing and implementing of research and innovation activities.
210 In the survey for the period of 2002-2004 [Petrov, 2008] it is shown that 66% of the innovations in the Bulgarian companies are related to acquisition of machines and equipment, 31% - with the employees training, 30% - with the marketing of new product and processes and 24% - with research and development services from outside vendors. Only 9% of the studied companies carry out research and development on the own territory. The latter factor in the companies from EU is 51%. As far as the buying of equipment and (EU – 74%) and training of employees (EU – 51%) the figures are similar to the Bulgarian companies. The surveyed companies state that their main sources for information about their future development are their customers. This fact is easily explained with the natural desire of each organization to find out new solutions for the constantly increasing customer requirements. That’s why the Bulgarian and the European entrepreneurs pay enormous attention for the market information in relation to the legislative requirements and the international standards. The survey from the period of 2006-2008 shows that the innovation activity has increased considerably. The data presents the initiative of the companies in this direction and about one third of them (29-34%) carry out innovation each year, and 90% have steady budgets for innovation. Half of them increase the budget for innovations each year. The companies offering their products on the international markets have three times more innovation activities than those working only for the local markets (about 100kms away from the company). The planning period also influences the innovation activities. The survey shows that organizations which planning horizon is three or more years have 50% activity than the others. As a result of this they introduce radical product and process innovations and manage to influence the consumer demand [Petrov, 2009]. Another research, directed towards factors and types of innovation activities, emphasis the relation between “degree of innovation activities and type of innovations”. About 70% of the innovative companies carry out more than one type of innovation and 18% implement product, process, organization and marketing innovations [Hristov, 2009]. The companies with weak innovation intensity carry out mainly organizational innovations, and those with average – marketing innovations. During the transition from average to strong degree of innovation the most important are the process innovations. There is a relation between the type of competitor strategy and the implemented innovation. The companies which have distinguished competitors are more innovative and apply product instead of process innovations. The cost leadership strategy done by the main competitors suggest relatively higher importance of the process and organization innovations which lead to cost optimizations [Petrov, 2009]. The capital investment may be accepted as an indicator of the financial capabilities of the company. They are used for financing of innovative projects and to determine the relation between the innovation activity and the capital investment. Thus the necessary resources are invested in the case of intensive development of the organization where the necessity of the expansion of the infrastructure is directly tied to the introduction of new processes and products. According to the Agency for Economic Analysis and Forecasts [Agency, 2009] (Fig. 1), the common understanding that the increasing of the investment expenses leads to increase of the industrial output and sales is confirmed. For example the increase in the investment of 7% for 2007 relative to 2006 leads to 14% jump in the sales.
211 The information from the previous surveys leads to the idea of research to determine the barriers to the innovation activity in the region of Rousse.
90.00% 80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 2000 г. 2001 г. 2002 г. 2003 г. 2004 г. 2005 г. 2006 г. 2007 г. 2008 г.
Investment cost of industrial companies relative to the previous year Increase of the sales of industrial companies relative to 2000=100 Increase of the production of the industrial companies relative to 2000=100
Figure 1- Relation of the investment and the sales increase for the period 2000-2008
METHODIC OF THE SURVEY
The economic activity in the region of Rousse is quite diverse and includes different companies from different areas. 124 commercial organizations are selected for the general population, all of them being members of the local Rousse Chamber of Trade and Industry. After careful study of each activity of the chamber members, the priorities have been grouped in nine basic categories. They correspond to the chapters of the National Classificatory of Economic Activity (NCEA). For better reliability of the obtained results, each one of these categories will be treated as separate general population – N1 … N 9. Table 1 General population and samples sizes
Chapters Production of Production Retail Productio Production Information Land and Civil Prod according metal of chemical and n of food of timber services and water constru uctio to NCEA products, and rubber wholes and and technology transport ction n of machines and products ale beverages furniture cloth equipment and plastics es with general and specialized equipment
N general 19 populati 19 11 13 5 12 5 8 10 on n-
sample 16 10 12 5 11 5 8 9 16 size
The size of the sample n depends on the following three factors: - ε - limiting error; γ - - confidence level;
212 - p – probability of distinguishing of the alternatives for answers from the survey object The limiting error is the difference between the assessment of a researched parameter from the sample and the real value of this parameter in the population, which is result from the difference N-n. In the current survey the limiting error is ε = 10%. γ The confidence level is based on the central limit theorem [Nedyalkov, 2008] and its value is 90%. The probability for distinguishing between the alternatives for result „ p” varies from 0 to 1 and the more evenly spread the population, the bigger the sample is needed. It is accepted that р = 50%, which gives maximum probability for result between two alternatives “yes” and “no” at normal distribution. In this paper the sample size n is calculated by the formula (1) [Nedyalkov, 2008]:
= N n 2 1+ Nε (1)
The specific values of n are given in Table 1.
3. ANALYSIS OF THE BARRIERS TO THE INNOVATION ACTIVITIES OF THE COMMERCIAL ORGANIZATIONS
This analysis is based on a survey carried interviewing the representatives of the management of 92 companies members of the Rousse Chamber of Trade and Industry in Feb-March 2009. The number of employees of the researched companies is most commonly from 10 to 49 people (42.2%), after that follow companies with 50-249 people personnel and at the end companies wit more than 250 people. The companies with 9 people dominating the market are producing chemicals, rubber products and plastics. The companies with 10-49 people are dealing with production of metal items, machines and equipment, and those with 50-249 people are engaged in the food industry. The type of innovation activities are directly related with the company main business. The companies in the categories “Production of chemical products” (36%) and “Production of timber” (41%) carry out mainly product innovations. The sectors “Construction” (53%) and “Production of clothing” (43%) prefer process and organizational innovations. The companies in “Trade” (60%) and those making beverages and food (44%) use marketing innovations. The surveys from the previous years show problems with the quality and the staff qualifications. The current survey deals with the problems of the mangers satisfaction with the qualification of their employees and the quit rate during the last five years. 94% of the managers from the industry producing metals, machines and equipment are not happy with the qualification of their staff, but in spite of that the quit rate is relatively low (19%). This is due to the lack of people with the necessary knowledge and skills at the Bulgarian market. To compensate for this phenomenon 75% of the firms in this area provide training based on the implemented innovations. Having in mind the short life cycle of the products and technologies in the area of information
213 services, it is possible to explain why 1005 of those companies carry out employees’ training. The factors influencing the innovation activity shown in Table 2 in most of the publications are treated as barriers to the innovation of the firms. During the current survey it had been determined that during different periods of time, depending on the changes in the company environment and activity, some of these factors start to act positively and even stimulating during the creation of the innovation. Another moment is the determination of the fact that the infrastructure may be a serious obstacle for the innovations, the infrastructure meaning the availability of electricity, transport and communication. Table 2 Comparison of the factors influencing the innovation activity
Relative ratio of the answers(%) Factor 1997 г. 2002 г. 2006 г. 2009 Quite Does not Makes it Does not Makes it Does not Makes it Does not Stimulat often obstruct difficult to make it difficult to make it difficult to make it es the obstructs a great difficult a great difficult a great difficult innovati degree degree degree on activity Great econom 27,4 38,3 33,2 10,0 21,6 27,5 44,83 42,06 18,60 ic risk Very big 41,2 18,6 37,8 5,8 31,6 23,8 47,87 42,90 9,20 expens es Suitabl e sources 78,4 7,9 61,7 7,9 30,5 28,9 24,42 46,11 29,30 for financi ng Qualifi ed 5,9 54,9 8,3 39,0 11,8 56,9 31,88 34,61 40,37 personn el Inform ation about 12,8 40,0 14,1 30,3 4,9 56,9 20,49 38,90 40,37 the technol ogies Inform ation about 13,7 39,0 20,7 20,3 3,4 60,3 7,28 34,70 57,80 the markets Consu mer 36,0 60,0 12,4 23,7 4,9 47,1 24,44 26,36 67,22 interest Legisla 29,0 36,0 36,9 22,0 17,6 32,8 24,08 39,00 35,78 tion Infrastr - - - - 50,78 36,83 12,60 ucture - -
The factors “great economic risk” and “very big investment for innovations” are mutually interconnected, which can explain their mutual increase and decrease. These two factors reflect the changes in the marketing values. If the economy is not stable, their negative influence increases and affects the innovation activity. The suitable sources for financing gradually reduce their influence as barriers and at the present moment they are seen by the managers as stimuli for innovation. The
214 reason is the opening of some of the operation programs financed by the EU. The lack of qualified staff is a deepening problem for the carrying out of the innovation activity. In spite of that 40.37% of the respondents show this factor also as a stimulus. The explanation is that the management recognizes its importance and they undertake measures for the necessary training depending on the needs. The information about the technologies is viewed as important stimulus giving direction for the future development. The reason is the desire of the most organizations to invest in the acquisition of modern machines and equipment. The markets and the consumer interest are the two main factors with the biggest influence with 57.80% and 67.22% respectively, but the fact that the importance of the lack of consumer interest has increased for the period 2006-2009 should not be ignored. This fact is tied to the influence of the current economic crisis on the purchasing power of the consumers. The legislation is not considered as a serious barrier to the innovation of the companies during the last years. The explanation here is the synchronization between the Bulgarian and European laws. The respondents point out as the biggest problem the lack of proper infrastructure. It influences the other factors considered as barriers in a negative way.
4. CONCLUSIONS
The following conclusions may be formulated as a result of the current survey: 1. The selection of the specific type of innovation (product, process, marketing) depends on the size of the company and type of its economic activity. For example the firms from “Trade” (60% of the surveyed in this area) introduce marketing innovation. 2. The suitable sources of financing are considered as stimuli for the innovation from the majority of the manager opinions. 3. Unlike the previous surveys for the firms innovation in Bulgaria, the present one takes into account the infrastructure as the most serious barrier. 4. The consumer interest at the present conditions of economic crises increases its importance as an obstacle in front of the innovation activity.
REFERENCES
Kirova, M., (2008) “Factor influences on Innovation Activity”, Proceeding of the Seventh International Scientific-Applied Conference “Strategic Trends in Business in 21 th Century and the Quality of Higher Education, Varna, Nedyalkov, A. N. Najdenov. (2008) “Methodic for the determination of the sample size and processing of statistical data”. Silistra. RITT., ISBN 954-759-200-9, стр . 38-42 Petrov, M. et all. (2009) “Innovations.bg. Bulgarian innovation system in the environment of the global economic crisis”. Sofia. pp. 26-27. Petrov, M. at all.(2008) Innovations.bg Foundation “Applied research and communications”, Sofia, pp.37-38 Velev, M., R. Nakova, (2008) “Research of Innovative Activity Factors in the Marketing Field”, Proceeding of the Seventh International Scientific-Applied Conference “Strategic Trends in Business in 21 th Century and the Quality of Higher Education, Varna www.minfin.bg Agency for economic analysis and forcasts. Bulgarian economic during 2008. Annual report , 2009 www.novavizia.com/4864.html Hristov, T. The most innovative regions in the world . 2009.
215 REGIONAL DEVELOPMENT’S CONCEPTS
Raul MALO Assistant, Phd Candidate Economic and Administrative Faculty, Eftimie Murgu University of Re iŃa Romania
ABSTRACT I tried in this paper to find the best definition of regional development, by starting with some essential concepts regarding the term of “region”. At first I tried to show the implication that the term region has. In the paper you can see how the term can be applied to the national and international context, and how this concept can be looked as a territorial administrative unit. The paper treats widely the NUTS classification in European Union, beginning with the principles of NUTS, showing the purpose and pointing out the main characteristics of the NUTS. Of course we could not treat the regional development issue without reminding about regional development policy and economic, social and territorial cohesion. At this point I tried to distinguish the main objectives and principles of the regional development policy.
KEY WORDS: Region, area, administrative, territorial, unit, development, policy, cohesion. JEL: M38
1. INTRODUCTION
What we understand by “regional” term, may assume some clarifications. It has been suggested that a region is a major division of a country. This affirmation has two implications. The first one is the fact that we don’t speak about states, but we speak about “localization areas” that stands under the jurisdiction of a national government, from witch it expects to be preoccupied about it’s own wellness, government that responds in the same time for the wellness of the regions, sometimes trying to balance the conflicts of regional interests over every region. The second implication that has been suggested is that the regions are “major divisions of a country”. Countries are different one from another from the size point of view, but in most of them we could find some kind of small number of spatial division. Among region, we can also use terms like “area” and “zone”. In 1973, Stanislaw Czamansky made a clear distinction between those two terms: - “Area” is the term for every part of bi-dimensional space, being useful in spatial economic-social analysis; - “Zone” term at the beginning was just a technical term, representing a transversal band cut from a sphere, nowadays being used for defining a surface with different characteristics reported to the surrounding space; - “Region” term is a much precise term, implying a surface in economic frame being able to function in a independent way, although in reality having close connection to the rest of the economy.
216 2. ACTUAL CONCEPTS OF REGIONAL DEVELOPMENT
According to references region type it will be defined a certain regional structure. Eventually region will be looked as a administrative territorial surface of a country having on one hand a geographical determination, and on the other hand a administrative determination, implying a sum of institutional abilities, that give them a certain autonomy reported to the central authority. As we could see, the region term it applies not only to national space, but even international space, in order to define regions made between neighbor countries borderlines or regions made out from groups of country that maintain economic connection, cultural connection and commercial connection. If we look at the Europe, beginning with January 1 st 1993, here it has been destroyed the borderlines, process that culminate to the moving of national states frontiers to the actual extern UE frontiers. These processes have effects above all frontier regions in or out European Union, but it also leaded to a considerable geographical extinction and intensification of trans-frontier cooperation. Regarding the cooperation and regions beyond national frontiers we have the following types of cooperation: - Trans-frontier cooperation, the cooperation of regional and local authorities along a frontier - Inter-regional cooperation, the cooperation in one domain - Trans-national cooperation, the cooperation between countries in special domains. By following the international dimension of development, the European Union Statistical Office has elaborated the Nomenclature Units for Territorial Statistics (NUTS), with the purpose of realizing a uniform classification of territorial units for regional statistics of EU. The NUTS nomenclature was created and developed according to the following principles: a) The NUTS favours institutional breakdowns. Different criteria may be used in subdividing national territory into regions. These are normally split between normative and analytic criteria: - normative regions are the expression of a political will; their limits are fixed according to the tasks allocated to the territorial communities, according to the sizes of population necessary to carry out these tasks efficiently and economically, and according to historical, cultural and other factors; - analytical (or functional) regions are defined according to analytical requirements; they group together zones using geographical criteria (e.g., altitude or type of soil) or using socio-economic criteria (e.g., homogeneity, complementarily or polarity of regional economies). For practical reasons to do with data availability and the implementation of regional policies, the NUTS nomenclature is based primarily on the institutional divisions currently in force in the Member States (normative criteria). b) The NUTS favors regional units of a general character. Territorial unit’s specific to certain fields of activity (mining regions, rail traffic regions, farming regions, labor-market regions, etc.) may sometimes be used in certain Member States.
217 NUTS exclude specific territorial units and local units in favor of regional units of a general nature. c) The NUTS is a three-level hierarchical classification Since this is a hierarchical classification, the NUTS subdivides each Member State into a whole number of NUTS 1 regions, each of which is in turn subdivided into a whole number of NUTS 2 regions and so on. At the regional level (without taking the municipalities into account), the administrative structure of the Member States generally comprises two main regional levels (Länder and Kreise in Germany, regions and departments in France, Comunidades autonomas and provincias in Spain, regioni and provincie in Italy, etc.). The grouping together of comparable units at each NUTS level involves establishing, for each Member State, an additional regional level to the two main levels referred to above. This additional level therefore corresponds to a less important or even non-existent administrative structure, and its classification level varies within the first 3 levels of the NUTS, depending entirely on the Member State: NUTS 1 for France, Italy, Greece, and Spain, NUTS 2 for Germany, NUTS 3 for Belgium, etc. The NUTS Regulation lays down the following minimum and maximum thresholds for the average size of the NUTS regions.
Level Minimum Maximum NUTS 1 3 million 7 million NUTS 2 800 000 3 million NUTS 3 150 000 800 000 Source: http://ec.europa.eu/eurostat/ramon/nuts/basicnuts_regions_en.html
At a more detailed level, there are the districts and municipalities. These are called "Local Administrative Units" (LAU) and are not subject of the NUTS Regulation. The NUTS Regulation lays down rules for future amendments of the regional breakdown used by the European Union. A first revision of the NUTS classification was scheduled for 2006, three years after the 2003 version. For the 10 new Member States, the same rule applies, i.e. amendments were possible in 2006. This means that, exceptionally, the moratorium before changes are allowed is only 2 years for the new Member States. Changes to the NUTS classification will be proposed by the Commission, not more often than every three years, after initial notifications to Eurostat by the national statistical institutes in the Member States. Changes in national administrative regions lead virtually automatically to a change in the NUTS classification; for non- administrative regions, however, the NUTS Regulation stipulates that changes must entail a reduction of the standard deviation in the size (measured in population) of the regions. Following the 2006 decision by Parliament and Council to change the NUTS classification, the changes will enter into force on 1 January 2008. All agreed changes are reflected in this publication. The NUTS nomenclature serves as a reference:
218 a) for the collection, development and harmonization of Community regional statistics: during the 1970s, the NUTS gradually replaced the specific divisions used in the various statistical domains (agricultural regions, transport regions, etc.), and it was on the basis of the NUTS that the regional economic accounts were developed and the regional sections of the Community surveys were defined. b) for the socio-economic analyses of the regions: at the same time as establishing a correlation between regions in terms of size, the NUTS also provides several analytic levels. The 1961 Brussels Conference on Regional Economies, organized by the Commission, found that NUTS 2 (Basic regions) was the framework generally used by Member States for the application of their regional policies and was therefore the appropriate level for analyzing regional-national problems, whereas NUTS 1 (major socio-economic regions grouping together basic regions) should be used for analyzing regional Community problems, such as "the effect of customs union and economic integration on areas at the next level down from national areas". NUTS 3, which broadly comprises regions which are too small for complex economic analyses, may be used to establish specific diagnoses or to pinpoint where regional measures need to be taken. c) for the framing of Community regional policies: for the purposes of appraisal of eligibility for aid from the Structural Funds, regions whose development is lagging behind (regions concerned by Objective 1) have been classified at the NUTS 2 level. The areas eligible under the other priority Objectives have mainly been classified at the NUTS 3 level. The periodic report on the social and economic situation and development of the regions of the Community, which the Commission is required to prepare every three years under Article 31 of Council Regulation (EEC) No 1083/2006 concerning the European Regional Development Fund, has so far mainly been prepared at the NUTS 2 level. The present NUTS nomenclature valid from 1 January 2008 subdivides the economic territory of the European Union into 97 regions at NUTS 1 level, 271 regions at NUTS 2 level and 1303 regions at NUTS 3 level. Below that, two levels of Local Administrative Units (LAU) have been defined. The upper LAU level (LAU level 1, formerly NUTS level 4) is defined only for the following countries: Bulgaria, Cyprus, Czech Republic, Estonia, Finland, Greece, Hungary, Ireland, Latvia, Lithuania, Luxembourg, Malta, Poland, Portugal, Slovenia, Slovakia and the United Kingdom. The lower LAU level (formerly NUTS level 5) consists of around 120 000 municipalities or equivalent units in the 27 EU Member States (as of 2007). Despite the aim of ensuring that regions of comparable size all appear at the same NUTS level, each level still contains regions which differ greatly in terms of area, population, economic strength or administrative powers. This heterogeneity at Community level is often only the reflection of the situation existing at Member State level. In terms of area, the largest regions are situated in Sweden and in Finland: - Manner-Suomi (Continental Finland), with 303 000 km², and Norra Sverige (SE), 288 450 km², at NUTS level 1; - Övre Norrland (SE), 153 440 km², and Pohjois-Suomi (FI), 133 580 km², at NUTS level 2; - Norrbottens län (SE), 98 250 km², Lappi (FI), 93 000 km², and Västerbottens län (SE), 55 200 km², at NUTS level 3.
219 In terms of populations (2005 data), there are also marked differences between regions: - at NUTS level 1, Nordrhein-Westfalen in Germany and Nord-Ovest in Italy have the most inhabitants (18 million and 15 million, respectively), while Åland (26 000 inhabitants) in Finland is the least populated region; - at NUTS level 2, the Île de France and Lombardia have 11 million and 9 million inhabitants respectively, while 14 regions (most of them peripheral regions or islands) have fewer than 300 000: Åland, Burgenland (AT), Guyane, Ceuta, Melilla, Valle d’Aosta/Vallée d’Aoste, Luxembourg (BE), La Rioja, Corse, Açores, Madeira, and three Greek regions; - at NUTS level 3, the Spanish provinces of Madrid and Barcelona, the Italian provinces of Milano, Roma and Napoli, the German city of Berlin and the Greek nomos of Attiki all have more than three million inhabitants, whereas a number of regions in Germany, Spain, Belgium, Austria, United Kingdom, Greece, and the island of Gozo in Malta have populations of under 50 000. In our country, administrative territorial structure contains a regional level and a local level. Among the region based on territorial administrative structure there are some proposals for the two additional regional levels determined by the necessity of elaborating some programs on different kind of areas, that doesn’t address directly to the administrative territorial structure. Among the groups based on administrative territorial structure it has been crystallized some typological groping, meant to reduce, based on some of economic social development characteristics, at a few bigger category the regions that forms the national territory. In order to talk about regional development, we should define what regional development means. According to the dictionary, development translates through out growing, evolution, amplifying. Practical to develop means to cross from a qualitative old way to another one that is new, from a inferior step to a superior one, from simple to complex. The way regional development is defined is very important because of the fact that, function of that, can be formulated different conclusions regarding the real situation of the economy in a region. In Romania regional development concept, began to circulate in academic area and political administrative area in the last decade, but the issue of disparities between country, regions and units has been debated from the second half of the 19 th century. Some theoreticians define regional development as a process of diversifying and development of economic and social activities at the level of territorial unit beginning with the mobilization and coordinating the resources and existent energies. Jacquier and Mendes France define regional development as being that global process that integrated strategy that has as an objective the promoting of another manor of conceiving the cities, putting accent on solidarity and belonging notions to the same collectivity and in the same time fighting against excluding mechanism, that are often amplified. Pour, French magazine, considers regional development as a strategy of surviving for the less lucky regions that can not continue anymore in this way, and must be replaced with a powerful effort of solidarity. We could not talk about regional development without pointing out the regional development policy.
220 Regional development policy is an ensemble of measures planned and promoted by the local and central public administration authorities, having as partners different actors (private, public, volunteers) in order to ensure a dynamic and lasting economic growth, through the effective use of the local and regional potential, in order to improve living conditions. The main areas regarded by the regional policies are: development of enterprises, the labor market, attracting investments, development of the SME sector, improvement of infrastructure, the quality of the environment, rural development, health, education, culture. The main objectives of the regional development policies are as follows: - To reduce the existing regional disparities, especially by stimulating the well- balanced development and the revitalization of the disadvantaged areas (lagging behind in development) and by preventing the emergence of new imbalances; - To prepare the institutional framework in order to comply with the integration criteria into the EU structures and to ensure access to the financial assistance instruments (the Structural Funds and the Cohesion Fund of the EU); - To correlate the governmental sector development policies and activities at the level of regions by stimulating the inter-regional, internal and international, cross- border cooperation which contributes to the economic development and is in accordance with the legal provisions and with the international agreements to which Romania is a party; The principles that the elaboration and the application of the development policies are based on : - Decentralization of the decision making process, from the central/governmental level to the level of regional communities; - Partnership among all those involved in the area of regional development; - Planning – utilization process of resources (through programs and projects) in view of attaining the established objectives; - Co-financing – the financial contribution of the different actors involved in the accomplishment of the regional development programs and projects. Economic and social cohesion is an expression of solidarity between the Member States and regions of the European Union. The aim is balanced development throughout the EU, reducing structural disparities between regions and promoting equal opportunities for all. In practical terms, this is achieved by means of a variety of financing operations, principally through the Structural Funds and the Cohesion Fund. Every three years the European Commission presents a report on progress made in achieving economic and social cohesion and on how Community policies have contributed to it. At European level, the origins of economic and social cohesion go back to the Treaty of Rome (1957) where a reference is made in the preamble to reducing regional disparities. In the 1970s, Community action was taken to coordinate the national instruments and provide additional financial resources. Subsequently these measures proved inadequate given the situation in the Community, where the establishment of the internal market, contrary to forecasts, had failed to even out the differences between regions. With the adoption of the Single European Act in 1986, economic and social cohesion proper was made an objective alongside completing the single market. The Maastricht Treaty (1992), finally, incorporated the policy into the EC Treaty itself (Articles 158 to 162).
221 Economic and social cohesion is essentially implemented through the regional policy of the European Union. Besides the reform of the common agricultural policy and enlargement to the Central and East European countries in 2004, regional policy was one of the major issues discussed in Agenda 2000, which covers the period 2000- 2006, largely because of the financial implications. Regional policy is the European Union's second largest budget item, with an allocation of 348 billion euros (2006 prices) for the period 2007-2013. Enlargement to 27 Member States in January 2007 has meant an entirely new order. The surface area of the European Union has increased by over 25%, its population by over 20%, and its wealth by only 5% approximately. Average GDP per capita in the European Union has fallen by more than 10% and regional disparities have doubled. Since 60% of the regions whose development is lagging behind are in the 12 Member States which joined the EU In 2004, the centre of gravity of regional policy is shifting eastwards. For the period 2007-2013, economic and social cohesion will have to concentrate more on crucial development concerns in the field of economic growth and employment while continuing to support regions which have not completed the process of convergence in real terms. Structural assistance also remains necessary in geographical areas facing specific structural problems (areas undergoing industrial restructuring, urban areas, rural areas, areas dependent on fishing, and areas suffering from natural or demographic handicaps). Finally, simplification and decentralization of the management of regional policy financial instruments (Structural Funds and Cohesion Fund) will be the watchwords of the regional policy reform for the period 2007-2013.
3. CONCLUSIONS
As we see, the paper started with the region term explaining, it builds a regional development definition, and finally points out the issue of regional development policy and economic and social cohesion, concepts that are close related one to another. I consider the most meaningful definition of the regional development, the one according to witch, the regional development is a new concept that follows the growing and diversifying of economic activities, stimulating the investments in private sector, the contribution to the reducing of the unemployment and not at least to conduct to a improvement of the level of living, because starting from the social component of the territorial and administrative unit, it finally reaches some macroeconomic issues such as: economic grow, reducing of the unemployment rate and the reducing of the inflation. Regional development policies are very important for a country through its objectives and principles. Close connected to this regional development policy is the economic and social cohesion that is implemented through the regional development policy of the European Union. Besides the reform of the common agricultural policy, regional policy was one of the major issues discussed in European Union.
REFERENCES
Brown, A.J., Burrows, E.M., (1977) Regional economic problems, George Allen & Unwin Ltd, London, , p. 13, Constantin, D.L., (1988) Economie regional ă, Editura Oscar Print, Bucure ti, , p. 13,
222 Richardson, H.W., (1973) Regional and urban ecomonic , Pitman Publishing Ltd, London, , p. 19, Nicolae, V., Constantin, D.L., (1998) Bazele economiei regionale i urbane , Editura Oscar Print, Bucure ti, , p. 19, Wadlez, D., (1986) Restructuration regionale . Analyse, principe d’action et prospective , OCDE, Paris, , p. 40. Ghilo Ńan, C., Balogh, M., Hosu, I., Drago , D., (2001) Dezvoltare regional ă i local ă, Editura Gewalt Promotion, Cluj Napoca, , p. 41. http://www.mdrl.ro/index.php?p=159 http://ec.europa.eu/eurostat/ramon/nuts/basicnuts_regions_en.html
223 ROUTE OF ROMANIA TO THE EURO AREA
Mihaela-Anca MATIES (VARGA) PhD Candidate Faculty of Economics and Business Administration, West University of Timisoara Romania
ABSTRACT This paper idea appeared on the preparations for the admission of Romania advanced to the higher stage of integration-joining the euro area. Tatutul S Journal of Romania is to adopt the single currency, the "Member State with a derogation". The status conferred by the Act of Accession AND one undertakes to become, eventually, full member status of the euro area. For Romania, the real challenge lies in choosing a proper way according to the specific economy. This is the condition that required to meet Romania, under the provisions of the Maastricht Treaty, to enter the final phase of integration. the changeover is the stage most relevant to a process of unification euro adoption should be done slowly.In the case of Romania for the years 2010-2012 is expected entry into ERM II mechanism, and joining the euro area between 2012-2014.
KEY WORDS: convergence criteria, monetary policy, single currency, the euro area. JEL : E40, E42
1. INTRODUCTION
In practice, monetary unification process was and remains a European Monetary dificil.Uniunea process was carefully outlined in the Maastricht Treaty, did not appear surprinz ător.Acesta specified how and when will it launch the single currency. Treaty specify the essential elements of monetary policy doctrine that would be of prime interest. In this context, we could see that the entry into Economic and Monetary Union is obtained by a European Union member state, meeting the nominal convergence criteria laid down in the Treaty of European Maastricht.Uniunea desired, by introducing these criteria, to provide signals a true cult of macroeconomic stability. In addition, the clarity was an advantage of placing these convergence criteria under the Maastricht Treaty. The design of macroeconomic policies has been changed into the European model in the third stage of integration - economic and monetary union. So they started from the principle of "one for one" in principle "one for all". In the euro area, all participating states can divide both the benefits and costs of a common monetary policy, to be combined with national fiscal policies, specific to each member of the euro area. German Chancellor Helmut Kohl, the government statement of September 25, 1992, stated: "We will not be able to ensure economic stability and prosperity of the country maintain its own currency, than by working ever more closely to achieve common economic and monetary policies. Nobody should deceive the illusion that is the sole judge in this area". Robert Mundell demonstrated 50 years ago that "a single currency in a wrong time can have more negative than positive!"
224 2. THE SINGLE CURRENCY
The decision to create a single currency (euro) from January 1, 1999 under the auspices of Central Bank. European is the ultimate objective of economic and monetary integration in the single market. Evolution of the euro area is closely tied to the euro. The idea of a single currency came in 1993. When it was established that the Economic and Monetary Union will be created in 3 steps. In December 1995 it was decided that the single European currency should be called the euro. With the advent and evolution of the single European currency have created the premises training euro area, including countries that can meet the Maastricht criteria and unifies its monetary policy ideas to form a common monetary policy. The single currency was introduced in 3 distinct phases: the first stage were set convergence qualifying countries, and from June 1, 1998, together with the emergence of the European Central Bank, national legal systems have been adapted to run new currency and were technically trained in the first issue of banknotes and coins. In the second stage, relations were established between the national currencies of the euro area countries and the euro, the euro just as the currency of account. The last phase involved the development of banknotes and coins. According Tratatuluim of Maastricht, states that joined the European Union have joined the EMU with temporary exemption regarding the euro. Adopting the euro is seen generally as a finality of European integration. Like other countries, and Romania wants to join the euro area. Therefore it must meet the convergence criteria stipulated in the Maastricht Treaty. Meeting the criteria for nominal convergence and real convergence process further economic policy are needed to enable their achievement. In terms of promoting policies to achieve convergence, one has a great significance convergence program. Convergence Program is assessing opportunities for economic development is critical to harnessing the benefits offered by the EU and present calendar that Romanian authorities have proposed to adopt the single currency.
3. CONVERGENCE CRITERIA
Four criteria of''convergence''was stipulated in the Maastricht Treaty: - ''Achieve a higher degree of price stability, it will use an inflation rate close to that of the three member states, the best situated of this view, moreover, presented the best results in terms of stability the price''; not be more than 1,5% against the average of the three states; - "Character supported by public finances, it will continue to blame government budgetary position without excessive deficit'', the budget deficit should not exceed 3% of GDP only if is regular and declining public debt will not exceed 60% of GDP; - ''Respect the normal fluctuation margins provided for by the exchange mechanism of the European monetary system for a period of at least two years without devaluation of currency in relation to the other Member State''; state will be, above all, not jail own initiative a bilateral rate; - ''The durability of convergence achieved by Member States and its participation in the exchange mechanism of the European Monetary System, which is
225 reflected in long-term interest rate levels'', long-term nominal interest rate will not have to be top level 2% of the average of the three best performing countries in terms of inflation. It is seen therefore that also emphasized the need for convergence to implement monetary union. The first and second criterion refers explicitly to the nominal convergence criteria for convergence rates and interest rates. Budgetary criteria concern the organization of fiscal policy in monetary union. Deficits must be reduced to give states the margin of maneuver in case of specific or asymmetric shocks. Another logic of these criteria is to limit the effects evic Ńiunii: - Indebtedness of some countries translates into lower interest rates which in turn affect other countries, this analysis is often disputed the extent that markets are capable of differentiating good from the poor countries. - Are excessive public spending at the expense of private agencies (traditional evic Ńiunii effect). Criticism budget criteria was particularly vivid. It first was supported by the arbitrary nature of the threshold of 3%. It was then supported by naive character of income indicators. Indeed: - Budget deficit is influenced by the economic situation (in case of bad circumstances, loss of tax and social transfers additional networks); - Budget deficit is very dependent on monetary policy and higher interest rates it difficult batch of debt. To take account of these two elements are possible other indicators: structural deficit mend the differences in production potential, or mend the primary structural deficit in addition to batch interest debt. Calculations based on these indicators give a different picture of fiscal policy in Europe. They stress, conversely, political risks are based on very restrictive for improper indicators. The Maastricht Treaty makes no reference to real convergence criteria, which ensure a high degree of similarity structures of candidate countries' economies. It is possible that the initial failure to come from the fact that, initially, the EU was a union of rich countries and their economy was like. Treaties were already signed when it was realized the importance it has for a successful integration of the countries of Central and Eastern Europe. In recent years, the European Commission and the ECB have warned of growing more, the risks of precipitated adoption of the euro by a country whose real convergence with West European structures is insufficient. The most important actual convergence criteria: • the openness of the economy (expressed in proportion to the amount of exports and imports of a country has a GDP); • share of bilateral trade with EU countries in total foreign trade; • economic structure (expressed by weight which have a major economic sectors in creating GDP: agriculture, industry, services); • GDP / capita. It is very clear, the concern of the European Commission and European Central Bank not to leave the country poorly prepared to push for euro adoption only forced the fulfillment of the criteria for nominal convergence. Romania, in addition to complying with the Maastricht criteria should construct a solid plan and a series of practical training. This implies involvement of the state sector, the private and people. The first phase will be to appoint the institution
226 responsible for preparing the national coordination of the changeover. Then to develop a plan "to change the money market and take over the single currency. The Plan will have to calculate as precisely the costs and time to process the eurozone. Commission provides training programs for the changeover, based on partnerships with individual countries.
4. CONCLUSIONS
After adoption of the euro monetary policy is the responsibility of management of the European Central Bank to practice the strategy on two pillars: one quantity, given the forecast developments in broad money supply and a quality that takes into account a number of financial and banking indicators. When will likely be announced on adopting the euro, macroeconomic and microeconomic policy decisions should be subject to those options. From there, about some key aspects: • benefits of lower inflation to be explained the political class and the population to benefit from their support you will need; • central bank independence must be guaranteed in theory and practice • inflation targeting and exchange rate requires help from the Government to promote prudent fiscal and wage; • important is maintaining control credit growth; • need a very good communication between government and Central Bank; • awareness that, in a single market, is gaining competitiveness through innovation From the foregoing the following information: • Operating in the ERM II period not exceeding two years; • ERM II entry should be made only when the convergence criteria are met. Proposed range of 3-4 years between the time of EU accession and the entry into ERM II mechanism will be used with great attention to economic restructuring and to conduct deep investment program aimed at reducing the gap between our country and present the current standards European Union The main strategic objective of the new NBR Board will adopt the euro on the horizon of 2014, said central bank governor, Mugur Is ărescu, it considers that this is an ambitious goal, but achievable "I think the main strategic objective of the new CA will have adopted the euro at the horizon of 2014. It's made this a goal, established in 2007 to duplicate a new mandate. I believe that despite the difficulties this, this goal is ambitious, but achievable, "said Isarescu, in a speech to Parliament. He stated that the purpose of adopting the euro may be "giving catalizatoul consistency of macroeconomic policies.
227 REFERENCES
Cisma Laura (2000) “Economie politic ă”,vol. I i vol. II, Editura Mirton, Timi oara; Dăianu D., Vrânceanu R. (2002) “Romania and the European Union”, Ia i; Gilles Jacoud (2003) “Le système monétaire et financier européen – La monnaie dans la zone Euro”, Nathan, Paris; Ionescu L. (2000) “The Issue of a Monetary Anchor Within the Prospect of EU Accession”; Is ărescu Mugur (2004) ”România: drumul c ătre euro”, Cluj-Napoca; Jhele G. A., Reny P. J. (2001) ”Advanced Microeconomic Theory” – Ed. Addison Wesley, New-York; Rueff Jacques (2002) “Une monnaie, l’euro,une banque central, 12pays”, discurs Montreal, Septembrie; Sila i Grigore, Sîrghi Nicoleta (2004) “Macroeconomia în fi e” , Editura Mirton, Timi oara; Sîrghi Nicoleta (2008) “Microeconomie Aprofundat ă - Teorie i aplica Ńii”, Editura Mirton, Timi oara; Szapary G. (2002) “Is Maastricht Too Much for the Candidates Countries?”, Bruxelles; www.bnro.ro www.europa.eu www.ier.ro
228 EMPIRICAL APPROACH OF COFOG PUBLIC EXPENDITURES. THE CASE OF EUROPEAN UNION MEMBER STATES
Marius MILO Assistant Phd, Faculty of Economic and Administrative Sciences, Eftimie Murgu University Resita Romania
ABSTRACT The theme of public expenditure has been of great interest in the latest years. Focusing on government size, role of government and the efficiency of the public sector becomes an even more important issue nowadays when the financial crisis has covered severly almost all economies worlwide. The debate has as starting point the keynesian belief (state intervention overcomes recession periods) but also the division of the economy between the public and the private sector. Goods and services could be provided by the state, but many times the private sector seems to be more efficient. Using a specific econometrical analysis, the authors try to establish the optimal size of the public sector regarding the structure of the expenditures in both old and new member states of the European Union, a level that fosters economic growth and suggest that, following this point, GDP should be left in the hands of the private sector.
KEY WORDS : public expenditure, economic growth, optimum level, public sector, performance JEL: H10, H50, H70
1. INTRODUCTION
The economic theory provides two main categories of arguments that explain the public sector size in time and among countries. The first category has as starting point the Wagner law, according to which the elasticity of governmental expenditures compared to GDP is greater than 1. As countries become more developed, the demand for public goods raises and is consistent with the increasing ability to collect the necessary funds. On the other hand, the “Baumol cost disease”, explains that the percentage of governmental expenditures increases because the raise of public servants’ salaries is higher than their productivity, while the price related to public services demand is relatively non-elastic. The second category of arguments is political. For election purposes, the fiscal policies, especially those concerning the governmental expenditures, tend to be inconsistent in time and focuse on greater deficits and greater public sectors. This trend is more powerful if the number of parties forming the government is larger, if the election frequency is greater, and election system is proportional and not relying on majority. The theoretical studies support the idea that the long-run relation between the size of the administrative sector and the economic growth has a concave shape. When the administrative sector is very small, the long-term economic growth can be accelerated through the capital and labour productivity growth by increasing the provision of public goods. The marginal economic growth is positive but decreasing as the size of the administrative sector increases, and it becomes negative when additional charges harm the benefits resulting from increasing the productivity. The exact position of this turning point remains a key question. The response depends on structural factors,
229 such as the economic cycle, the structure of public expenditures and the fiscal pressure. Using a specific econometrical analysis, the authors try to establish the optimum for the structure of the public expenditures by considering the most important expenditure types according to COFOG classification in old and new member states of the European Union, which fosters economic growth and suggest that, following this point, GDP should be left in the hands of the private sector.
2. THEORETICAL FRAMEWORK
Starting with the theoretical framework proposed by Armey (1995), in this being proposed an optimum level of the public sector within the economy, we focused on an econometrical methodology, that is meant to identify the optimal size of government spending for the structure of the public expenditures within the EU-15 countries, respectively in the EU-12 countries. In order to achieve this objective, we have taken into consideration the real GDP growth and the total amount of public expenditures (as % of GDP) according to COFOG classification, for the period 1999-2007. The subject of the paper is of wide interest, considering the fact that in the last decades, beginning with 60’, 70’, the level of public expenditure as % of GDP has been permanently growing and the issue of a correct size of public expenditures in GDP has been largely debated. This subject is reviewed with an even more significant frequency during periods of economic and financial crisis, when the issue of management of public funds is of crucial interest. Analysing the historical data, we can conclude that both big governments and also those who had proceeded at reducing the level of the public expenditures, have not reached a maximum level of the economic growth and of social welfare. This is the reason why we state that the optimum level of public expenditures varies within countries due to a range of social and economical factors that influence upon the management of public resources. An economy can function in optimum conditions when there is a mix between the force of the market economy and the public intervention through allocation of public resources. Taking into consideration the analysis made by Grossman (1987), Scully (1994), Chao and Grubel (1998) or Pevcin (2004), we emphasize on the idea that a generalized optimum level of the public expenditure as % in GDP cannot be reached for more countries on a whole. Though, through the econometrical modelling, considering the past experiences, can be obtained an optimum level, but restricted to the conditions and limitations of the proposed model. An extension of the number of observations, for example, using wider time series, could lead to a change in the proposed optimum level of public expenditures with several percents.
3. METHODOLOGICAL FRAMEWORK
The empirical test regarding the existence of Armey curve can be illustrated by the following mathematical model:
Q = f (G,N) (1) where Q measures the output of the economy, G indicates the state intervention in the economy, while N shows the existence of some exogenous factors. We have considered the most adequate indicator for Q the real GDP growth (expressed in %), for G the
230 public expenditure for different functions of the government as % of GDP, while N was ignored. Consequently, the model can be rewritten with the following non-linear regression:
α + α + α 2 GDP = 1 *2 E *3 E (2) where: GDP– dependent variable, real GDP growth (%); E – independent variable, public expenditure on different functions (% in GDP);
Computing the equation 2 as a function, that must me maximizied, leads to identifying the optimal level of public expenditure as % of GDP. In order to do that, we proceed to derivation of the function by E and equalize it to zero. We reach the following equation:
∗ α ∗ α 2 3 E + 2 = 0 (3) from where the optimum level of public expenditure:
−α E = 2 ∗α (4) 2 3
4. RESULTS
When optimizing the structure of the public expenditures, we have based our analysis on the functional classification of the public expenditures. Following this line of arguing, we focused on the 10 functions of the public expenditures offered by the COFOG classification. It would be desirable to obtain an optimum of public expenditures as percent in GDP for each type of expenditure by considering individual countries. This would represent an exhaustive methodology which would allow deep and complete analysis when trying to improve the structure of the public expenditures. But, our present research trys to identify some general features for the EU member states, this also due to data availability but also because of the lenght of mathematical demonstrations. Consequently, we focused on an analysis which considers the EU member states by grouping the states in EU-15 and EU-12. In this way we can observe differences between the two groups of countries, which definitly prove different characteristics.. Furthermore, we state that of highest interest are those expenditures from the main categories of COFOG classification. These would be the public expenditures regarding economic affairs, public health, public education, social services and also social security and welfare. The other five types of expenditures according to COFOG classification have all been considered as other expenditures and are not part of this research. We will present downards the results obtained by computing the optimal structure of public expenditures for EU-15 and EU-12 member states. Therefore we considered the real GDP growth as a dependent variable and the different types of expenditures as % of GDP as independent variables. The time series we have chosen are for the period 1999- 2007 and the data used is from Eurostat statistics. In the
231 following tables there are presented the results of the regressions and the coefficients which we have used for cumputing the optimal sizes according to relation ( 4 ) from the methodology above.
Optimizing public economic affairs expenditures – EU-15
Dependent Variable: Real GDP growth Method: Pooled EGLS (Period SUR) Sample: 1999-2007 Included observations: 9 Cross-sections included: 15 Total pool (unbalanced) observations: 134
Coefficient Std. Error t-Statistic Prob.
α 2 1.119339 0.077333 14.47435 0.0000 α 3 -0.095880 0.010481 -9.148332 0.0000
R-squared 0.546361 Durbin-Watson stat 1.958532
Considering the econometrical analysis, we can state that the obtained results allow us to continue the research ( to maximize the function which reveals the correlation between economic growth ( real economic growth ) and the economic affairs expenditures ( being revealed as % of GDP)). The results are statistically significant, this can be observed by viewing the table above. The optimal size of 5,84 %, which should be reached by the expenditures regarding economic affairs for maximizing economic growth, reveals for the developed countries from the European Union a confirmation of the economic theories which claim that these countries focus less on this type of expenditures than the new member states ( the average of this expenditures in GDP being for EU-15 member states of only 4,33% for the period 1999-2007). Because of this reasons, we observe from the mathematical function that an increase of this type of expenditures is suitable in order to maximize the economic growth. For the period of time considered and the data being used, for reaching an optimum point, the public expenditures regarding economic affairs should be increased by 1,51%. We could conclude that this result may occur also due to the high stimulating characteristic regarding economic growth of this type of expenditure.
Optimizing public economic affairs expenditures – EU-12
Dependent Variable: Real GDP growth Method: Pooled EGLS (Period SUR) Sample: 1999-2007 Included observations: 9 Cross-sections included: 12 Total pool (unbalanced) observations: 95
Coefficient Std. Error t-Statistic Prob.
232 α 2 2.095336 0.154173 13.59080 0.0000 α 3 -0.208977 0.019733 -10.59022 0.0000
R-squared 0.562187 Durbin-Watson stat 1.640040
The results are statistically significant, this can be observed by viewing the table above. The optimal size of 5,01 % in GDP , which should be reached by the expenditures regarding economic affairs in order to maximize economic growth is pretty close to the real average of this expenditures for the considered period of time for the EU-12 member states ( the average of public economic affairs expenditures for EU- 12 being in the time period 1999-2007 of 5,20 % in GDP). Considering that usually emergent states allocate a higher importance to this type of expenditures than developed countries do, we could claim that the obtained result confirms this theory and also proposes a slight diminishing of about 0,19%, as an average, for the EU-12 states regarding public economic affairs expenditures.
Optimizing public education expenditures – EU-15
Dependent Variable: Real GDP growth Method: Pooled EGLS (Period SUR) Sample: 1999-2007 Included observations: 9 Cross-sections included: 15 Total pool (balanced) observations: 135
Coefficient Std. Error t-Statistic Prob.
α 2 1.512203 0.117722 12.84554 0.0000 α 3 -0.168864 0.020048 -8.423115 0.0000
R-squared 0.628613 Durbin-Watson stat 1.972157
Considering the econometrical analysis, we can state that the obtained results allow us to continue the research ( to maximize the function which reveals the correlation between economic growth ( real economic growth ) and the public education expenditures as % of GDP)). The results are statistically significant, this can be observed by viewing the table above. The optimal size of 4,47 %, which should be reached by the expenditures regarding the education in order to maximize the economic growth, indicates for the developed countries from the European Union a confirmation of the fact that these countries prove a trend of reducing public education expenditures towards a level of 4,5% - 5% in GDP. This trend could have been observed in the latest years especially in countries like Germany, Austria, Netherlands, France, Italy or Denmark ( as an example, in Denmark, public education expenditures have been reduced from 8,2 % in GDP in 2003 to 7.4 % in GDP for the year 2007). This dynamics doesn’t necessarly prove less money for education, but it shows that in the latest years private financing of education has largely increased at least in some special fields of education and research. We could conclude on the basis of our results, that maximizing
233 economic growth, may be achieved also by reducing for EU-15 member states the public education expenditures with about 0,98% in GDP.
Optimizing public education expenditures – EU-12
Dependent Variable: Real GDP growth Method: Pooled EGLS (Period SUR) Sample: 1999-2007 Included observations: 9 Cross-sections included: 12 Total pool (unbalanced) observations: 95
Coefficient Std. Error t-Statistic Prob.
α 2 2.154670 0.314217 6.857258 0.0000 α 3 -0.215134 0.053542 -4.018015 0.0001
R-squared 0.547051 Durbin-Watson stat 1.883398
The results are statistically significant, this can be observed by viewing the table above. The optimal size of 5 % in GDP , which should be reached by the expenditures regarding public education in order to maximize economic growth is pretty close to the real average of this expenditures for the considered period of time for the EU-12 member states (the average of public economic affairs expenditures for EU-12 being in the time period 1999-2007 of 5,40 % in GDP). Anyway, if judging public eucation expenditures individually, several countries like Romania, Bulgaria, Czech, Slovakia prove to allocate significantly under 5% in GDP towards public education for the year 2007, the last year considered in our analysis.
Optimizing public health expenditures – EU-15
Dependent Variable: Real GDP growth Method: Pooled EGLS (Period SUR) Sample: 1999-2007 Included observations: 9 Cross-sections included: 15 Total pool (balanced) observations: 135
Coefficient Std. Error t-Statistic Prob.
α 2 1.608485 0.131467 12.23490 0.0000 α 3 -0.177072 0.018735 -9.451602 0.0000
R-squared 0.552343 Durbin-Watson stat 1.988009
Considering the econometrical analysis, we can state that the obtained results allow us to continue the research ( to maximize the function which reveals the correlation between economic growth ( real economic growth ) and the public health expenditures as % of GDP)). The results are statistically significant, this can be
234 observed by viewing the table above. The optimal size of 4,54 %, which should be reached by the expenditures regarding public health in order to maximize the economic growth, indicates for the developed countries from the European Union an optimum level of this type of expenditures under the average obtained in the considered period of 6,19% in GDP. We could state that in this case optimizing the level of public health expenditures in EU-15 states means a reduction of this type of expenditures with 1,65% in GDP.
Optimizing public health expenditures – EU-12
Dependent Variable: Cre terea real ă a PIB Method: Pooled EGLS (Period SUR) Sample: 1999-2007 Included observations: 9 Cross-sections included: 12 Total pool (unbalanced) observations: 95
Coefficient Std. Error t-Statistic Prob.
α 2 2.104709 0.245530 8.572105 0.0000 α 3 -0.207238 0.042250 -4.905073 0.0000
R-squared 0.449121 Durbin-Watson stat 1.731851
The results are statistically significant, this can be observed by viewing the table above. The optimal size of 5,07 % in GDP , which should be reached by the expenditures regarding public health in order to maximize economic growth is higher than the average of this expenditures for the considered period of time for the EU-12 member states ( the average of public health expenditures for EU-12 being in the time period 1999-2007 of 4,80 % in GDP). Consequently, we could state that optimizing public health expenditures in EU-12 member states means an increase of this type of expenditures with about 0,27% in GDP. This policy may be opposite the general policy which should be followed by EU member states, as claimed above, meaning a considerable reduction of public sectors. Anyway in the EU-12 member states results show that not public health expenditures should be reduced in order to reduce public sectors, but the other types of public expenditures.
Optimizing general public services expenditures – EU-15
Dependent Variable: Cre terea real ă a PIB Method: Pooled EGLS (Period SUR) Sample: 1999-2007 Included observations: 9 Cross-sections included: 15 Total pool (balanced) observations: 135
Coefficient Std. Error t-Statistic Prob.
235 α 2 1.016186 0.080151 12.67834 0.0000 α 3 -0.079800 0.010988 -7.262610 0.0000
R-squared 0.572536 Durbin-Watson stat 1.991699
Considering the econometrical analysis, we can state that the obtained results allow us to continue the research ( to maximize the function which reveals the correlation between economic growth ( real economic growth ) and the general public services expenditures as % of GDP)). The results are statistically significant, this can be observed by viewing the table above. The optimal size of 6,36 %, which should be reached by the expenditures regarding general public services in order to maximize the economic growth, indicates for the developed countries from the European Union an optimum level of this type of expenditures under the average of 6,89% in GDP obtained in the considered period of time. We could state that in this case optimizing the level of general public services expenditures in EU-15 states means a reduction of this type of expenditures with 0,53% in GDP.
Optimizing general public services expenditures – EU-12
Dependent Variable: Cre terea real ă a PIB Method: Pooled EGLS (Period SUR) Sample: 1999-2007 Included observations: 9 Cross-sections included: 12 Total pool (unbalanced) observations: 95
Coefficient Std. Error t-Statistic Prob.
α 2 1.904091 0.167224 11.38648 0.0000 α 3 -0.158925 0.020419 -7.783118 0.0000
R-squared 0.591789 Durbin-Watson stat 1.766870
The results are statistically significant, this can be observed by viewing the table above. The optimal size of 5,99 % in GDP , which should be reached by the expenditures regarding general public services in order to maximize economic growth indicates pretty close for the EU-12 member states a level under the average level of 6,11% obtained for the period 1999-2007. Consequently, in order to obtain maximum results regarding economic growth a slight diminishing of this type of expenditures is worth. This diminishing is of 0,12% in GDP for the new member states regarding the expenditures with general public services.
Optimizing social security and welfare expenditures – EU-15
Dependent Variable: GDPC? Method: Pooled EGLS (Period SUR) Sample: 1999-2007
236 Included observations: 9 Cross-sections included: 15 Total pool (balanced) observations: 135
Coefficient Std. Error t-Statistic Prob.
α 2 0.514181 0.052370 9.818291 0.0000 α 3 -0.018767 0.002703 -6.941824 0.0000
R-squared 0.585027 Durbin-Watson stat 1.997172
Considering the econometrical analysis, we can state that the obtained results allow us to continue the research ( to maximize the function which reveals the correlation between economic growth ( real economic growth ) and the social security and welfare expenditures as % of GDP)). The results are statistically significant, this can be observed by viewing the table above. The optimal size of 13,63%, which should be reached by the expenditures regarding social security and welfare in order to maximize the economic growth, indicates for the developed countries from the European Union an optimum level of this type of expenditures under the average of 17,93% in GDP obtained in the considered period of time. We could state that in this case optimizing the level of social security and welfare expenditures in EU-15 states means a reduction of this type of expenditures with 4,30% in GDP. In fact, excessive public expenditures allocated towards social security may hinder private initiative and diminish economic development.
Optimizing social security and welfare expenditures – EU-12
Dependent Variable: Cre terea real ă a PIB Method: Pooled EGLS (Period SUR) Sample: 1999-2007 Included observations: 9 Cross-sections included: 12 Total pool (unbalanced) observations: 95
Coefficient Std. Error t-Statistic Prob.
α 2 1.204689 0.090286 13.34297 0.0000 α 3 -0.060113 0.006241 -9.632055 0.0000
R-squared 0.711446 Durbin-Watson stat 1.812517
Considering the econometrical analysis, we can state that the obtained results allow us to continue the research ( to maximize the function which reveals the correlation between economic growth ( real economic growth ) and the social security and welfare expenditures as % of GDP)). The results are statistically significant, this can be observed by viewing the table above. The optimal size of 9.98%, which should be reached by the expenditures regarding social security and welfare in order to maximize the economic growth, indicates for the new member states from the European
237 Union an optimum level of this type of expenditures under the average of 12,84% in GDP obtained in the considered period of time. We could state that in this case optimizing the level of social security and welfare expenditures in EU-12 states means a reduction of this type of expenditures with 2,86% in GDP.
5. CONCLUSIONS
The main result of this analysis reveals the fact that using specific analysis, public sector can be optimized regarding its size but also its structure. Our specific results prove important differences existing between EU-15 and EU-12 member states. As far as concerns the EU-15 countries, the results suggest the fact that beside the expenditures regarding economic affairs all the other categories of public expenditures should be reduced in order to maximize the economic growth. We could see the fact that the expenditures with social security are the ones which require the most important diminishing. By analysing the expenditures for EU -12 member states, there could be seen different results, meaning that optimizing the structure of public expenditures means reducing expenditures differently from developed countries or even increasing public health expenditures. For further analysis we state the fact that studies for each single country could be done in order to obtain the optimal strucure of public expenditures in such cases. In those analysis for achieving significant results, it is also important to consider longer time series.
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238 Chao, J. & Grubel, H. (1998) “Optimal Levels of Spending and Taxation in Canada”, în Herbert Grubel, eds. How to use the fiscal surplus, Vancouver: The Fraser Institute, pag. 53-68 Grossman, P. (1987) „The optimal size of government”, Public choice , vol.56 Heitger, B. (2001) „The scope of government and its impact on economic growth in OECD countries”, Kiel Working Paper nr. 1034 (Kiel Institute of World Economics)
239 THE ACTIVISM WITHIN THE MONETARY POLICY AS ANTI-CYCLIC MEASURE
Mirela MINICA Assistant Professor PhD. Faculty of Economic and Administrative Sciences, “Eftimie Murgu” University Resita Romania
ABSTRACT The article aims at highlighting the manner in which the policy of central banks should adapt to the dynamism of the economy. By means of a parallelism between the ensemble of the European economy and the encomy of the USA, we attempt to point out both their common points and their specific strategies of intervention in the monetary policy.
KEY WORDS : monetary policy, inflation, activism. JEL : E52
1. INTRODUCTION
Beginning with the 1 st of January 1999, when the European Central Bank (ECB) officially became the monetary authority of the Euro area, the ECB modified the rate of the policy regarding its main refinancing operation 18 times until 2008 and already 5 times in the first three months of 2009. During the same period, the System of the Federal Reserve made 35 changes. The simplification cycle begun on both sides of the Atlantic and the British Channel in 2001 led to a cumulative reduction of the rate by 275 basic points in the Euro area, reduction done as a result of a series of seven moves. The ECB began to overturn this cycle in December 2005 and it has modified its policies since then, taking a series of three steps. In the USA, the same simplification phase consisted in 13 reductions, with a total reduction by 550 basic points and it was reversed for the first time in June 2004. Since then, the Federal Reserve has increased its target values 16 times in an uninterrupted series of steps. I though of taking advantage of this impressive programme in order to reanalyse a topic on which I have been long reflected: the activism within the monetary policy. Is there a univocal definition of this notion? Can we quantify activism through mere statistics, as we measure frequency and scope of the political moves? Can a central bank be active while modifying the rate of its policy in a manner remarked as being moderate and extremely attentive? Has the ECB been active enough in responding to the state of evolution of the Euro area economy? The aspects mentioned above seem to suggest the contrary. I shall try to persuade you of the fact that the first variant is the true one. In this respect I will give certain provisional answers based on the processed information. I still believe that the passage of time and a more profound analysis of the Euro area economy will be necessary in order to make us better understand this issue. The definition I give to activism within the monetary policy is, I think, a conventional one, i.e.: activism is the strategic attitude of a central bank, which is permanently struggling to observe its set goal. In the case of the ECB, we speak of a constant struggle for maintaining inflation as close as possible to its arithmetic goal and
240 at the same time to take all the necessary steps for verifying the newly created inflationist pressures and at the same time for attempting to minimise the useless macroeconomic dislocations which occur during this process. Activism is nevertheless an attribute applied to a strategy, not to a political way. My answer to the question if activism can be measured through mere statistics is a negative one. The strategic activism within the monetary policy cannot be quantified in simple terms, for lack of knowledge regarding the key structural forces and of economic relations governing the functioning of our system at any moment in time. When we assess how appropriate our action is, the central banks cannot afford the luxury to make the connection between the policy and several summary statistics. They get involved in a complicated process of extracting the signal from a variety of unclear data and events. They gauge the decision to fit the follows is adjusted according to these conditions. The ECB strategy is an active one, as it needs to fulfil the mandate of the member states. I shall support the idea that the very clarity regarding the European policy allowed the freedom of action in the last year of the decade and more recently, even a remarkable authority upon the market conditions. This took place in spite of the repeated unfavourable shocks occurred and of the apparent inertia of the policy lately. The strategy and information come from the real economy, as well as from the sphere of monetary aggregates, more than from the official declarations always outlined the market expectations beyond the closes term – a sign that the complex analysis necessary for predictions has not impeded the players on the market to respond in a meaningful manner to the newly occurred data.
2. POLITICAL ACTIVISM AND ECONOMIC DYNAMISM
In order to establish the framework of the issue, we shall start by considering a function of stereotype reaction of the monetary policy which has a short-term interest rate situated on the left and a number of variable reactions that can be observed on the left side. Let’s think, for instance, of any type of functions of the reaction, often used, but sometimes abused, by the specialists in econometry and expert observers in their comparison of the strategies of the monetary policy. Essentially, they sum up a simple rule of approximation: the increase of the policy rate if the anticipated inflation is higher than the goal and signs are seen that the economy is operating over its capacity. An additional condition for assuring macroeconomic stability applying to these rules is that the reaction in the case of the nominal rate should be powerful enough so that the real rate vary pro-cyclically: when the inflation expectations increase and economy expands beyond its potential, the real monetary conditions must become harsher. I have chosen this manner of creating the frame of this problem first of all because it is largely used by our observers and because it is concise enough to be easily understood. Nevertheless, before launching the analysis, I shall add that, precisely because it is simple and pedagogic, this frame is also a very incomplete description of our political behaviour. On the whole, because it does not grasp the very essence of the strategy with two resistance poles, based on the economic analysis of medium-term risks which occur in the way of price stability, on the one hand, and a transversal verification based on the medium or long risks analysed through our analytical method, on the other hand. Moreover, as such representations of our policy are not sufficiently contingent with the
241 condition, while my colleagues and I are far from being guided exclusively by the mechanic configurations of indicators, we are on the contrary very interested in contingencies and finally we make our decisions based on the synthetic analysis in the light of multiple experiences. As I use to affirm, collegial wisdom is essential within central banks. They underline the tension between the simple description of the policy and the mere implementation of the policy: the simple descriptions of the policy should not mean, and it really never means, a simple political conduct. Supposing that the parameters attached to the different variables of indicators within the reaction function really succeed in grasping the real strategic preferences of the central bank, the empirical estimations of these coefficients being often used for quantifying the force with which the central bank intends to respond to the state of the economy. In other words, these estimated parameters are sometimes considered to be measures of the strategic activism within the monetary policy. A central bank would be strategically considered more passive or less active than another central bank if that estimated coefficient attached to the inflation expectations in the deviation from the bank goal and the estimated coefficient which penalises the indicator of the slowing down failure at the macroeconomic level proved to be smaller. What would be the reason why this central bank would arrive to be considered passive? As, for the given variations of inflation and for the real activity, this central bank would be really predisposed to take more moderate actions as a response to the modifications to take place in the future. It would adjust the policy rate through narrower and perhaps less frequent margins compared to its more active equivalents. Moreover, as the analysis typically adds a partial mechanism of adjustment to the representation of the manner in which the central bank interest rate responds to the economic state, there is an additional source of activism or passivity that would occur from these simple empirical data. This is the coefficient of inertia attached to the dependent variable of the rate of delayed interest, which in these rules moderates the reaction rhythm of the policy rate to its basic determinants. In any case, in the naive theory of this world, the simple comparison of the policy frequenies moves, whereas the size of adjustment of the interest rate is sufficient to lead to the differentiation of strategies of these two central banks. A way of the smoother policy would be the signal of the existence of a passive strategy. But obviously the world is not simple and there are really serious traps lying in wait behind the strategic inferences resulted from the comparison between the variations within the policy rates. It is not very difficult to outline the situations when such inferences could be very misleading. I shall give these examples, all based on an important premise that my previous example used also: the supposition that our central banks are confronted to the same economic environment. First of all, let’s imagine that the two central banks respond similarly to the economic conditions: in the jargon specific to the rule of reaction used here, these are two central banks that share the exact same parameters of reaction. But a central bank is now confronted with a less dynamic economy than its corespondents. (A similar interpretation of the inertia of the interest rate as a trend of the central banks to adjust the rates in the same direction and with slow steps can also be found in the work of G.
242 Rudebusch entitled “Important proofs regarding the smoothing of the interest rate and the monetary policy inertia” published in “Journal of Monetary Economics”, vol. 49 , pp. 1161-1187, 2002). When I call it less dynamic, I refer to an economy frequently struck by shocks of a smaller magnitude, and they tend diminish more gradually. Here, the parameters of the reaction are the same, hypothetically speaking, but the variables of the reaction fluctuate at different rates. As all the other elements are equal, the adjustment scheme of the policy rate that the same rule would induce in two economies may look very differently. The central bank operating in a less dynamic economy would be, apparently, the economy that adjusts the interest rates in a more moderate manner. The other central bank would thus seem more reactive, but any strategic involvements resulting from the variation in the two political ways would be purely illusory. The smoother course of the policy would not reveal any well-rooted inertia: it would reflect the same response to shocks with different dynamic features. The monetary policy would seem passive as the very economy would evolve slowly. (Obviously, in the monetary policy practice, the data-related uncertainty is universal. We are uncertain even about the present economic situation because the economic data received with a delay are typically the subject of multiple revisions and anyway they can only approximately and partially represent the basic economic reality). A second example considers again two identical central banks, which are confronted this time with shocks of different natures. One of the central bank is mainly confronted to demand shocks, which result in persistent deviations from the growth trend. This statistic scheme has symmetrical and sustainable effects on production and inflation and thus present a rather direct problem of the monetary policy as a result of the rule presented here for simplification. As both reaction variables that predicted inflation and production would move frequently in tandem, the policy rate of the central bank should be frequently and forcibly modified in the same direction in order to compensate for the shock. But what would happen in the other economy, if the latter, unlike the former, were more likely to suffer reserve shocks? Experience suggests that the reserve shocks have triggered powerful transitory growths within inflation, possibly followed by smaller, more persistent effects at the second occurrence, although the longer-term impact upon inflation is significantly determined by the monetary policy responses. Keeping in mind the transitory nature of the initial inflation outbursts, the simple hypothetical including the reaction to the expected inflation would advise the central bank to analyse the immediate turbulence and to modify the policy only to the necessary extent in order to compensate the effects anticipated as being more persistent in the case of the shock to come upon inflation in the following trimesters. The rate of its policy would be again remarked as being less variable. It is important to remark the fact that the same rule of equally active strategies would support two different schemes of the political behaviour observed in different economic environments. The third case is perhaps the more interesting of all, here the exogenous shocks are identical, but the economic structures are different. The different conveying mechanisms thus propagate the same shocks with delays that vary between the two economies. The first economy has more rigid adjusting mechanisms: the price setters and the wages negotiators are slower than those in the other economy in processing news from the economy, including in this category the modifications taking place within the
243 state of the successful monetary policy meant to bear the consequences of its own decisions. What is the source of these rigidities in the first economy? There may be numerous causes of rigidity. Perhaps the practices and contractual institutions dating from the post-war period, when economy was strongly regulated, induce dispersions in the large segments of the labour market. This stands in the way of achieving an efficient matching of productive skills and abilities. Maybe a regulation based on a strict business restriction and the interdictions dictated by the state discourages innovation and prevents a more rapid response to the new shock and the occurrence of new opportunities. Irrespective of the source of rigidity, the result of the observation is that prices and wages in the first economy reflect the modifications that take place with significant delays in the case of basic elements. How should the monetary policy respond to shocks under these circumstances? I must remark the fact that wander from the simplistic universe of the policy rules and take a step forward towards the no-less hypothetical works of the design of optimum policy. The answer to my question essentially depends on the inflationist process we claim. We know that when the expectations related to inflation are well anchored around the inflation goal set by the central bank, the inflation evolution in time is influenced by the arithmetic goal of the policy more than to the history of inflation in se . We may say the same things in another way, affirming that when the economy powerfully internalises the bank goal, the inflationist process becomes less persistent and is more oriented towards the future. If the expectations related to inflation are well anchored, a past inflation shock may have a smaller impact upon inflation in the future. O reason for this situation is that the shock will not encourage workers to negotiate in order to obtain corresponding rises of wages for the purpose of protecting the value of gains. Equally, the firms would be reluctant to such a potential negotiation. All these parties and other entities dealing with price setting will anticipate the fact that the central bank will eventually bring inflation back to the level before the shock. Consequently, they will tend to treat the past inflation shock as being transitory and without consequences for the future. In the first economy of this example, where prices are sticky and the inflation expectations are well anchored, the monetary policy can be more patient and more focused in the medium term when it is confronted with a cost-pushing shock. Again, similarly to the other two examples, it is possible to remark that it modifies the policy in a less aggressive manner before an unexpected shock of the main inflation. Nevertheless this apparent impatience, again, is not a sign of inertia, of passivity or of ignorance of the macroeconomic conditions, it reflects a careful gauging of the policy course as regards the structural particulars of the basic economy. First of all, the response of the policy to the inflation shock will be less persistent, as the inflationist consequences of the shocks will be more promptly reabsorbed. Secondly, in the case of sticky prices, a modification within the rate of the nominal policy of a given size will have a more powerful impact upon the real rate, which counts the most when it comes to the measurement of the policy condition. Under these circumstances, a more moderate way followed by policy is not a cause of instability. In fact, it is rather the precondition of the avoidance of dangers upon directing, of the accidental destabilisation of economy. Obviously, the experiments considered that I have showed until now are useful only as rules or as optimum levels to which the real world behaviour was compared. And I am definitely
244 not the only one to think that the rules of the simple reaction or the exercises regarding the optimum monetary policy cannot, for this reason, be used as an ultimate test of the real policy behaviour. Nevertheless I hope to have succeeded in transmitting a notion, as I intended. Even in the over-simplified world of canonical examples, in which the macroeconomic condition can be adequately described by a series of facts, where these are condensed in a credible manner in the amount indicators, which are in their turn immune to the errors of the sample and to the statistic revisions and where the policy algorithms are an accepted description of the policy choices, even in that circumstantial world the variability of the policy instrument would not be sufficient from the statistic viewpoint for judging the strategies of the monetary policy. Especially, even in this world, a slower, more rigid economy from the structural viewpoint, would support a more moderate policy course. In the real world, as I will try to explain below, that moderate way observed for the policy receives a stronger justification.
3. REALITIES AND POLICY IN THE EURO AREA
The stress I lay on a less dynamic and more rigid economy, periodically confronted to adverse reserve shocks is certainly intentional. This laboratory case is similar to the Euro zone that I know. I shall organise my interpretation regarding the recent synthesised data from the Euro zone into three large categories: shocks, structures and monetary policy.
3.1. Shocks
A reason why the Euro zone resembles the third example I have forwarded is that, compared to the United States, it seems to the be subject of demand shocks of a smaller magnitude, but it also seems to be more frequently struck by reserve shocks (see, for instance, the comparative structural analysis from the work of F. Smets and R. Wouters – “Comparison between the shock and frictions in the USA and the business cycles in the Euro zone: a DSGE Bayesian approach”, published in the “Journal of Applied Econometrics”, 20(1), January 2005). In the past ten years this shock scheme seems to have become even more poignant, despite globalisation and a generalised orientation towards the close international integration (This is a well-known fact, and definitely a comprising one. See, for instance, the work of J. Stock and M. Watson entitled “Has the business cycle changed? Proofs and explanations”, paper presented at the symposium organised by the Kansas Federal Reserve Bank with the topic “Monetary policy and uncertainty”, Jackson Hole, Wyoming, August 28-30, 2003). This fact is more obvious only in the anatomy of the boom cycle that has widened during the decade starting with the year 1995 in two economies. In the USA the avant phase was significantly propelled, as we know from the ulterior deductions, through the excessively optimistic opinions regarding the increase of long-term gains and, as remarked, due to the exaggerated convictions regarding the profitableness of newly-occurred technologies. But the force of business investment accompanying the registered boom had also important implications for the reserve in the case of the American economy, although its influence upon the rate of the labour productiveness increase and consequently upon the sustainable level of the potential production ?????
245 The calculations of the ECB Board of Directors support the idea that the contribution of the output increase per labour hour resulted from the deepening of capital doubled in the USA during the 1990s. Consequently, and despite the reassessment of these expectations and the unprecedented decrease of the business investment that followed the market collapse in 2001, it has undergone a stabilisation at high levels it reached at the passage to the new millennium. It is remarkable that since then the capital deepening has been replaced, as main motor of the increase of output per labour hour, by the extraordinary progress registered in the total factor of productiveness (TFP). It is debatable if the American firms were able to come in the way of demand expansion with a more efficient organisation of the production process. The same three- year episode has a totally different image in the Euro zone. The stock exchange appreciation comparable in size with that in the USA went hand in hand with a decline, not with an increase, registered within the contribution of capital to the measured productiveness. And a gradual and contemporary decline of the TFP along the decade strengthened, instead of compensating, the reduction of the capital contribution (see the paper of Gomez-Salvador, A. Musso, M. Stocker and J. Turunen, entitled “Progresses of productiveness in the Euro zone”, available as occasional ECD paper. They forward the idea that the contribution of the capital to the increase of the productiveness measured in the USA was of 0.6 percentage points in the first half of the 1990s and it increased by 1.1 percentage points in the second half of the decade, whereas the ABN average was stabilised at the value of 1.0 percentage points between 2000 and 200. Iin the Euro zone, the trend was inverted; a one-point percentage contribution in the first half of the 1990s became 0,4 points and 0.6 points respectively in the second half of the 1990s and in the first five years of the 21 st century. The contribution of the TFP, calculated based on the Solow residual, trebled in the USA compared to the value at the end of the 1990s to the value of de 1.6 percentage points on the average in the period 2002-2004, but it has dropped to its half in the Euro zone, i.e. from 1.3 to 0.6 percentage points in the same period. The correction of the measures mentioned above for TFP in the Euro zone for the variable use of capital does not change the image created. In fact, such a correction would overcome the beginning of the productiveness slowing down in the mid-1990s.). Th Euro zone seems to have experienced an important stock exchange turbulence, without enjoying the aditional benefit rerpesented by the improvement of the conditions specific to supply. The slowing down of the productiveness trend was a main factor triggering the poor economic performance in the Euro area. Because of the collapse of predictions connected to the increase of revenue through the reduction of the probable return to capital, the expenditure destined to consumption registered a reduction, which was deepened to a certain extent also by the ungoing demographic passage towards an increase of the number of aged population. (As the part of population with labour age is diminishing, the increase of the capital stock necessary for equipping the labour force is reduced. The lower rates of investment in certain member states could also reflect a relocation of manufacture in China and other industrialised countries (where the investment rates have been rather high in these past years)). The rapidly –decreasing productiveness was one of the forces behind the counter-cyclic return that took place in the case of unitary labour costs remarked in the first part of the new millennium. This wave of unitary labour costs was atypical, if they are put in contrast with the manner in which the labour unitary costs in the USA
246 elastically respond to the decrease of the economic activity by a strong decline, and they represented a continuous source of inflationist pressures. The basic adverse progresses taking place in the case of productiveness made it more difficult for our firms to smoothen the volatility of many troubles of non-wage costs to which they were confronted beginning with 1999. This lower degree of mobility kept the inflation evolution and the real activity not only constantly vulnerable to the unexpected shocks, such as the increase of the energy and beef prices, to remind only two such shocks that were triggered by different changes in the supply conditions (The set of unexpected supply shock which has implications upon the Harmonised Index of Consumer Process, the element upon which the ECB analysis on inflation is focused, is made of a strong and persistent increase of the oil and gas price in 2000 and again after 2004; it is also made of the increase in the prices of raw materials for the food industry associated with the outburst of the BSE and the HFMD disease (“the foot and mouth disease” in 2001; and of the growth of the administered prices and of the tobacco taxes announced at the end of 2004). We must remark that inflation (Figure 3) was higher in the return phase and has remained at high levels since that moment, at a time when the accumulated margin in the case of the stagnation of the labour and production markets could really have been expected to reduce the price pressures. I invite you again to compare these progresses with the powerful desinflation occurred in the USA in the same period. Obviously we cannot directly observe the total capacity of either labour or other production factors. Consequently, we can never be sure about the level that would represent the total use of available resources and even less as regard the force of the relation connecting its use to inflation. Nevertheless, I hope to have succeeded in proving that this connection is weak, as it seems, in the Euro zone, perhaps even weaker than on the other side of the Atlantic.
3.2. Structures
The structural characteristic leads me to the second category of my remarks, i.e. the structure of economy on this side of the Atlantic. I will focus on two factors that directly affect the relation between inflation and the fundamental shocks which put economy in motion and determine its state: price flexibility and price setting anchoring. The extended empirical research on price flexibility and inflation persistence in the Euro zone has been done recently grace to a general effort of the ECB personnel and of the entire European System of Central Banks (see Dhyne, L. Alvarez, H. Le Bihan, G. Veronese, D. Dias, J. Hoffmann, N. Jonker, P. Lannemann, F. Rumler and J. Vilmunen, “Price setting in the Euro zone: several data synthesised from the date connected to the individual consumer price”, ECB Working Paper, no. 524, 2005. The paper reports that the average duration of the CPI interval in the Euro zone is of 4 trimesters. By comparison, M. Bils and P. Klenow, in the paper “Several important proofs of the importance of sticky prices”, published in “Journal of Political Economy” 112, 2005, calculate that the average duration of CPI prices in the USA is of 2.2 trimesters. Other analyses based on the Phillips curve largely confirm these results. For the Euro zone, see Gali, M. Gertler and D. Lopez-Salido, “Dynamics of inflation in Europe”, “European Economic Review”, 45(7), 2001, and J. Gali, M. Gertler and D. Lopez- Salido, “European Economic Review”, 47(4), 2003). Thus we may reach two main conclusions.
247 Firstly, in the Euro zone prices are obviously more flexible than, let’s say, in the USA. Prices change without a certain frequency: the average duration of the price interval is a time measure used by retailers in order to set new prices for their products, and it is of 13 months. According to pools and surveys, this interval is of 11 months for producers. In the USA, comparable figures indicate durations of less than 7 months and a little over 8 months respectively (Ignoring the methodological differences in the procedures of prices collection within the statistic institutes, the differences of the price adjustment frequencies may be due to different causes. The difference of the competition degree, especially in the service sector, may represent a factor in this respect, especially if we consider the proof that the divergence of these frequencies is very poignant in that sector. Another factor that is frequently cited is that small outlets, which modify prices more rarely than supermarkets, have a higher percentage of the total sales in the Euro zone than in the USA). The less frequent price adjustments make the price setting respond less to the economic news, including, as we have already underlined, to the modifications of the monetary conditions. Generally, the revision processes of the sticky price reduce the chances that the misbalances created by the economic shocks be rectified by price adjustments. Inversely, they let the burden of the shock adjustment disproportionally fall on the modifications taking place within production, revenues and employment. Moreover, the stickier prices tend, if all the other elements are equal, to increase the inflation persistence. This happens because the impact of a shock that modifies today the very real cost conditions, tends to be spread along a distant future, as the shaking price adjustments only slowly keep the pace with the modified basic conditions. Despite the heavy mechanisms of price setting, however, the inflation persistence in the Euro zone is low, according to international standards. This is the second important revealing fact of the new proofs I have mentioned: an inflation shocks is rapidly dissipated in the Euro zone, despite rigidities, and inflation tends to return rather fast to its long-term remarked norm. The half-cut existence of the shock effect upon inflation is much shorter than a year, which is close to the figure we obtained, for instance, in the case of the USA, again despite the very different schemes of price updating practices in the two areas. How can we explain this apparent discordant proof? Another ECB study, which estimates a structural model in the Euro zone, compares American data and goes somehow towards the reconciliation of the empirical resistance of prices and the low persistence of inflation based on a model for inflation determination which outlines the real costs and expectations (See L. Christiano, R. Motto and M. Rostagno, “Financial factors within the business cycles”, paper presented at the IMF-IRF Conference on “DSGE Models realisation in the case of policy-setting institutions: progresses and prospects”, housed by the Governors’ Council of the Federal Reserve (Washington, 2-3 December 2005). As I have already affirmed, the very price slowness introduces persistence into the inflation process, which, in its turn, tends to perpetuate the past pressures of inflation into the future, but part of persistence can be eliminated if the price expectations and the wages setters focus on the central bank goal. This study definitely shows that the influence of the inflation goals set by the ECB on the inflation evolution in time exceeds in importance the influence of past shocks, and thus it succeeds in
248 compensating at last partially the added inertia which results from a more rigid economic structure. We are content to remark that the analysis of the measures of the expected inflation based on surveys suggests that the mechanism of the central bank upon expectations has been much more powerful since the introduction of the Euro currency (The consumer survey on the inflation expectations performed by the European Commission is a good barometer of the short-term sensitiveness of inflation expectations to the recent inflation dynamics. The results are presented in the sense of the difference between the respondents’ percentage who believe that prices will rise and that of the respondents believing that prices will decrease or get stabilised. Before the passage to the Euro currency there was a close connection between this qualitative indicator and the real inflation progress, with a correlation coefficient close to the value 1. Nevertheless, starting from this change, the correlation between the two series has dropped to 0,4).
4. CONCLUSIONS
After having analysed structures and shocks, I shall pass to the third aspect of my discussion about the Euro zone: the monetary policy. Have the considerations related to the nature of the shocks having taken place lately and to the particularities of the Euro zone played any part in the positioning of the monetary policy state? Is it possible that they go toward the explanation of thar particular way of policy rate that was remarked as being moderate, followed by the policy in the Euro area? Has the smoother way of our policy prevented a smooth adjustment of the Euro zone towards the shocks having struck the global economy in the past period? And finally, does the persistence of low inflation offer any reason of contentment? When, at the beginning of 2001, the EBC initiated the simplification cycle we starteded to reverse last December, it happened under the circumstances of the existence of rather adversary supply shocks, of powerful dynamics of wages and of an inflation rate having reached unprecedented levels in Europe since the last phase of convergence to the new exchange currency. Nevertheless, the Governing Council considered that the commitment assumed by us for the purpose of stability, according to our official definition, through our monetary policy, was credible enough for us to make the decision of simplification without risking to destabilise the inflation expectations. This conviction was strengthened by the prognosis which was rapidly deteriorating and showing signs that assured the fact that the inflation expectations regarded with mistrust a scenario in which inflation would remain fixed in the zone of medium-term price stability. The rapid decrease of activity that we predicted to follow and the increase of the chances that the return might not take place too soon, were considered by us the data validating ex post the inflation expectations and rendering the threat of a new inflation considerably smaller. The information extracted from the monetary trends supported our prediction regarding the fact that we shall be able to master inflation in a more distant future. The monetary adaptation was more rapid and, retrospectively, much more persistent than one could have predicted based on the official regulations of policy. Finally, the monetary action led to a 275-basic points reduction of the interest rate, bringing the policy rate to a level below the lowest intervention rate of the central banks, realised with a overwhelming majority by member states, including Germany, in
249 the past 50 years. It is even more remarkable that we were capable of following such an unprecedented historical trajectory for our vast continental economy, the Euro zone, considering that the countries taken individually have very different and heterogeneous heritages as regards the past monetary credibility. It is difficult to find convincing simulations: what would have happened if the ECB reaction had been closer to the schemes of the political behaviour set in the past, instead of the more aggressive action it took. Nevertheless, the structural and even the specific analysis against the model of the mixture of macroeconomic shocks having struck the Euro zone starting with 2001 highlight with a delay the fact that the extra stimulus of the monetary policy we introduced was essential for the avoidance of a more powerful and longer recession both here and at the world scale. I personally consider that this course of the policy was very carefully gauged to fit the structural characteristics of the conveying mechanism in the Euro zone, and I tried to present several of its features. We were guided especially by the understanding of the fact that the operation of a central bank in a relatively rigid economy is able to grant the same quantum of monetary adaptation, through the adjustment of the instrument of its policies with more moderate steps than in a relatively more flexible economy. Under the structural circumstances predominating in our economy, a more aggressive simplification would have introduced an unwanted volatility both in the case of inflation and in the case of production, which would have required a future correction action meant to have a counteracting effect. (The simulations based on a model of dynamics balance estimated at a large scale in the case of the Euro zone quantified the implications of the scenarios of the alternative policy. This analysis reached two conclusions. First, the loss registered in the case of GDPs was associated with a situation in which the ECB did not deviate from the rule of the estimated reaction, which is included in the model, and thus the monetary policy in the Euro zone followed a narrower course and would have reached a value close to 1% per year on the average beginning with 2001. Secondly, if the ECB had followed a more aggressive simplification of policy, similar to the introduction of a strong reduction rate performed by the USA Federal Reserve, the inflation’s standard deviation would have trebled and the production’s standard deviation would have doubled since 2001. Obviously, as I shall briefly argue, the ECB would have maintained the nominal and real policy rate at the low levels at which they had been kept more than two years without consistent signs that the expectations may have been well anchored and that the inflation shocks could be rapidly reabsorbed.
REFERENCES
M. Bils and P. Klenow, (2005) Several important proofs of the importance of sticky prices , “Journal of Political Economy” 112 L. Christiano, R. Motto and M. Rostagno, (2005) Financial factors within business cycles, paper presented at the IMF-IRF Conference on “DSGE models realisation in the case of policy-setting institutions: progresses and prospects” , Governors’ Council of the Federal Reserve (Washington, 2-3 December ). Dhyne, L. Alvarez, H. Le Bihan, G. Veronese, D. Dias, J. Hoffmann, N. Jonker, P. Gali, M. Gertler and D. Lopez-Salido, (2001) Dynamics of inflation in Europe , “European Economic Review”, 45(7)
250 Lannemann, F. Rumler and J. Vilmunen (2005), Price setting in the Euro zone: several data synthesised from the data connected to the individual consumer price , ECB Working Paper, no. 524. G. Rudebusch (2002) – Important proofs regarding the smoothing of the interest rate and the monetary policy inertia, “Journal of Monetary Economics”, vol. 49 , pp. 1161-1187 F. Smets and R. Wouters (2005) – Comparison between the shock and frictions in the USA and the business cycles in the Euro zone: a DSGE Bayesian approach , “Journal of Applied Econometrics”, 20(1), January J. Stock and M. Watson (2003) – Has the business cycle changed? Proofs and explanations , The Symposium organised by the Kansas Federal Reserve Bank , on the topic “Monetary policy and uncertainty”, Jackson Hole, Wyoming, August 28-30
251 "OSTROGORSKI PARADOX" AND PUBLIC OPTION
Mihai MUTA CU Assistant Professor Phd Faculty of Economics and Business Administration, West University of Timisoara Romania
ABSTRACT Unfortunately, in modern democratic systems the governing bodies do not observe always the prescriptions set out by the voting citizens, and their decisions, having as grounds the delegation principle, do not offer always a general welfare increase. That is why the results of the election process do not coincide in the direct democracy, as against the representative one, due especially to behaviors of the public decision actors: voting citizens, governing politicians and bureaucrats. Results do not always inscribe in some strictly behavioral factors. Moise Ostrogorski emphasized this in 1903, in his paper “La democratie et l'organisation des parties politiques” (Democracy and organization of political parties) and it is known in literature under the name de “Ostrogorski Paradox”.
KEY-WORDS: public option, “Ostrogorski paradox” JEL: E60, E61
Obtaining a collective preference for summing up the individual options according to the voting mechanism is a process characteristic to democratic states, as society organization and management form, in which the people exercise, directly or indirectly, the power. The democratic system is presented as a state government form in which the collectivity members – the people, defined as all citizens – hold the decision-making power and control the use of force in a legitimate manner. In the international theory and practice, two forms of democratic systems manifestation exists, which allow conveying the individual preferences in collective preferences through the voting mechanism: direct democracy (pure democracy) and indirect democracy (representative democracy) . A. The direct or pure democracy shows a democratic system form in which the people exercise the power directly, being an alternative to the indirect democracy. More precisely, for the direct democracy the persons entitled to vote express uninterrupted their preference through vote. In history, the direct democracy examples refer to the Athenian democracy (5 th century B.C.) and, much more recent, to the Swiss democracy , “Landsgemeinen” type from certain Swiss cantons having deep roots in the Middle Ages. No matter the state, the constitutive elements of direct democracy are found in most government forms of modern democracies, although they are not enough for inserting per se those democratic systems in the “pure democracies” category. Concerning this, the main forms of manifestation of direct democracy’s constitutive elements are the following: referendum (case of the one organized in Romania, during October 18-19, 2003, at the time of revising the Constitution), local or general assemblies, voting for the presidential and parliamentary elections, as well as the ones for dismissing or suspending a high dignitary of the state (for example, the
252 voting developed for suspending the president of Romania that took place on May 19, 2007). The advantages of this democratic system are major from the point of view of decisional efficiency as vector, considering that, from a theoretical point of view, no discrepancies exist between the individual preference and the collective preference expressed through voting (differences occur only if some election frauds are found). The disadvantages of the direct democracy are connected to the fact that the decision-making process generate high costs for organizing and developing elections, but also a low attendance predisposition of persons entitled to vote, given the often requests to take part in the voting processes. More, given the fact that different types of public programs (except for the candidates for public positions) may be subject to election in the voting process, from various areas of the economic and social life, the results may be damaged on one hand by “the voting person does not know their profile” and, on the other hand, by inadequately informing him / her. B. The indirect or representative democracy is a democratic system form that is characterized by the fact that citizens depute through vote a series of attributions to some government – agencies that are bound to ensure an increase of social utility overall. The agreement between them and the government representative acquires, thus, the Constitution form. In this case, democracy has two dimensions: - representation according to which each citizen’s preferences are outlined and are represented by law, as well as by applying constraints concerning its observance; - rule of law according to which violating a regulation must be accompanied by a punishment complying with the general principles set out by the collectivity’s members, characterized by universality, equity, transparence and high degree of understanding. Unfortunately, the governing bodies do not observe always the prescriptions set out by the voting citizens, and their decisions, having as grounds the delegation principle, do not offer always a general welfare increase. That is why the results of the election process do not coincide in the direct democracy, as against the representative one, due especially to the behaviors of public decision actors: voting citizens, governing politicians and bureaucrats. However, the results do not inscribe always in some behavioral factors. Moise Ostrogorski emphasized this in 1903, in his paper “La democratie et l'organisation des parties politiques” (Democracy and organization of political parties) and it is known in literature under the name de “Ostrogorski Paradox”. In order to prove the “Ostrogorski Paradox”, we will assume three options undergoing voting (A, B and C – three public programs) and four groups of voting citizens (1, 2, 3 and 4), with different voting percentages and preferences, as can be seen in Table 1 (preference for a program is expressed by using “Yes” and the non- preference by using “No”). It can be seen that Groups 1, 2 and 3 prefer strictly just developing one public program, while Group 4 prefers all three programs.
253 Table 1 Groups of voting citizens, vote percentages in total votes and order of preferences supplied by groups of voting citizens in the case of “Ostrogorski Paradox”
Group of voting citizens Public programs proposed for voting and order of and vote percentages in preferences supplied by voting citizens the total votes A B C Group 1 (20%) No (Candidate 1) No (Candidate 1) Yes (Candidate 2) Group 2 (20%) No (Candidate 1) Yes (Candidate 2) No (Candidate 1) Group 3 (20%) Yes (Candidate 2) No (Candidate 1) No (Candidate 1) Group 4 (40%) Yes (Candidate 2) Yes (Candidate 2) Yes (Candidate 2)
For the direct democracy, in the first scenario, if the public programs would undergo voting, it can be seen that: program A would win through a majority of 60%, made up of the votes of Groups 3 and 4 (20% + 40%), program B would win through a majority of 60%, made up of the votes of Groups 2 and 4 (20% + 40%), and program C would win through a majority of 60%, made up of votes of Groups 1 and 4 (20% + 40%). In the second scenario, if all three public programs would undergo voting at the same time, all three would win. For the situation of a representative democracy system, we will assume two candidates, 1 and 2 that challenge the votes of citizens through political programs: Candidate 1 does not support any of the programs in his / her election campaign because they are believed inopportune, and Candidate 2 supports all, being vital from his / her point of view. In the representation vote can be seen that Groups 1, 2 and 3 will vote for Candidate 1 (for example, Group 1 will vote for Candidate 1 according to a 2 to 1 score, as against Candidate 2), and Group 4 for Candidate 2 (he / she supports all three public programs, and Group 4 has his preference). Consequently, Candidate 1 will have 60% of votes and will be winner (Groups 1, 2 and 3, holding each 20% of the total number of votes, vote him / her), as against Candidate 2 that would acquire 40%% (votes supplied by Group 4). The result of the election would determine not developing any public program, according to the fact that Candidate 1 believes them inopportune and hence, does not prefer them. The “Ostrogorski Paradox” is shown through different results obtained during the voting process in the example supplied, on their turn in the two democratic systems: in the direct democracy, no matter the scenario, at least one public program would be developed, while in the representative democracy none.
REFERENCES
Hannu Nurmi, (1999), Voting Paradoxes and How to Deal with Them. Springer Verlag, Berlin. Hillman Arye, (2003), Public Finance and Public Policy . Cambridge University Press, Cambridge. Ostrogorski Moise, (1903), La démocratie et l’organisation des partis politiques . Calmann-Levy, Paris.
254 CONSIDERATIONS ON THE PENETRATION OF THE ENGLISH LANGUAGE OVER THE INTERNET
Alina NISTORESCU Lecturer, Ph.D. “Dr ăgan” European University of Lugoj Romania
ABSTRACT The article presents the ascent of the English language in relation to the Internet and it attempts to explain its predominance in the use of English as ‘lingua franca’ (ELF) over the Internet. The concept of ELF is discussed from the point of view of its penetration over the Internet and from the point of view the particularities of this variety in contrast with other varieties.
KEY-WORDS: ‘lingua franca’, ‘world Englishes’, Internet English, English predominance, native speakers, foreign speakers JEL: Z00
1. INTRODUCTION
The article presents the ascent of the English language in relation to the Internet and it attempts to explain its predominance in the use of English as lingua franca (ELF) over the Internet. The concept of ELF is discussed from the point of view of its penetration over the Internet and from the point of view the particularities of this variety in contrast with other varieties. The main questions asked are: why has English become lingua franca in modern communication; which are the particularities of ELF; why is English the universal language of the Internet. The research is not based on a certain corpus, the corpus is the Internet itself; however one does not claim to have analyzed the entire Internet, as such a task is definitely an impossible one, but the phenomena is analyzed from a empirical perspective, consisting of a keep observation.
2. ENGLISH AS ‘LINGUA FRANCA’
Firstly, we shall focus on defining the term ‘English as lingua franca’ (ELF), a collocation that has emerged as a way of referring to communication in English between speakers with different first languages. Crystal (2003) claims that only one out of four English speakers is a native speaker. In consequence most of interaction takes place among non-native speakers of English. Thus English is what Firth (1996) calls a ‘contact language’ between people who share neither a common native tongue nor a common culture, but who have chosen English as a foreign language of communication. From this point of view ELF is part of the more general phenomena of ‘English as an international language’, and ‘English as a global language’ or what is also called ‘world
255 Englishes’, term which refers to all English varieties (American English, British English, Australian English, New Zeeland English, Canadian English, etc. The difference between all these terms is subtle and does not make the purpose of this paper, the important element here is the fact that ELF refers to communication between people from different first language backgrounds (Seidlhofer (2001)). The concept of ELF is rather new among linguistic theorists, but the term ‘lingua franca’ has been coined a long time ago. ‘Lingua franca’ in Latin, also known as ‘vehicular language’, meant literally the ‘Frankish language’. Originally ‘Frankish language’ referred to a mixed language composed mostly of Italian with a broad vocabulary drawn from Persian, French, Greek and Arabic. Only later the notion referred to a language systematically used to communicate between persons not sharing a mother tongue. Several languages have been given the label of ‘lingua franca’ at various moments in time, among them Latin and Greek (in the Middle Ages), French (17 th C), Arabic (from the 6 th C until the 15 th C). However none of these languages have ever been in such a powerful position as English is nowadays. As it is stated previously, it was the past two decades that the term ‘lingua franca’ has been used with reference to English. The fact that English is more and more used as a common language between speakers of different languages, over large areas and a great number of people, definitely makes English worth the label ‘lingua franca’.
3. ENGLISH AS A FOREIGN LANGUAGE
Researchers have considered this phenomenon interesting and empirical work has being carried out at various linguistic levels of the English language: phonological, grammatical, lexical, pragmatic. Each has his/her own contribution to a better understanding of ELF. A common conclusion can be drawn: since English is used in interaction by so many non-native speakers, this linguistic reality undoubtedly has a strong impact on the English language. Its native speakers are no longer in control of their language; all these non-native speakers who use ELF have their own impact on the language. The effects are both difficult to assess and to analyze, given the fact that the users have a great variety of mother tongues. Since it is extremely clear that English has conquered a special position, becoming a universal language of communication, people need to learn it in order to use it. Thus a particular problem appears for the language learner: which one of English varieties has become ‘lingua franca’, so s/he would know which variety to learn. In this context the teachers of English find it difficult to decide which variety of English to teach in their classrooms in order to prepare their students to use English in international communication or in surfing the internet. Starting with the late 90’s, a new orientation called English as an International Language (EIL) gradually replaces English as a Foreign Language (EFL) in the classroom. EIL tries to prepare the language learner for a global use of English, in which English varieties are not longer relevant. The only relevant element is the ability
256 to use English in a global setting. English no longer belongs to its native speakers; the majority of world use of English is carried out among non-native speakers. Thus it is completely useless to learn one of the English varieties. English language teaching must concentrate on and reflect the international functions of English. Learners must be aware that they may interact with native, but mostly with non-native speakers, and that they may encounter many varieties of English. Students must be prepared to operate with English in most complex situations not only linguistically, but also culturally (Nistorescu (2003)). Thus when learning English, a clear distinction must be made between essential and non-essential language elements. There are functions or elements without which intelligibility would be impossible, these structures are essential, and without them production and reception of the language is impossible. But there are also features that do not interfere with communication or do not cause misunderstandings; such features which give the particularities of each English variety. These elements are not crucial for international communication and therefore they should not be burdened upon the shoulders of the language learner. It is the former category that one must pay attention to when learning the language. Therefore language learners should not spend valuable time trying to master the nuances of the language in the same way a native speaker does, but to master those elements of crucial importance in international communication. In addition, due to the large penetration of the English language all over the world, language learners must be also made aware of the non-native English elements which they can encounter in communication in international settings. The fact that English is used by so many non-native speakers has an immediate effect of the English language in general, but to a smaller extent, and especially on the linguistic production of these non-native speakers. So, one must be prepared to decipher untypical (rudimentary or distorted) grammatical structures, to deal with borrowings or invented words, to understand different pronunciations, misspelled words, nonsensical phrases and idioms which result from a word by word translation of a structure existing in the speaker’s native tongue, etc.
4. ENGLISH AS THE LANGUAGE OF THE INTERNET
Even if English is commonly known as an international language of communication in general and it is considered the universal language over the Internet, it has no official status in the present. Interesting and equally challenging are the reasons for the current position of English in the top of world language, especially the economical and political importance of the English speaking countries, as well as the technological development triggered by economical power, but these aspects are not discussed here as they do not make the purpose of this study. In Figure no. 1 a top of the first ten languages in the Internet, expressed in millions of users, is illustrative of the importance of English over the Internet.
257
Figure 1 - Top 10 Languages in the Internet, updated for June 30, 2009 (Source: Internet World Stats, http://www.internetworldstats.com/stats7.htm )
The relation between the English language and the Internet is an interesting one, since English owe much of its privileged position to the Internet. It is the wide spread of the Internet after the 1980’s that determined the rise of the English language. This new means of communication and of finding information, this means of keeping in touch with the whole world that has had a major contribution to penetration of the English language. Being disconnected from the rest of the world is inconceivable for the modern man. The actual penetration of the English over the Internet by contrast with other languages is difficult to measure or control, as the Internet is expanding constantly, and one has very little control over the entire ‘world wide web’. According to the Institute of World Statistics (2009), English is used by 37,9 % in Internet pages. (See Picture no. 2. )
258 Figure 2 - Top Ten Languages Used in the Web, updated for June 30, 2009 (Source: Internet World Stats, http://www.internetworldstats.com/stats7.htm )
Taking into consideration how many languages are spoken all over the world, and how the remaining 62,1 % is divided between them all clearly indicates of the importance of the English language over the Internet. Thus, everyday English is exchanged all over the world by more non-native speakers that its native speakers, still native speakers are regarded as custodians over what is acceptable usage. (Seidlhofer (2005)). Taking into consideration how vast is the amount of information made available through the Internet, since 37,9% of the languages used on the Internet is English, modern people are almost forced to learn and use English in order to be active beneficiaries and participants of the information contained by the Internet. One has infinitely less access to information if s/he has no or little knowledge of English. If 37,9% of the Internet is in English it means that the rest of 62,1 is divided between numerous other languages corresponding to numerous other language of the world. A monolingual speaker of any other language than English, may it be even Chinese (which holds the second place), has a limited access to information due to linguistic restrictions. Even if people do not want to openly admit, the knowledge of English divides them into internet users and internet illiterates. The English used on the Internet coincide with neither of the ‘world Englishes’, to name only the first largely used ones: British English, American English and Australian English. Linguists and ordinary speakers of English are aware of the fact that English is only one language which has developed into a collection of oral varieties, used by native speakers in different parts of the world. But is the English used over Internet one of these varieties? The answer is no. The English of the Internet is not only the language of its native speakers, but it is the language of billions of foreign speakers of English.
259 The English used over the Internet is a more simplified variant of English by contrast with its varieties naturally produced by its native speakers. No matter how high is the level of proficiency of a person in a foreign language, it will never equal a mother tongue production of the language. In 1985, Kachru’s proposed a three-circle model to describe English world-wide. The three categories are the Inner Circle consisting of native speakers, and the Outer and Expanding Circles containing the non-native speakers of English. The speakers in the first category provide the linguistic norms and possess their own varieties of English, while speakers of the Expanding Circle, consisting of people who learnt English as a foreign language, are not given the right to change the language norms or to develop their own varieties. However Mollin (2006) claims that the linguistic reality has changed since 1985, she considers that meantime speakers in the Expanding Circle, due to the use of English as ‘lingua franca’, have created their own variety. And not only that she speaks of a new variety, ELF, but she speaks of the fact the Expanding Circle is currently making its own standard. English is used in all fields of human activity over the Internet. It appears either by itself or in parallel with another language. The use of English on one’s web page, whether it is a private person or a juridical entity, is essential for a global reach. For example, in the business world the knowledge and use of English language over the Internet can be crucial for the business. An Internet page in English makes the company known, facilitates the promotion of company products and services, and at least provides a window, an open channel with the world. International contacts and a wide international access to one’s products and services can occur only if the business is present on the Internet in English. The privileged position of the English language over the Internet has been discussed so far, but one may wonder if this status will ever become official. Such a development is inconceivable since there is no authority in charge of the Internet. The internet as a whole is not controlled by anyone or anything, and it is very unlikely that all the states will make an agreement about this or control will be decided to be surrendered to one particular government. In this situation would be any other language that would take the place of English over the Internet. The position of English is extremely solid in the present. It can only be altered by major world-scale political and economical changes, such as increasing importance of the European Union, which may decide to set an official language other than English, or a coalition between Japan and China, that may support Chinese as an official language. Any of the two alternatives are regarded are extremely improbable, if not impossible. Such powers might wish and be able to promote a language other than English as a universal language for communication. This can be a constructed language or another already existing language which will be promoted by sufficiently powerful forces. Still, English is here to stay for at least the next few generations, and any other development will need time, from a good few decades to half a century, as linguistic changes require long periods of time.
260 5. CONCLUSIONS
All the above aspects lead to a few clear conclusions. After analyzing the penetration of the English of the Internet and the particularities regarding this phenomenon at linguistic level, a new concept emerges: Internet English. Since one can speak about American English, British English or any English variety, the wide use of English over the Internet calls for this new label. Internet English is the language of Internet users use the Internet in this environment. Internet English is ‘lingua franca’ of the Internet and something more than that. It is a combination between the English used by native speakers to communicate with each other and the English used by non-native speakers with other non-native speakers as well as with native speakers. As confusing as this may sound, this is the linguistic situation one encounters over the Internet. Internet English is a chiefly characterized by a great variety of variants, by a multitude of simple or, on the contrary, complex manifestations of English. It is the language of the native speakers, and in the same time, it is the language of billions of foreigners. Internet English is the common language of the Internet, yet it has not official status. It is the language that gives the foreigners who know it an advantage, but makes its native speakers feel inferior in a multilingual society. Internet English has a chiefly simpler structure than any native variety, still it is more complex through the number of varieties contained. It is a language of several peoples: the British, the American, the Australian etc., in the same time being the language of one village, the ‘global village’. Internet English is the language of the present, not of the past and only can speculate about the future.
REFERENCES
Crystal, D. (2003). “English as a Global Language”. Cambridge: Cambridge University Press. Firth, A. (1996). “The discursive accomplishment of normality. On ‘lingua franca’ English and conversation analysis”. Journal of Pragmatics , no. 26: 237–59 ***, “Internet World Users by Language” available on line at http://www.internetworldstats.com/stats7.htm Nistorescu, A. (2002). English – An International Language”. Lucr ările Conferin Ńei interna Ńionale - Comunicare profesional ă i traductologiei Timi oara 26 – 27 septembrie. Timi oara: Editura Orizonturi Universitare, pp. 185 – 92 Seidlhofer, B. (2001). “Closing a conceptual gap: the case for a description of English as a lingua franca’”. International Journal of Applied Linguistics , no. 11: 133–58 Seidlhofer, B. (2005). “Key Concepts in ELT. English as a lingua franca”. ELT Journal , Volume 59/4, Oxford: Oxford University Press, pp. 339 – 41 Mollin, S. (2006). “English as a lingua franca: A new variety in the new Expanding Circle?”. Nordic Journal of English Studies , vol.5, no.2: 41-57
261 ENVIRONMENTAL CONTROL-FACTORS
Ionel OLARI Lecturer PhD “Dr ăgan” European University Lugoj Romania
ABSTRACT Environmental control strongly influences the way in which business activities are structured, objectives are set and risks are assessed. Also determine control activities, information systems and communication and monitoring activities ordered by management companies. The way environmental control is structured and exploited depends on the expected success.
KEY-WORDS: environmental control, environmental control factors, integrity, management; responsibility, human resource practices. JEL: Q50
1. INTRODUCTION
Environmental control gives the tone in an organization, inducing in turn control consciousness of its members and ensuring discipline in its structure. Environmental control is omnipresent in the way business activities are structured, objectives are set and they are assessed risks. It also influences control activities, information systems and communication and monitoring activities. This is true not only for their structure, but also for the way they work every day. Environmental control is determined by history and culture of the company, influencing the control consciousness of people. Companies that have an effective struggle to have competent employees, inspire an attitude of integrity throughout the company and determine a positive tone at the top. They establish policies and procedures, they often include a code of conduct that promote common values and work as a team to achieve company goals. The environmental control factors include; - company people’s integrity, ethical values and competence; - management philosophy and mode of action; - the way management designates authority and responsibility, organizes and develops its people; -attention and guidance provided by the directors board. -policies and human resources practices.
2. ENVIRONMENTAL CONTROL FACTORS
Environmental control encompasses many factors, although all are important, the extent to which each is important varies from one company to another. For example, a company executive director with a small number of employees and centralized activities could establish formal lines of responsibility and detailed operational policies, but still have a proper environmental control.
262 Factors include the control environment; - company people’s integrity, ethical values and competence; - management philosophy and mode of action; - the way management designates authority and responsibility, organizes and develops its people; -attention and guidance provided by the directors board. -policies and human resources practices.
3. COMPANY PEOPLE’S INTEGRITY, ETHICAL VALUES AND COMPETENCE
The objectives of a company and how they are made are based on preferences, value judgments and management styles. Those preferences and value judgments, which are expressed in behavioral standards, reflect the integrity of its leadership and devotion to ethical values. Since the good reputation of a company is so valuable, the standard of behavior must go beyond the compliance with law. When assigned a certain reputation of the best companies, the company expects from them more. Internal control’s efficacy can not rise above the integrity and ethical values of people who create them, manage them and monitor them. Integrity and ethical values are essential elements of environmental control, causing the structure, management and monitoring of other internal control components. Integrity is a ethical behavior compulsory element in all aspects of a company. As Treadway Commission report:,, A corporate climate, with a strong ethics at all levels is vital to the welfare of the company, all the constituents and the public. Such a climate has a significant contribution to the policy effectiveness and control systems company, and help to influence behavior and behavior can be controlled either by the most developed control systems. " Well-managed company managers have agreed that “ethics deserves” and that ethical behavior is a good deal. Integrity and ethical behavior are the product of leadership, corporate culture "that includes ethical and behavioral standards, and the transmission manner and their implementation. Official policies communicate the corporate culture wishes and determine how these desires are fulfilled, and that rules are followed, avoided or ignored. A study conducted by American experts in the field, suggest that some organizational factors may influence the possibility of fraudulent practices and dubious financial reporting. The same factors likely to influence behavior and ethics and as such deserve to be in the next show.
3.1. Incentives and temptations
Individuals may engage in fraudulently, illegally or ethics lack acts just because the organization provides strong incentives, or tempt individuals to do so. Emphasis on, "results", especially those obtained in the short term, provides an environment in which the flop price is very high. Incentives cited for involvement in dubious and fraudulent practices by extension can be completed with other forms of uncompromising ethics: pressure to achieve unrealistic performance target sites , especially in case of short-term results;
263 offered rewards wich depend on high achieved performance ; bigger discounts or smaller plans offer a bonus feature. The study also notes, "temptations" for employees to engage in practice: non- existent or ineffective controls , such as a bad distribution of duties in sensitive areas, offering temptations to steal or hide poor performance, increased decentralization which allows the top management to be aware of actions taken at lower levels of the organization and therefore reduce the chances of being caught, an insufficient basis for internal audit which enables detection and reporting inappropriate behavior; ineffective directors board which fails to provide oversight to the management objectives from the top; the penalties for improper behavior are insignificant or are not known and thus lose their value. Eliminate or reduce these incentives and temptations can go to reduce this undesirable behavior. As suggested, this can be achieved if solid and profitable practices are followed for the company. For example, incentives for performance - accompanied by appropriate controls - may be a useful management technique as long as the target's performance are realistic. Establishing realistic target sites is a motivational viable practice; reduces counterproductive stress, and incentives for fraudulent financial reporting that unrealistic target sites are creating. Similarly, a reporting system may well serve as a protection against counterfeit performance.
4. INSURANCE AND COMMUNICATION OF MORAL GUIDANCE
The above study has identified a third issue for dubious practices and fraudulent financial reporting: ignorance. Study found that “in many companies that have suffered from false financial reporting, the people involved didn’t knew what they were doing is wrong and wrongly believed that they were acting in the interests of the company”. This ignorance is often caused by a moral or inadequate guidance and not a proper intent to defraud. Thus, not only that ethical values must be transmitted, but explicit guidance should be provided about what is good and what not. The most effective way to send a message of ethical behavior in the organization is forced by example because people imitate their leaders. Employees will adopt similar attitudes with regard to what is right and what is not - as is shown by the behavior of management. The feeling that the executive director, “did what was right" in terms of ethics, when faced with a business decision, sends a valuable message at all levels of the organization. However setting a personal example is not good enough. Top leadership should verbally communicate company values and behavior standards of employees. Another study note that a formal code of corporate conduct is “a widely used method to communicate to employees that a company expects from its obligations with respect and integrity. " The codes include a variety of behavioral issues such as integrity and ethics, conflict of interest, illegal or improper payments, and anti-competitive arrangements. Although codes of conduct can be helpful, they are not the only way by which the company shall transmit ethical values to employees, suppliers and customers. The existence of a written conduct code, and even the fact that employees have received and understood it, is not a guarantee that it will be respected. Compliance with ethical standards, whether or not listed and organized into a conduct code, is the best of actions and behavior of management members. Of particular relevance are the penalties
264 to employees who violated such codes, the mechanisms that exist to encourage employees to report suspected violations if such disciplinary measures and against employees who do not report code violations. Messages sent by management actions in these situations quickly become an integral part of corporate culture. Competence should reflect the necessary knowledge and skills to perform the tasks that define an individual's work. How well these tasks must be fulfilled is, in general, management decision, decision should be made taking into account the company's objectives and strategies and management plans that are used to achieve objectives. Often there is a kind of compromise between the supervision degree and the individual necessary level of competence.
5. MANAGEMENT PHILOSOPHY AND OPERATING MODE
Management philosophy and operating mode affects how the company is headed, including the risk types that are accepted. A company that has taken successful risks may have a different conception of the internal control over a company that faces regulatory and economic consequences as a result of it’s adventuring on a dangerous territory. A company led by an informal design activities can be controlled through direct contact, face to face with managers. A company led by a formal concept is based more on policies written on performance indicators and reports on exceptions. Other elements of management philosophy and operation method include: attitudes towards financial reporting, conservative and aggressive selection from the accounting alternatives that are available, conscience and conservatism with which accounting estimates are made, and attitudes towards data processing and accounting functions and staff. Whatever the structure of a company is, its activities will be organized to carry out strategies designed to achieve specifical objectives. This includes designating authority and responsibility for activities and establishing reporting relationships and authorization protocols. This involves the extent to which individuals and teams are encouraged to take initiative in addressing and solving problems, and limit their authority. There is an increasing tendency to bring the decision-making closer to the staff in the front line. A company may choose this path to become more market oriented and more focused on quality - to eliminate defects, reduce the production time or to increase customer satisfaction. To do this, the company must recognize and react, adjusting priorities and opportunities in marketing, business relationships and public expectations. Authority and responsibility alignment is often designed to encourage individual initiatives within certain limits. Delegation of “authority " or," empowerment " means the renunciation of central control decisions in favor of bottom platoons- in favor of individuals who are closer to the business transactions daily. This may involve the power to sell products at reduced prices, and negotiate long term contracts for supply, licenses or patents, or to make alliances or partnerships. A crucial challenge is to delegate only to the extent that is necessary to achieve its objectives. This requires the ensurance that risk acceptance is based on sound practices for identifying and minimizing risk, including risk measurement and weighing potential losses versus gains, to make good business decisions. Another challenge is to ensure that all staff understand the company. It is essential that each individual know how his actions are correlated with those of others and contribute to achieve objectives.
265 A high delegation is sometimes accompanied by, or is the result, or “heading”, or “leveling” organizational structure of the company, and is an intentional process. Structural changes to encourage creativity, initiative and ability to react quickly can increase competitiveness and customer satisfaction. Such delegation may include increased implicit requirement for a high level of professional competence of the employee, and a greater responsibility. It also requires effective procedures for monitoring results. Together with better decisions, dictated by the market, the delegation may lead to a greater number of unwanted and unexpected decisions. Environmental control is strongly influenced by the extent to which individuals know they will have to pay for their actions. This applies to the Executive Director, who has final responsability for all the company activities , including internal system control.
6. POLICIES AND PRACTICES OF HUMAN RESOURCES
Human resource practices send messages to employees regarding the appropriate levels of integrity, ethical behavior and competence. Such practices related to hiring, orientation, training, evaluation, guidance, promotion, compensation and remedial actions. For example, standards for hiring the most qualified individuals, emphasised on education, the past employment experience, accomplishments from the past and evidence of integrity and ethical behavior, demonstrate the company sincere desire to have competent and reliable people. Recruitment practices that include formal job interviews and detailed, and informative presentations and guidance about company history, culture and operation mode, sending a clear message that the entity is committed to its people. Training policies that inform the future roles and responsibilities and include practices such as training schools and seminars, simulations, cases and exercises on the roles, which illustrates performance and behavior required levels. Staff rotation and advancement determined by periodically remuneration based on performance, demonstrates the staff dedication to promote responsibility higher levels. Competitive compensation programs including bonus incentives links are there to motivate and enhance unusual performance. Disciplinary actions send a clear message that violations of standards of behavior will not be tolerated. It is essential for the staff to be prepared for new challenges as the problems they face and the changes are becoming more complex - partly caused by rapid technological progress and increased competition. Education and training, whether classroom instruction, individual training or at work, it must prepare the people and a company to keep pace and cope effectively with the growing environment. Also they should reinforce the company's ability to have quality initiatives. Hiring competent people and subjecting them to a single stage of training is not sufficient. The training must be continuous. Environmental control in the independently acting departments and in local subsidiaries or abroad, can vary a lot due to differences caused by the application of management preferences, and different styles views of leadership. These environments may be different for several reasons. Because there are no two divisions or two operative divisions foreign or domestic, to be lead in the same way, it is unlikely that the control should be the same. It is therefore important to recognize the effect that you have the control over various components of the internal control. The impact of an ineffective control system could have serious implications, which could lead to financial loss, a damaged public image or to a business failure.
266 Management attitude and concern for effective internal control must penetrate throughout the organization. It is not enough to say nice words. Attitude “do what I say and not what I do” will certainly lead to an unwholesome.
REFERENCES
1. Burlaud A., Simon CJ(2000) ,,Control Management” - Bucharest : Ed Coresi 2. V. Greceanu Rooster (2000) ,,Audit practice in public institutions and useful law”, Bucharest: Ed Society 3. I. Peres, O. Bunget, Ghita M., Popescu M.(2005) ,,Public internal audit, concepts and methodology”, Timi oara: Ed Mirton
267 ADAPTING THE GROWTH-SHARE MODEL FOR PLANNING PURPOSES IN SMES
Emil PAPAZOV Assistant Professor Phd University of National and World Economy Bulgaria Lyudmila MIHAYLOVA Chief Assistant Professor. Phd University of Ruse “Angel Kanchev” Bulgaria
ABSTRACT Modern small and medium-sized enterprises (SMEs) are faced with the need to adapt constantly to the dynamic realities of the market, including the changing effects of competition, demand for new products and services, etc. Under these conditions it is important to bear in mind the specific character of a SME: a small company is not a reduced image of a huge one. The adaptation of methods and tools applied under the conditions in which small businesses operate is obligatory. This paper presents options for modification and application of one of the most popular planning techniques, the growth-share matrix, for analytical purposes in SMEs.
KEYWORDS: SMEs, strategic planning, diversification, growth-share matrix. JEL: M21, L26
1. INTRODUCTION
Recently, there has been an increased interest in the application of different methods for analysis and planning of the activities of small and medium enterprises (SMEs). However, tools developed for large companies are directly transferred and implemented for the needs of SMEs. Such an approach is often doomed to failure, because it does not take into account the specific character of a SME: normally, a small company is not a reduction of a large one. So, methods and tools need to be adapted to reflect the small business conditions. The purpose of this paper is to present a way for adaptation of one of the most popular analytical tools for substantiating of diversified structures – the so-called “growth-share” or BCG 1 matrix. With regard to this we first briefly comment upon the theory associated with the model and the necessary changes that have to be undertaken to transform it to a suitable planning tool for SMEs. Secondly, we discuss the relationship between the model and the managerial accounting as its information base and the problems associated with its practical involvement in the strategic planning process.
1 Boston Consulting Group
268 2. ADAPTING THE GROWTH-SHARE MATRIX FOR PLANNING PURPOSES IN SMES
One of the challenges to the modern economic science is the development of appropriate methods for managing and planning the activities of SMEs. According to many competent opinions the preferred decision is to draw on the theory and practice of large companies [1]. However, such an approach has serious shortcomings. Firstly, SMEs do not have the resources and capabilities of larger enterprises, so tools designed primarily for large companies are often rendered useless. Secondly, small firms do not operate under the same conditions as large companies, nor are they influenced in the same way by environmental factors. Third, large enterprises do not consider all methods universally applicable and often adapt them according to their specific needs. Fourth, the planning horizon for small and large enterprises is different. The presented differences between these types of companies are among the main reasons for rejection of the unreserved sticking to the so-called “best practices” of large enterprises [2]. The developed methods and tools must be adapted to management’s potentialities and needs in SMEs. Among the wide range of methods and models particular attention should be paid to the portfolio tools. The growth-share matrix is among the most commonly used techniques for analysis and planning of different enterprises activities 2. Therefore, the adaptation of the method for SMEs purposes is a major challenge for the theory of entrepreneurship. It is appropriate to raise the question about the adequacy of portfolio tools for activity planning in SMEs, having in mind that the latter are predominantly mono- product oriented.3 Using such models as the growth-share matrix is reasonable when the product structure of a SME contains diverse products ranges (assortments or brands). The examples are numerous: different kinds of alcoholic beverages produced by a small winery; the sale of food and non-food assortments by small retailers, etc. In this case each brand from the diverse product range would resemble a strategic business unit (SBU) and can be analysed as such in the frame of the model. Growth-share matrix can be used as strategic analytical tool (for evaluation of the present strategic position of the existing product lines or products), or as a means for developing the company’s strategy (i.e. determining the development of existing product variations and identifying new ones). In its classic form, the growth-share matrix presents the company’s production portfolio using two criteria – the relative market share and the market growth rate. The relative market share reflects the brand's share of the firm relative to its largest competitor. The market growth rate is associated with the changes of the sales in different periods of time. 4
2 According to a study 75 percent of the 500 largest enterprises, ranked by the Fortune magazine, portfolio tools use in one form or another. Op. cit. by: Kotler, F. Kotler, F. Principles of Marketing. 11th Ed. Prentice Hall, 2005, p. 102. 3 On the question of mono-product (undiversified), resp. multiple-product (diversified) companies, refer to: Папазов , Е. Стратегически мениджмънт . Изд . на РУ , Русе , 2006, с.с. 30-33. 4 The methodological aspects concerning the criterion values have been systematized in another author’s publication, i.e. in: Папазов , Е., Практическо приложение на решетката „ растеж -дял ” в
269 The relative market share is displaced on the abscissa (X-axis) of a Cartesian coordinate system, while the market growth rate is situated on the ordinate (Y-axis). After defining the end points on both axes, the average value of the intervals is calculated. The middle and the end values of the X-axis and Y-axis divide the matrix into four quadrants presenting different combinations of values on the selected criteria. To facilitate further interpretation of the chart these quadrants are named originally “question marks”, “stars”, “cash cows” and “dogs” (Figure 1).
Relative market share High Low
Stars Question marks Fast- growing
Cash Cows Dogs Slow- growing Market Growth Rate
Figure 1 - Classical type of Growth-Share matrix
„Stars” are units with a high market share in a fast-growing industry. As the fast- growing markets attract competitors, the companies usually provide their “stars” with significant financial resources to foster their market share. „Cash cows” are market leaders, but the market in which they are sold, has relatively low dynamics. Because „cash cows” are SBUs with a high share in a slow-growing market, they are often called “generators of money”. „Dogs” are SBUs with low market share in a mature, slow- growing market. If the relevant products have a loyal group of customers, they can earn profits; otherwise they undergo financial problems. „Question marks” are SBUs with low relative market share and in a fast-growing market. Such products usually require huge resources to gain market share. By the practical application of the model in its classic form some difficulties connected with data provision arise. Particularly “sensitive” is the aspect associated with the brand production: on the one hand, the National statistical institute (NSI) does not provide information about each economic unit (company); on the other hand, the creation of a database on an alternative way (e.g. within a branch or professional organization) is hardly appropriate due to contradictory interests. It is more logical to try to adapt the model, so that it can be used for planning purposes in SMEs. One way is to find out an alternative to the problematic (from informational point of view) criterion. Comparing the two touchstones typical for the growth-share method it can easily be concluded that for SMEs most problems arise
корпоративния стратегически анализ . Сб . Доклади на МПНК „ Фирмите и пазарите в България в условията на евроинтеграция – продължаващата адаптация ”, том ІІ , 2008.
270 when trying to determine the relative market share 5 for a concrete brand. Often the costs needed are so high that they are unbearable for a SME. The specialized literature [4] prompts to replace the relative market share with the “cost effectiveness” criterion, thus changing the original matrix format. Cost effectiveness simply reflects the degree of covering the product costs by the generated sales revenues [3]. Cost effectiveness is a suitable criterion for two reasons: Firstly, it may be calculated on an inter-company basis. For this purpose it has to be consistent with the management accounting principles. In this way the SMEs will overcome the obstacles connected with the provision of costly external information. Secondly, the criterion “cost effectiveness” is directly relevant (on the basis of costs) to the theory of “experience curve” 6, which has provoked the choice of the criterion “market share” as indicator in the classical BCG variant. Additionally, the use of the ratio between revenue and costs more accurately sticks to the realities in modern business, because it reflects the marketing aspects of the activities and the increasing differentiation of production. The biggest shortcoming of the replacement of a “relative market share” with “cost effectiveness” might be that the effect of the comparison could be lost. In the original model direct comparisons with the largest competitor are an emanation of strengths (weaknesses) in the sector. Such comparisons have not only economic dimensions, but psychological as well, as they can mobilize firms to gain leadership positions in a given segment. Zerres does not comment on that negative effect while attaching importance to the fully “internal” aspect of the model. The “internal” nature of the alternative version of BCG matrix can be surmounted by choosing an objective (“external”) value for the separating interval between the quadrants built on the X-axis 7. Fortunately, such a value can be extracted from the statistical yearbooks: The Bulgarian National statistical institute provides information by sectors and subsectors on SMEs revenues and operating costs. The modified version of the growth-share matrix for planning purposes in SMEs is shown on the following figure (Figure 2):
5 Data for the calculation of the other indicator, the growth rate, is accessible because of the internal or public nature of the required information. 6 According to this theory, the greater the market presence, the less the unit costs due to the reduction of fixed costs per production unit. So, other conditions being equal, the profit from the SBU is higher. 7 In the classical model the middle value on the X-axis is always 1, i. e. by relative market share 50:50.
271 Cost Effectiveness High Low
Stars Question Marks Fast- growing
Cash Cows Dogs Slow- Market Rate Growth growing
Figure 2 - A modified version of growth-share matrix
After introducing the changes, the matrix can reasonably be called “growth- effectiveness” matrix. On a firm level, it seems reasonable to determine the cost effectiveness for a time period through comparing the sales revenue with the costs by economic elements and by product types. It is appropriate to use accounting information referring to different analytical levels. A profound technology together with illustrative examples is presented in the following part of this paper.
3. RELATIONSHIPS BETWEEN THE ACCOUNTING AND THE ANALYTICAL MODEL
A prerequisite for the implementation of adapted growth-effectiveness matrix in the strategic analysis of SMEs with a complex product structure is a new organization of the analytical reporting. The diversification in SMEs is usually associated with enhancing the types (assortments, brands) of a product, made normally by one basic input. An example: a small enterprise producing various cow milk products such as milk, yoghurt and fruit yoghurt. Naturally, all production remains part of the food industry, but for planning purposes the analysis can be done by product’s brands. With that end in view it is necessary to create an adequate organization for the analytical accounting of revenues and costs by functional units and calculation objects (sub-products), with the possibility of tracing all cost calculating steps. In the contemporary Bulgarian SMEs the organization of accounting does not assure the supply of sufficient information for the needs of the strategic analytical models. Most of the SMEs are complexly served by an accountant or – through outsourcing – by an accounting firm. Very often both institutions are not sufficiently familiar with the peculiarities of SMEs’ management and the necessity for establishing of analytical accounting levels corresponding to the diversified character of the company’s activities. In other words, the organization of the accounting is in accordance with the regulations, but it does not fully meet the needs of the management in a SME. The accounting policy should entail principles, starting points, concepts, rules, facilities and
272 procedures, adopted by the enterprise managers, because this will ensure the proper accounting and will provide information corresponding to the firm specificity and analytical needs. One of the problems for example is that the SMEs have mainly a mono-sectoral orientation and in most cases all operating costs are kept into one general account. When analysis is needed they are distributed conditionally, without focusing on the logic of calculation. Usually, the splitting up of costs, particularly the indirect ones, is made proportional to the volume of produced product brands. In today's modern conditions, the cost distribution based on volume causes the inclusion of a greater amount of indirect costs in cost of products which have a predominant share in the total volume of production. The opposite is also true: the amount of indirect costs in cost of products manufactured in small quantities is negligible. As a result, the cost of each product brand is wrong, and that ultimately results in inaccurate management information. In addition, this information can be misleading for the purpose of making decisions on product structures, and on starting or stopping a brand production. How to adjust the organization of the accounting for strategic planning purposes, especially when using models like the growth-efficiency matrix? As stated above, the diversification in SMEs is usually associated with enhancing the types (assortments, brands) of a product, made normally by one basic input. In the light of this it seems appropriate to keep costs recorded into one general account, but to continue with their subsequent distribution with the help of a pre-selected method for calculating costs – in separate analytical accounts by eliminating costs, by application of the coefficient method or other appropriate techniques. For the example mentioned above (production of milk, yoghurt and fruit yoghurt from cow milk) the most suitable method seems to be the coefficient method. The peculiarity of the coefficient method lies in determining of technological coefficients for the purpose of direct costs distribution by product brands. With the help of these coefficients the total accumulated costs are distributed by products brands with the purpose to calculate their cost price. It is important that the organization of the accounting for strategic analyses and planning purposes in SMEs corresponds to the logic of the cost calculation. The first step covers bookkeeping of main production costs by economic elements and their distribution by product brands according to the defined technological coefficients. In the example the coefficients have been arbitrary set to 0.4 for yogurt, 0.4 for milk and 0.2 for fruit yogurt. The second step is related to bookkeeping of indirect production costs and their product distribution on pre-selected base. In this case the direct production costs have been selected as a basis, which in turn is part of the company’s accounting policy. In the third step the accrued expenses for future periods are added, respectively in the fourth step the costs of ancillary activities find their way to the total costs. In the last two steps the costs are distributed on pre- selected basis. In this case the basis is similar to the one from the previous steps, but in practice it can differ from them. In SMEs the analytical accounting of sales revenues by products enables a comparison between the revenues and expenses, determination of the contribution and the calculation of the cost effectiveness by products. An example for calculating annual costs is presented on Table 1.
273 Table 1 Costs by economic elements (BGN) Indicator Milk Yogurt Fruit Total Yogurt Main production costs 1. Cow milk 400 400 200 1000 2. Heat treatment of milk 200 200 100 500 3. Wages and salaries 280 280 140 700 Total: 880 880 440 2200 Indirect production costs 1. Depreciation of pasteurizers 160 160 80 400 2. Depreciation of stores 120 120 60 300 Total: 280 280 140 700 Future period costs 80 80 40 200 Cost for ancillary activities 120 120 60 300 TOTAL COSTS 1360 1360 680 3400
The sales revenues from milk products in SMEs for the same period are presented on Table 2.
Table 2 Revenue by product (BGN) Indicator Milk Yogurt Fruit Yogurt Total SALES REVENUE 1600 1500 700 3800
Table 3 presents “cost effectiveness” by products.
Table 3 Indicator Milk Yogurt Fruit Yogurt Total COST EFFECTIVENESS 1,18 1,11 1,03 1,12
According to NSI’s data the average cost effectiveness for SMEs engaged in the manufacturing of food products is 1.07 and the average growth rate of sales is 6.5% (based on data for 2006 [5]). Using the information available to the company for costs and revenues by products, as well as data from national statistics, the experts in the enterprise can proceed with the construction of an adapted growth-effectiveness matrix. In this connection following calculations should be made (Table 4):
Table 4 Share of Cost Sales in Sales in Growth Product revenues effectiveness Radius t0 (т) t1 (т) Rate (%) (%) in t 1 Milk 42 105 112 6,7 1,18 3,7 Yogurt 39 130 140 7,7 1,11 3,5 Fruit 19 45 46 2,2 1,03 2,5 Yogurt Total: 100
274 The adapted analytical matrix with all elements is shown in the following form (Figure 3):
13,00% Stars Question Marks
9,75%
Yoghurt
6,50% Milk Growth Rate Growth
3,25% Fruit Yoghurt
Cash Cows Dogs 0,00% 2,13 1,87 1,60 1,34 1,07 0,81 0,54 0,28 0,01
Cost effectiveness
Figure 3 - Modified type of a BCG matrix
The analysis of the data reveals that milk and yogurt have an above the industry average cost efficiency. The opposite can be noted for the fruit milk product. Taking into consideration the stages in the product life cycle, the result concerning the fruit milk has to be analyzed at various steps of cost calculating. After the first iteration the cost efficiency is 1.59, after the second – 1.21; after the third – 1.13, and after the fourth – 1.03. After the final step the cost effectiveness lies below the average for the sector because of the impact of the costs for ancillary activities. The last ones, as indirect production costs and future period costs, are distributed on the pre-selected basis stemming from the company's accounting policy. In view of the strategic importance of the product for the development of the SME, the limited control of the environment and the smaller planning horizon in comparison with large companies, a possible reaction of the SME management can be the change in the bases for cost distribution in the second third and fourth steps. However, from strategic point of view, changes in the product range and the production scale should be envisaged taking into consideration the strategic model presented above.
4. CONCLUSIONS
The proposed adaptation of growth-share matrix (the BCG matrix) is an appropriate tool for strategic analysis and planning in SMEs with quasi-diversified structure. Prerequisites for the successful use of the adapted model are related to restoring the effects of the comparison as well as the improved managerial accounting.
275 REFERENCES
ТОДОРОВ , К. (2001) Стратегическо управление в малките и средните фирми . Том II. Изд . „Сиела ”, София , с. 13. JARVIS, R., KITCHING, J., CURRAN, J., LIGHTFOOT, G. (1999) “The use of quantitative and qualitative criteria in the measurement of performance in small firms”. Journal of Small Business and Enterprise Development, Vol. 7, № 2. НСС 13 – Показатели за финансово -счетоводен анализ на предприятието (приет с ПМС № 65 от 1998 г., обн . ДВ , бр . 36 от 31 март 1998 г.) – отменен ZERRES, M. (2009) “Marketingtechniken für Entrepreneure“. ISBN 978-87-7681-276- 8, Bookboon.com, S. 13. СТАТИСТИЧЕСКИ ГОДИШНИК , Изд . на НСИ , София , 2007.
276 DEVELOPMENT OF NEW INSTRUMENT FOR LINKAGE RESEARCH OF RIVER ECONOMIC COMPLEX
Daniel PAVLOV Assistant Professor Phd Candidate University of Ruse “Angel Kanchev” Bulgaria
ABSTRACT The purpose of this article is to present two new tools for studying the linkages of River Economic Complexes: River Linkages Sustainability Index and River Linkages Sustainability Coefficient. The assumption of the sustainability is based on the origin of the linkages and their ability to remain in the time and in the space of the studied territorial unit. These achievements are precondition of a developing the Comprehensive River Linkages Sustainability Table, which shows the status of linkages in one or more flows. It is part of a PhD thesis research.
KEY WORDS : River Economic Complex, New Tools for Linkage Study, Comprehensive River Linkages Sustainability Table. JEL: Q01, Q18, Q32
1. PRECONDITIONS FOR A NEW APPROACH IN LINKAGE STUDY
Leontieff Model in restructuring society. Mono-indicators and integrated indicators 8 The more developed a country is, the more difficult it is to change its structure – the existing linkages are based on long term relations, and it does require a longer period of time for a sector to appear or to disappear. This is the case in USA and EU, etc. It is easier to apply the Leontieff Model within such context. The rapidly developing country has more dynamic linkages between the sectors - today there could be some linkages between some sectors, but after a period of time (during this period there could be an obvious change in the structure of the economy) some of the linkages might disappear and new linkages might appear. This is the case of the ex-socialist countries during their transition period 9 and it is difficult to apply the Leontieff Model within such context. Leontieff Model: is focused on the sectors 10 ; takes a lot of time to collect the data and it is hard to make present analysis of a dynamically restructuring society. Leontieff Model has not been applied in Bulgaria since 1990. The main disadvantage is the lack of information during data collection process. During periods of dynamic restructurings, the companies (and societies) become very suspicious when asked about for instance their cash flows. The basic criterion for a useful calculation by Leontieff Model is to have an accurate data collection. This data collection is impossible during periods of dynamically restructuring societies (like Bulgaria) hence it is
8 Pavlov, D. 2004. A new Approach to Regional Development Evaluation: Intersectoral Linkages in the Rousse River Complex , Report to Cornell University–CRP830 and 24 th meeting of the North East Regional Science Association. Ithaca, USA. 9 Pavlov, D. 2008. A New Approach to the River Economic Complex Development . Analele Universitatii “Eftimie Murgu”, Facultatea de Stinte Economice si Administrative. Resita, Romania. Anul XV, Nr.1, ISSN 1584-0972, p.p.58-65. 10 The impact of 1 USD investments into sector “A” will have direct impact on sector A itself = $1.4 and indirect impact (through the linkages) on sector “B” = $0.7. The total impact is $2.1 (= 1.4 + 0.7).
277 impossible to implement Leontieff Model as a regional development instrument. Therefore since 1990 to the present, SWOT analysis and Project Management Tools have been the most frequently used instruments by the Bulgarian Public Administration for regional development planning. The new analytic tool, suggested here: is focused on the linkages; takes a shorter period of time to collect data and can be used to analyze dynamically restructuring societies; has simple algebra. has integrative poly-approach. If the analyses are, for example, only on the financial flows, then it is more or less a mono-approach, because the study is on only one type of flow. What about when it is necessary to measure different types of flows together? The measuring system should be more general; the integrated poly-indicators should give some more general dimensions about the directions of the processes. Therefore the mono-indicators illustrates some specific aspects of the society as getting better (e.g. economic development), but in the same time the integrated-indicators on the other hand may show that the society is not achieving sustainable development; and opposite – the population of a country could fall ( negative values of a mono indicator ), but at the same time the country to achieve positive economic development and sustainable nature preservation. In this case the integrated poly-indicator will have positive values . The advantage of the mono-indicators (compared to integrated-indicators) is that they give more detailed analysis concerning particularly the research on the economic, the social or the ecological issues. The advantage of the integrated-indicators (compared to the mono-indicators) is that they outline the general direction of the complex development.
2. NEW INSTRUMENT FOR INTERSECTORAL ANALYSES OF THE RIVER ECONOMIC COMPLEX
At territorial point of view a river complex includes all units that operate within the complex. But for some of them it is not necessary to be at a river coast. For example, a textile company can exists in a non-coastal area, too, because the river sources have no direct influence on textile activity. The same about the production of bricks, ovens, chairs, etc. Therefore the scope of the River Economic Complex is related only to those activities that have functional linkages to river resources. 11 The River Economic Complex is a system of activities (elements) and linkages, which could exist only if there is a river and a river-coast within a region 12 . This definition is based on the geographical monopole approach and it describes the river economic complex as a spatial (territorial) unit. This study has outlined 18 river economic activities and 5 types of flow 13 : Flows between the river-based economic activities: I – information, H – human resources, F – financial, М – materials and S – services. The River-based economic activities ( REA ) are:
11 Pavlov, D. 2007. Intersectoral linkage research in the economic complex . PhD thesis Dissertation. Rousse University. Bulgaria. 12 Pavlov, D. 2004. A new Approach to Regional Development Evaluation: Intersectoral Linkages in the Rousse River Complex , Report to Cornell University–CRP830 and 24 th meeting of the North East Regional Science Association. Ithaca, USA. 13 Papazov, K. Daniel Pavlov, Silvestra Angelova, Aneliya Lyubenova, Miglena Krushkova. 2004. Project 2003-RU-FBM-01 “Study of the Investment Potential of Activities at the River Danube, Rousse Region” . Rousse University Press, Bulgaria.
278 №1. River Water Pumping (water pumping stations at the river bank) №2. River Water Purification (purification station at the river bank for waste waters) №3. Digging of Inert Materials from the River Bed (ships for such activity) №4. Wood Production from the River-Costal Areas and Islands (units which regulate or cut woods at the river bank) №5. Electro Production (water electricity power station, nuclear power station with water cooling technology) №6. River Activities Control (Directorates, Inspections, Agencies, etc. - all of them are elements of the public administration) №7. River Ship Supply (firms which offer ship supply) №8. River Shipping (Agencies and ships) №9. River Ship Maintenance (Firms and their working premises at the river bank) №10. River Shipbuilding (Firms and their working premises at the river bank) №11. River Education and Trainings (Schools, educational units within the large firms) №12. River Guard (Boundary police and their ships) №13. River Port Activities (terminals for passengers, cargo, ro-ro, containers, etc.) №14. Construction of River Hydro Technical Buildings (firms for design and construction) №15. River Sports (clubs in all kind of river sports and their facilities) №16. River Tourism (tourists ships and boats, river festivals, restaurants with “river view”) №17. River Fish Producing and Fishing (fish breeding pool, ships, firms for fish can production) №18. River Bank Fortification (firms and units for river bank cleaning and fortification)
There are many activities, related to the river, such as software development, publishers, river navigation legislation, etc. They are able to exist outside the river-bank area and therefore they are not considered as direct elements of the River Economic Complex, but as indirect ones. Each element (REA) has a certain number of outgoing and in-coming linkages with the other REAs. If taking into consideration the quantity of the other REAs, then we are able to represent their Scale of dependence 14 : Linkages with no other REAs – the analyzed REA is independent on the other REAs; it is detached to the condition of the other REAs. Linkages with 1 – 3 other REAs – the analyzed REA is partly independent on the other REAs; it is partly detached to the condition of the other REAs. Linkages with 4 – 9 other REAs – the analyzed REA is dependent on the other REAs; its development is based on the general condition of the River Economic Complex. Linkages with over 9 other REAs – the analyzed REA is entirely dependant on the other REAs. Every change in the River Economic Complex affects the activity of this REA and opposite – every change in this REA affects the Complex, too.
14 Pavlov, D. 2006. Alternative instrument for study of economic linkages in economic complex . Journal of Narodnostopanski Arhiv, Svishtov, Bulgaria.
279 The REAs, which are “dependant” and “entirely dependant” need special attention of the local and national authorities. It is also possible to define the sustainability of the linkages : it is the ability of the linkage to remain in the space and in the time 15 . The concept of this research is that the origin of the linkage as a fundament for their sustainability. The origin could be initiated by the authorities (by legislation acts) or the market (by freedom to exchange) 16 : Rank 0 – stands for no linkage, which means that the linkage doesn’t exist. This linkage cannot exist during the present stage of economic complex development. It is possible the linkage to exist in the future or in previous periods. Rank 1 – the origin of the linkage is a result of a legislative act . After changing the legislation this linkage could disappear. For example the small boats could sail on the Danube river without any special documents showing the navigation abilities of the sailors. In 2003 the Bulgarian law has been changed in a way that it put an obligation - at least one person in the river boat must have proper documentation for river navigation. Thus the legislation forms linkages between the activities of River Tourism (REA 16) and River Education and Training (REA 11) . If the law is changed then this linkage will disappear. Rank 2 – the origin of the linkage is a consequence of technical-economic progress and personal freedom to exchange . It is the result of demand and supply on the market. For example shipping companies (REA 8) need ships to transport their passengers and cargo. They establish contacts with shipbuilders (RA 10) to purchase ships. These analyses are the background to suggest new analytic tools 17 : River Linkages F F Sustainability Index- IRLS and River Linkages Sustainability Coefficient - CRLS . F River Linkages Sustainability Index - IRLS is presented in formula (1), while formula (2) gives its short version. Formula (3) presents the extreme values.
= + + I F 0( *∑S0F ) 1( *∑S1F ) 2( *∑S2F ,) (Formula 1) RLS = + I F ∑ S1F 2 * ∑ S2F , (Formula 2) RLS where: F – Flows : information, human, financial, materials and services; ∑S0F – quantity of the non-existing linkages, which are level 0 ; ∑S1F – quantity of the linkages in all flows, which exist because of the legislation and have sustainability level 1 from the particular flow;
15 Pavlov, D. 2006. Alternative instrument for study of economic linkages in economic complex . Journal of Narodnostopanski Arhiv, Svishtov, Bulgaria. 16 Pavlov, D. 2004. A new Approach to Regional Development Evaluation: Intersectoral Linkages in the Rousse River Complex , Report to Cornell University–CRP830 and 24 th meeting of the North East Regional Science Association. Ithaca, USA. 17 These tools have been discussed: Pavlov, D. 2004. A new Approach to Regional Development Evaluation: Intersectoral Linkages in the Rousse River Complex , Report to Cornell University–CRP830 and 24 th meeting of the North East Regional Science Association. Ithaca, USA. Pavlov, D. 2004. The Economic Potential of Danube River as a Factor of Development of Bulgarian- Russian Relations . Processing of Volgograd State University. Russia. Papazov. E., Pavlov, D. 2005. Regional Development Planning . Project ECA/A/S/U-03022, Cornell University – Rousse University, Rousse UniPress. Bulgaria. Pavlov, D. 2005. Study of the Economic Linkages in River Economic Complex . Processing of Rousse University, Bulgaria. Pavlov, D. 2006. Study of Intersectoral Linkage Sustainability (River Economic Complex of Rousse) . Report on a conference “Social-economic Development of Bulgaria in European Union – problems and perspectives”. Veliko Tarnovo University, Bulgaria. Pavlov, D. 2006. Alternative instrument for study of economic linkages in economic complex . Journal of Narodnostopanski Arhiv, Svishtov, Bulgaria.
280 ∑S2F – quantity of the linkages in all flows, which exist because of the market and have sustainability level 2. F It is possible to define the extreme values of IRLS :
F 2 0 ≤ IRLS ≤ 2*F*n (Formula 3) where: F – quantity of flows (information, human, financial, materials and services); n – quantity of REAs.
5 5 Then 0 ≤ IRLS ≤ 3 240 and the explanation is that if IRLS =0 , then the River 5 Economic Complex doesn’t exist. If IRLS = 3 240 , then each of the 18 REAs has linkages with 18 REAs in all 5 flows and all linkages have second level of sustainability (marketing origin). F If the value of IRLS goes down , then it means: some of the linkages have been changed from level 2 to level 1, considering their origin, some of the linkages may no more exist. F If the value of IRLS goes up it means: some of the linkages have changed from level 1 to level 2, concerning their origin, some new linkages have been established between the river economic activities.
F River Linkages Sustainability Coefficient - CRLS is presented in formula (4), while formula (5) gives its short version.
S + 2* S I F = ∑ 1F ∑ 2F = GRLS C F , RLS + + (Formula 4) ∑S1F ∑ S2F ∑S1F ∑ S2F
In fact ∑S1f + ∑S2f are the sum of all linkages from the five flows in the river complex. Then we have Formula 5:
I F I F = RLS = RLS C F , RLS + F (Formula 5) ∑S1F ∑S2F N
where: F IRLS – River Linkages Sustainability Index; NF – total number (quantity) of the existing linkages.
F It is possible to define the extreme values of CRLS . If all linkages are from first S + 2*0 = ∑ 1F = C F .1 level of sustainability then RLS + If all linkages are from ∑S1F 0
281 0 + 2* S = ∑ 2F = C F ,2 second level of sustainability then RLS + which leads to 0 ∑ S2F Formula 6. F 1 ≤ CRLS ≤ 2 (Formula 6)
F If the value of CRLS is close to 1 , it means: • high level of legislation influence on the River Economic Complex; • lack of market oriented relations within the complex; • need to encourage personal initiative and steps for decentralization.
F When CRLS is close to 2 , it means: • high level of market oriented relations; • lack of legislation influence – the public administration is ineffective and it has abdicated from its duties. • need of reinforcement of the functions of the Administration in accordance with the demand of Public Services.
F In case CRLS = 1,5 then we consider the River Economic Complex as “balanced ”. F F These two instruments ( IRLS and CRLS ) can be calculated for each particular flow F or for group of flows. It is possible the value of the index ( IRLS ) to go down, while the F value of the coefficient ( CRLS ) to go up at the same time . Other combinations are also possible. In order to have a better presentation of the data we introduce the Comprehensive River Economic Linkages Sustainability Table .
3. COMPREHENSIVE RIVER ECONOMIC LINKAGES SUSTAINABILITY TABLE
This Table has four parts (Table 1). The left-up part (white cells) represents the levels of sustainability for each linkage per flow. The right-up (grey cells) part represents some features about the outgoing linkages; the left-down (grey cells) part represent the same features but for the incoming linkages. The right-down part (three white cells, surrounded by black) represents the consolidated information. The Comprehensive River Economic Linkages Sustainability Table allows developing a table for every flow, but also a table which unites the information about two or more flows. Hence it represents a new picture of the intersectoral analyzes. An advantage is that the data is easy to collect and process. The Comprehensive River Economic Linkages Sustainability Table shows: presence/absence of linkages in each flow (information, human, financial, materials and services). the origin of linkages – by the legislation or market, the behaviour of the REAs to their clients – marketing/ bureaucratic, opportunities to form clusters.
282 Table 1 Comprehensive River Economic Linkages Sustainability Table 18 Basic level of linkage Coefficie Index of River Number nt of (Output – j ) sustainability between the River linkages (Quantity) sustainab Economic Activities ( REA ), exchanging Flows sustainability of of the ility of the outgoing outgoing the (s ) ij flows, flows, outgoing F F . . IOFRLS NOF flows, F (Input – i) REA 1 REA 2 REA 3 REA j CОFRLS F F F REA 1 s11 s12 s13 . . s 1j IOFRLS 1 NOF 1 CОFRLS 1
F F F REA 2 s21 s22 s23 . . s 2j IOFRLS 2 NOF 2 CОFRLS 2
F F F REA 3 s31 s32 s33 . . s 3j IOFRLS 3 NOF 3 CОFRLS 3
...... F F F REA i si1 si2 si3 . . s ij IOFRLS i NOF i CОFRLS i Index of River
linkages j 1 2 3 F F F F
sustainability of F . . IRLS
the incoming IFRLS IFRLS IFRLS OFRLS I I I flows I F IIFRLS Number (Quantity) of the F F F . . . F NIF 1 NIF 2 NIF 3 F N incoming flows, NIF j F NIF
j
Coefficient of 1 2 3 F F F F
sustainability of F . . CRLS IFRLS the incoming IFRLS IFRLS IFRLS C F C C C flows CIFRLS
The Comprehensive River Economic Linkages Sustainability Table allows studying the linkages in every economic complex, not only the river ones. Even more, it also allows studying the linkages between the units within a big firm. The Comprehensive River Economic Linkages Sustainability Table can be used to study the linkages inter the regions. For example the linkages among the river activities of Giurgiu River Economic Complex (Romania), Vienna River Economic Complex (Austria), Antwerp River Economic Complex (Belgium), Rousse River Economic Complex (Bulgaria), etc. The territorial units may vary according to the NUTS system 19 .
18 Pavlov, D. 2006. Alternative instrument for study of economic linkages in economic complex . Journal of Narodnostopanski Arhiv, Svishtov, Bulgaria. Pavlov, D. 2007. Intersectoral linkage research in the economic complex . PhD thesis Dissertation. Rousse University. Bulgaria. 19 European Commission . 2005. Introduction to the NUTS and the Statistical regions of Europe . http://ec.europa.eu/comm/eurostat/ramon/nuts/ introduction_regions_en.html
283
4. CONCLUSIONS
During the different stages of the society development it is possible to have not F F only extreme values, but also optimal values for IRLS and CRLS . It is also possible these F optimal values to be different for the different flows. In case the optimal value of CRLS is close to 1,5 then the Economic Complex is balanced and it represents the rule of the “golden middle”. It is also possible the River Economic Complex (or other researched systems) to change the number of their economic activities. Then the number of the linkages will vary, too. A precondition for such change is the development of science and socio-economic relations. At a certain stage of their development there would be changes of the F maximum value of IRLS (3 250 nowadays). If this maximum value goes down then some of the economic activities do not exist any more, but if it goes up, then there are new economic activities, which have been born (created) thanks to the development of the society. Sources for such change could be the entire environment: Physical environment, Social environment, Political environment, Legal environment, Operational environment, Economic environment and Cognitive environment. Hence the Program for development of an economic system is expected to be refreshed and updated at a certain period of time. If majority of the linkages have marketing origin (sustainability level 2), there is a freedom for business activities. But according to the social needs sometimes it would be better if linkages are mostly from the first level of sustainability (clever government), rather than the second level (anti-social and anti-ecological businesses). Should the society aim to achieve level one or level two – the answer depends on the society value system and the stage of implementation of the sustainable development. It is up to each society to choose the better policy – either to have higher values of F F F the index ( IRLS ) or of the coefficient ( CRLS ). The index ( IRLS ) could be compared to F the GDP, while the coefficient ( CRLS ) – to the average salary. F F Once we have the values of IRLS and CRLS for a concrete River Economic Complex, then it could be the base for comparison through the years. In the beginning of 21 st century the values of these tools for the River Economic Complex of Rousse 5 5 Municipality are: IRLS =413 and CRLS =1,68 and the detailed calculation will be given in a next article (the next part).
REFERENCE
Papazov, K. Daniel Pavlov, Silvestra Angelova, Aneliya Lyubenova, Miglena Krushkova. (2004) Project 2003-RU-FBM-01 “Study of the Investment Potential of Activities at the River Danube, Rousse Region” . Bulgaria: Rousse University Press, , 118p. Papazov. E., Pavlov, D. (2005) “ Regional Development Planning” . Project ECA/A/S/U- 03022, Cornell University – Bulgaria: Rousse University, Rousse UniPress, p.p.117-131. Pavlov, D. (2004) “ A new Approach to Regional Development Evaluation: Intersectoral Linkages in the Rousse River Complex” , Ithaca, USA: Report to Cornell University– CRP830 and 24 th meeting of the North East Regional Science Association. 16p. Pavlov, D. (2004) “ The Economic Potential of Danube River as a Factor of Development of Bulgarian-Russian Relations” . Russia: Processing of Volgograd State University. p.p.118- 129.
284 Pavlov, D. (2005) “Study of the Economic Linkages in River Economic Complex”. Bulgaria: Processing of Rousse University,. p.p.114-118. Pavlov, D. (2006) “Alternative instrument for study of economic linkages in economic complex”. Bulgaria: Journal of Narodnostopanski Arhiv, Book 4. Svishtov, p.p.46-57 Pavlov, D. ( 2006) “ Study of Intersectoral Linkage Sustainability (River Economic Complex of Rousse)” . Bulgaria: Report on a conference “Social-economic Development of Bulgaria in European Union – problems and perspectives”. Veliko Tarnovo University, p.p.147-160. Pavlov, D. ( 2006) “ Alternative instrument for study of economic linkages in economic complex” . Bulgaria: Journal of Narodnostopanski Arhiv, Book 4. Svishtov, p.p.46-57 Pavlov, D. (2007) “ Intersectoral linkage research in the economic complex” . Bulgaria: PhD thesis Dissertation. Rousse University. 182 p. Pavlov, D. (2008) “ A New Approach to the River Economic Complex Development” . Romania: Analele Universitatii “Eftimie Murgu”, Facultatea de Stinte Economice si Administrative. Resita, Anul XV, Nr.1, ISSN 1584-0972, p.p.58-65. European Commission . (2005) “ Introduction to the NUTS and the Statistical regions of Europe” . http://ec.europa.eu/comm/eurostat/ramon/nuts/ introduction_regions_en.html
285 THE GROWTH MACHINE CONCEPT IN A RURAL AREA (THE CASE OF DVE MOGILI MUNICIPALITY, BULGARIA)
Daniel PAVLOV Associate Professor University of Ruse “Angel Kanchev” László J. KULCSAR Assistant Professor University of Ruse “Angel Kanchev” Bulgaria
ABSTRACT In this paper it is given the basic theoretical background of the Growth Machine Concept in the ex-socialist countries in Eastern Europe. The findings are related to the case of the Bulgarian rural municipality of Dve Mogili describing the level of collaboration which the local political and economic elites have achieved and thus they have developed a rural growth coalition leading to a regional development.
KEY WORDS : Growth Machine Concept, Dve Mogili rural Municipality, Bulgaria JEL: Q01, Q18, Q32
1. INTRODUCTION
The end of XX century has been rather dramatic for the rural development of the ex-socialist countries. Many of them have faced sever difficulties to keep their economic growth. The political tensions and the economic disadvantages put under question the prosperity of the Bulgarian rural municipalities. Some of them have faced a dramatic failure, loosing majority of the population; others have managed to slow down the negative impact of the transition period adapting their realities to the new political, social and economic environments. A key factor is the role of the political class and its skills, gained during the socialist period and the decade of transition to the marketing economy. The aim of this paper is to study the application of the growth machine concept in Dve Mogili municipality, Bulgaria, as a good model for a rural development.
2. THEORETICAL BACKGROUND
Twenty years after the collapse of communist regimes, Eastern European countries seem to have embraced the capitalist model of development albeit with various degrees of success. The central component of the new paradigm is economic growth, serving as the engine of socioeconomic modernization. However, neither growth nor its benefits are evenly distributed, and this is especially true in Eastern Europe where many countries struggle with historically scarce resources. The increasing inequalities within the region are particularly painful after the relative egalitarianism of state socialism.
286 The issue of uneven development has produced a large literature in the past decades, including the discussion about the actors who promote growth policies leading to such unevenness. Studying local development patterns more than 30 years ago, Harvey Molotch (1976) introduced the concept of growth machine, claiming that urban development is not driven by market supply and demand, rather by a coalition of elites who benefit from the local growth. The concept was later elaborated and tested providing empirical evidence for its existence in the United States (Lyon et al, 1981; Logan et al, 1997; Jonas and Wilson, 1999; Humphrey, 2001). One obvious result of the empirical tests as well as the theoretical elaboration of the growth machine concept was that while it has certain basic characteristics, it is also contingent on local socioeconomic and historical conditions. The various Western examples of growth machine politics discussed the role of business groups influencing local politics to achieve their own economic agendas. The analysis of the growth machine dynamics in a post-socialist setting argued that politics in general and the political elite in particular are more important in Eastern European growth coalitions (Kulcsár and Domokos, 2005). This importance can be explained in the context of the elite change during the post-socialist transformation. In the original growth machine thesis, economic power is transformed into political influence. However, as Eyal et al (1998) pointed out, one remarkable feature of the new Eastern European capitalism was the obvious lack of a genuine capitalist class. The various elite transformation theories argued that in many cases the old political privileges were transformed into economic power and the new capitalist class had close connections to political power (Staniszkis, 1991; Róna-Tas and Böröcz, 2000; Szalai, 2001). This interdependence between the political and economic elites is not new, but a typical characteristic of lagging, periphery societies. This interdependence is even more important during economic transition periods such as the post-1989 years. A new market is usually dominated by early starters, and in Eastern Europe the early starters were the actors who had information and connections right at the beginning of the market transition. This put these actors in the position to be ahead of the rest and access external resources (state development funds, EU funds or foreign direct capital) easier, perpetuating inequalities in business conditions. These dynamics were even more important at the local level where political positions or connections created opportunities for economic success, in many cases leading to closed elites. The particular advantage of such interconnected economic and political agendas in the context of the growth machine is that the process that provides benefits for the elite is actually development as perceived by the local population. Examples of such projects are industrial investments, new residential areas and shopping centers (Kulcsár and Domokos, 2005). These all give the sense of growth and development (which no one opposes) and help to sell the political or economic agendas of the local elite, making the post-socialist growth machine more powerful than the original one. Both the original and the Eastern European version of the growth machine grew out of the critical political economy school. The growth machine itself is considered as a tool which creates inequalities and distributes benefits in a very uneven fashion. However, this concept has only been applied to urban areas, and large cities in particular, assuming that the possible economic benefits are much less significant in
287 rural areas. Thus, the growth machine is an inherently urban phenomenon. Yet, the same political dynamics could operate in resource poor rural areas where the concentration of political and economic power can be an even more crucial determinant of community development. Building on the post-socialist elaboration of the original concept made by Kulcsár and Domokos (2005) and Drahokoupil (2008) shifts the emphasis toward the political nature of elite formation and allows us to examine the growth machine phenomenon in a non-urban setting. This study aims to investigate how economic growth and local elite formation occurred in rural communities in Bulgaria. This is also an opportunity to consider if certain level of resource concentration is actually necessary for a disadvantaged community to start a growth trajectory. In this paper we examine the case of Dve Mogili. In this municipality we found cooperation between the political and business elite. In itself it is not a surprise, as the growth machine thesis argues for such interrelated interests. In Dve Mogili however, this collaboration successfully promotes local development, and might serve as examples for other places as well.
3. FINDINGS
A survey in 2009 has investigated the growth of a rural case study site in North Central Bulgaria – the municipality of Dve Mogili (DM ), which is a part of Ruse Region, close to Danube River. The total area of DM municipality is 345 sq.km, the population is about 10 000 people. According to the Plan for Development of Dve Mogili Municipality Council 2007-2013 almost half of the population lives in the city of Dve Mogili, while the rest is scattered in 11 other villages. Since the beginning of the transition period the population has been in constant decline with about 200 people per year. The ethnic structure is 58% Bulgarians, 27% Turks and 15% Gypsies. The traditional occupation in the area is agricultural and forest activities, which is still one major sector in the municipality. According to the plan for development of the municipality another major sector is the light industry – food production, tobacco, textile and apparel. These two sectors form over 70% from the Gross Production of the Figure 1 - Municipality of Dve Mogili municipality and they provide over 60% in the area of Ruse Region, Bulgaria of the local employment. The municipality plan has identified other possible sectors for development, such as tourism and renewable energy sources. Preconditions for their development are the infrastructural improvement of nature attractions in the Dve Mogili
288 Municipality area, as well the utilization of huge amount of waste biomass, which is suitable for fuel production. These activities are encouraged by the Rural Areas Development Program 2007-2013, by providing national funds as co-financing (up to 70%) to firms in these sectors. After 1990, the local economic and political elites of Dve Mogili ( DM ) Municipality have faced a variety of challenges in regional development including rapid population aging, high unemployment and the collapse of the non-agricultural firms. Similarly to other municipalities, one central issue was whether the local political structure from state socialism could be successfully transformed to fit to the new market economy and benefit the municipality. This survey has found a good model of success, which could be followed by other rural and even urban municipalities. In 2009, in a period of elections EU Parliament, but also for BG Parliament the DM local political elite (the opposition and the ruling ones) has shown unusual level of responsibility to the community development. Most of the local politicians have been former members of the Bulgarian Communist Party, because this membership was an obligation during the socialist era. The interviews with them have outlined a good practice for successful regional development, as summarized below First, all local politicians used their political skills, gained during both the socialist and the transition period to successfully lobby at the Bulgarian Government and National Parliament and to attract proper attention and funds to contribute to DM development. This process could be successful because the transition period has been a filter for the local politicians. In the past years, the political elite consist moistly of representatives, who put the community development as a major goal. As a result, political conflicts and arrogance has been declared as an unacceptable way for local development. The DM Mayor and DM Municipality Council are from different political parties, but they have managed to achieve consensus on all issues that affect the rural development. In contrast, some surrounding areas decline and their mayors and municipality councils are in constant public and non-public conflicts. All DM problems are first, discussed in small groups with representatives of every party to reach agreements, then, these agreements are introduced to the DM Municipality Council to approve them and to put them into action. The political elite in DM put the personal responsibility of the politicians before the political responsibilities for the political parties. Therefore in the 2007 local elections the campaign was about personalities, and not political parties. While the DM Municipal Council is rather diverse based on political views, it is quite coherent to acknowledge “responsibility” for the community. In many places, the chairman of the Municipal Council and the Mayor are in conflict, trying to show the people who the real leader is. But this is not the case in DM municipality. The Chairman and the Mayor are from different parties. The Chairman is also a lawyer (also, an ex-military officer from the air forces) and he is quite familiar with the normative acts. Thus, he puts the rule of law in the first place, and since the Mayor and the Municipal Council strictly follows the legislation, the conflict points are very few. As an interesting result, the DM Mayor and the DM Chairman are sitting together during the regional and national meetings, while the majority of the Mayors and Chairmen are sitting separately. Such political responsibility is crucial in determining the success of the various proposed projects and
289 developments such as agricultural modernization, solar energy production, and modern golf courses. Second, the DM Mayor and many of the DM Municipality Council members are businessmen. Thus the fusion of the local political and business elite leaves little room for career politicians. The economic and the political elites work together on local development issues. Their decisions are not short term political (which happens in other municipalities), but strategically orientated and sustainable in the time, because they search for long time economic, demographic and nature-protection effects. The investment in local development is not only financial or political, but probably emotional as well, as the local elite is strongly attached to the place. Also, the Plan for Development of DM Municipality has been developed by the DM political elite in dialog with the economic elite. The businessmen in the Municipality Council made sure that the economic part of this Plan is realistic. One particular example for the successful fundraising resulted from the above mentioned fusion of political and business elites is a pellet producing operation. This business has been encouraged by the local political leadership to apply for funds. The municipality provided expertise in raising funds and cooperated in the necessary paperwork, but this was essentially a private fundraising operation. Then, when the pellet production was on its way, the municipality from now on is able to apply for funds to replace the old heating equipment in public buildings with ones that use pellets, successfully creating a local market, and indirectly generating local tax revenues from the pellet operation. This is a clear example how collaboration between the private and public sectors may lead to successful fundraising and long term benefits. Third, the local administration realized the importance of being more self- dependent from the central government, and has developed the proper capacity to apply to public funds. Thus the revenues of the municipality are not only from the national budget, but from other sources, too. The political environment in DM discourages social or political exclusion: the motto is “If one wins, then all win, too”. The locals argue that their development must be a result mostly of their local efforts for improvements, and not of resource transfer from the central government, the classic example of the “bottom-up” approach for development. Yet, still about 80% of the revenues of the Municipality budget comes from the national budget. The DM political elite are engaged to keep this money, but even more importantly, increase the amount obtained by applying for funds in Bulgaria and abroad. The first results are rather optimistic and therefore the political and economic elites plan to increase this financial flow with 30% every year. It is an expansion policy where both the economic and political elites have the proper capacity to execute their role. The major directions for public fundraising are social infrastructure, transport infrastructure, and waste management. In addition these funds are planned to support the changing economic structure, including investments in tourism and renewable energy sources.
3. CONCLUSIONS
For the first sight, Dve Mogili exhibits the classic characteristic of the growth machine: the close ties between the political and business elite. In most resource scarce
290 environments, such ties are necessary for individual success. However, the growth machine in DM is based on mutual collaboration and consensus. Both the economic and political elite initiate regional development. Members of the political elite are very engaged in the wellbeing of the local business. On the other hand, local business supports this productive political environment. This is a good example for a working growth coalition in rural areas, as the actors all understood that development is a result of agreement, support and matching individual and commune goals . All universities teach this, but there are few places where it can be seen in action, one of them is Dve Mogili, Bulgaria. REFERENCES
Drahokoupil, Jan (2008) “The Investment-Promotion Machines: The Politics of Foreign Direct Investment Promotion in Central and Eastern Europe”, Europe-Asia Studies , 60:2, 197 – 225. Eyal, Gil, I. Szelényi and E. Townsley (1998) “ Making Capitalism without Capitalists: The New Ruling Elites in Eastern Europe”. Verso, New York. Humphrey, Craig (2001) “Disarming the War of the Growth Machines: A Panel Study”. Sociological Forum 16, 99-121. Jonas, A. and D. Wilson (eds.) (1999) “The Urban Growth Machine. Critical Perspectives Two Decades Later”. SUNY Press, Albany. Kulcsár, László J. and Tamás Domokos (2005) ’The Post-Socialist Growth Machine: The Case of Hungary”, International Journal of Urban and Regional Research 29, pp. 550-563. Logan, John, R. B. Whaley and K. D. Crowder (1997) “The character and consequences of growth regimes: An assessment of 20 years of research”. Urban Affairs Review 32, 603-630. Lyon, L., L. Felice, R. Perryman and S. Parker (1981)” Community Power and Population Increase: An Empirical Test of the Growth Machine Model”. American Journal of Sociology 86, 1387-1400. Molotch, Harvey (1976) “The City as a Growth Machine: Toward a Political Economy of Place”. American Journal of Sociology 82, 309-332. Róna-Tas, Á. and J. Böröcz (2000) “Bulgaria, the Czech Republic, Hungary and Poland: Presocialist and Socialist Legacies among Business Elites. In: John Hingley and Gy. Lengyel “ (eds.) Elites after State Socialism. Theories and Analysis. Rowman and Littlefield, Lanham. Staniszkis, J. (1991) “The Dynamics of the Breakthrough in Eastern Europe: The Polish Experience”. University of California Press, Berkeley. Szalai, Erzsébet (2001) “Gazdasági elit és társadalom a magyarországi újkapitalizmusban”. [Economic elite and society in the Hungarian new capitalism], Aula, Budapest. Bulgarian Ministry of Agriculture and Food. 2007.” Rural Areas Development Program (2007-2013)”. Available at http://www.mzgar.government.bg/RuralAreas/docs/RDP_official_version_BG%20_ 2.pdf Plan for Development of Dve Mogili Municipality Council 2007-2013 . Available at http://www.dvemogili.bg/userfiles/file/obstplan.pdf
291 CONCEPTUAL DELIMITATION ON INTERNAL CONTROL
Doina RADA Assistant Professor, Phd Faculty of Economic and Administrative Sciences, Eftimie Murgu University Resita Romania Dănu Ń RADA Professor, Phd “Dr ăgan” European University of Lugoj Romania
ABSTRACT The ability of management in economic entities is influenced by the context of action converging components of the free market to organize and the quality and operational system of internal control existing in each of them. Given the different interpretations for the concept of internal control, standardization is required, built on the objectives and modalities for the exercise starting from the objectives and ways of exercising it.
KEY WORDS: internal control, economic entities, accounting experts, security measures, plans to organize, control systems. JEL: M41, M42
1. INTRODUCTION
Internal control is often defined as a process, made by people of economic entities, with the purpose of achieving certain specific objectives. From another perspective, internal control is viewed as a set of measures, namely a state and not only as a referral service for the deviations and errors.
2. ASPECTS REGARDING THE EVOLUTION OF INTERNAL CONTROL AS A CONCEPT
Internal control is interpreted differently by different people and precisely because of this issue; there is a risk of not understanding as a specific unit, its role and functions. It may, however, be said that experts agreed when it comes to matters essential. Thus, external auditors, commissioners of accounts, accounting experts from France were, we can say, the initiators concept of internal control in terms of satisfying the need to certify regularity, sincerity and true image of the accounts and results. In 1977 the Order of Chartered Certified Accountants in France defined internal control as: ,,...all the security measures that contribute to the control of the holding company. It aims on the one hand, protection, heritage and assurance of quality information, on the other, the implementation of instructions and improvement of management performance. It is manifested through the organization, methods and procedures of each of the activities of the company to maintain continuity.” During the development and integration of national economies, there was a need to render a uniform concept, to achieve a uniform understanding of this complex process. A different definition of internal control appears in this context, issued by
292 Consultative Committee of Accountancy (Consultative Committee of Accountancy) of Great Britain (1978). “Internal control encompasses all control systems, financial and otherwise, implemented by management to conduct the company business in an orderly and effective manner, to ensure compliance with management policies, to protect assets and to ensure the greatest possible accuracy and the stage full of information recorded.” It shows that the definition of internal control is an attribute of management, responsible for designing and implementing it, in order to defend patrimony integrity, compliance with laws and the efficient use of resources. In the same year (1978), American Institute of Certified Public Accountants " gives a different definition of internal control “is composed of plans for the organization and methods and procedures adopted in the enterprise to protect assets, to check the accuracy of the information provided by accounting, to increase efficiency and ensure application instructions leadership. " As noted previously, the definitions presented internal control, “as a set of devices", "media supervision", "plans to organize", "processes", "control systems", but in principle these definitions are not contradictory, but instead they can be placed in a general scheme in which control components and objectives are identical. It is therefore established, as a global, international preoccupation for improving internal control is permanent and that tends to standardize. Among the reasons for this state of things we can remember: - growing complexity of enterprises and increasing their relocation, with the consequence of increasing delegation of responsibility; - reinforcing and increasing financial fraud from big transnational companies to small businesses; - increasing complexity of domestic legislation and the specific international transactions, in effect limiting the ability of managers' decision. Recent developments in the theory of financial control should be retained the initiative TREDWAY U.S. senator, who created the U.S. commission that bears his number and the committee has established a committee then known as COSO (Comittee of Sponsonug Organizations of the Treadway Commission). The result of research and studies undertaken by this committee have resulted in work entitled, "The Internal Control Framework" in which internal control is defined in a very concise way: “Internal control is a process implemented by the Board of Directors, management and staff of an organization designed to provide reasonable assurance regarding achievement of objectives." Note definition of two essential that, internal control is implemented by all the organization members (CA, the management and staff organization) and that the control is given a reasonable assurance with regard to achieving the objectives and not a guarantee. Three years after the publication of the paper COSO (1992) Canadian specialists in internal control, public Coco (Control Committee on Criteria) with a different definition of internal control “Elements of organization (including resources, systems, processes, culture and tasks) which helps to achieve objectives." This definition focuses on the following characteristics: - universality stakeholders (resources, systems, processes, etc.). - the relativity of the outcome (internal control, helps).
293 It also notes that Canadian specialists COCO focus on means of implementation, while the Americans COSO focus on the factors involved (Board of Directors, management, staff organization).
3. DEFINING THE ELEMENTS OF INTERNAL CONTROL
The set had intended to throw light on the substantive elements of control (content, goals) in a very concise manner. The following will develop problems related to this process by detailing defining items. So internal control is a process conducted by the board of directors of a company management and other personnel designated to ensure the smooth implementation of the objectives of the following categories: - effectiveness and efficiency of activities; - accuracy of financial reports; - compliance with laws and regulations. This definition reflects some fundamental concepts: - Internal control is a process . It is a means to an end, not an end in itself. - Internal control is carried out by people . There is currently only in the form of manuals with policies and rules, but by the people at every level of organization. - Internal control can provide only reasonable security , and not absolute, to the board of directors and management of the company. - Internal control is designed to achieve the objectives in one or more different categories which overlap. The definition of internal control is large for two reasons. First, it is the way in which most subjects interviewed have seen the internal control in the management of their affairs (they often talk about, "control" with the meaning, as "one who has control"); and secondly, because it allows subdivisions of internal control. Those who wish may focus attention separately, for example, the control over financial reports or control over compliance with laws and regulations. Similarly, the attention focuses on control in certain segments or activities of a company. Also, the definition provides a basis for the efficacy of internal control, which is discussed later in this chapter. Fundamental concepts mentioned above are developed in the following paragraphs.
3.1. A process
Internal control is not just an event or a single situation, but is composed of a series of actions that interpenetrate all activities of a company. These actions are ubiquitous and inherent in business management. Company activities, which are conducted within and across all departments and functional segments of the organization, are achieved through specific management processes, such as planning, execution and monitoring. Internal control is part of these processes and is part of them. Allows them to operate and monitor the work and relevance. It is a tool used by management and can not be a substitute for management. This conceptualization of internal control is very different from the perspective of some observers, who understand the internal control as
294 an element added to the company, or as a necessary burden imposed by law or by over- zealous bureaucrats. Internal control system interpenetrates the existing activities of the company and there are fundamental reasons of business. Internal controls are more effective with more deeply included in the infrastructure and the activities of the company. They should be constructed, in them "and not on them." Controls built, the interior "may directly affect its ability to achieve goals and supports quality initiatives of the business. The activity of making quality is directly related to the management of companies, and the manner in which they are controlled. Quality initiatives are an integral part of a business structure, as shown in the following: • The leadership of the executive directors ensures that the quality is integrated into how the company does business. • To establish quality objectives is closely linked with the information, analysis and other activities of the company. • Using knowledge of competitive practices and expectations of customers is used to achieve an improvement of the quality. These factors exist in parallel with those belonging to the systems of internal control. In fact, internal control is not only an integral part of quality programs, but it is often a key to their success. Controls built into the interior also have important implications to maintain price and time response: • Most companies are facing a market with increased degree of competitiveness and must keep costs low. Adding new procedures, independent of existing ones, causing additional cost. By focusing attention on existing activities and to effective internal control, and creating controls in the basic activities carried out, a company can often avoid unnecessary costs and procedures. The practice of building controls in the activities brings some new and controls necessary for new business. Such a reaction makes auto companies most active and competitive.
3.2. People
Internal control is carried out by a board of directors, management or other staff members of a company. It is made by people of an organization, by what they do and what they say. People lay down objectives of a company and make operable control mechanisms. Similarly, the internal actions affect people. The internal control recognizes that people do not always understand, communicate and act consistently. Each individual brings to the workplace training and a single technical skill particular, also has various needs and priorities. These realities affect and are affected by the internal control. People need to know responsibilities and limits of authority. According to them, there must be a clear link between duties of the people and how these are met, and between them and the company. Organization of people is formed board of directors, and leadership and additional staff. While directors may be viewed as those who have a supervisory role, they may also assist in determining a company's guidelines and to approve certain
295 transactions and policies. Therefore, the board of directors is an important element of internal control.
3.3. Reasonable warranty
Internal control, no matter how well designed and how it is operational, can only offer a reasonable security management and board of directors on the achievement of the objectives of the company. The probability of achieving the objectives is affected by certain limitations inherent to all systems of internal control. These include the reality that human reasoning may sometimes be wrong, that the person responsible for establishing controls must take into account the costs and benefits of their relativity, and that failure can occur due to human flaws, such as simple errors or mistakes. In addition, controls can fail because of the complicity of two or more persons. Each company sets a specific mission, setting goals it wishes to achieve and strategies needed to achieve them. Objectives can be set for a company taken as a whole, or may be established for certain specific activities of the company. Although many of the goals are specific to a particular company, some of them are common to others. For example, common objectives, hypothetical, in all companies are creating and maintaining a good reputation in the industry and consumer communities, providing financial statements prepared well for shareholders and the conduct of business in accordance with the laws and regulations. Can we expect from a system of internal control to provide a reasonable guarantee of achieving objectives, in relation to the accuracy of financial reports and compliance with laws and regulations in force. Achieving those goals is based largely on the standards imposed by external parties, depending on how control activities of the company are carried out.
REFERENCES
I. Bostan,(2003) ,,Financial control and internal audit at public institutions”, Ed Secon Libris, Ia i Christmas t.(2004) ,,Financial audit and internal audit, financial control and accounting expertise”, Ed Economic, Bucharest. I. Peres, O. Bunget, C. Peres (2004) ,,Financial control and accounting expertise”, Ed Mirton, Timisoara D. Rada (2006) ,,Financial control. Financial audit”, Ed Mirton, Timi oara.
296 FORMS OF ENTREPRENEURSHIP IN TOURISM
Venera RÎNDA U Assistant Professor Faculty of Economic and Administrative Sciences, Eftimie Murgu University Re iŃa Romania Lavinia NI łULESCU Lecturer Faculty of Economic and Administrative Sciences, Eftimie Murgu University Re iŃa Romania
ABSTRACT Agro-tourism is a mild form of sustainable tourist development and multi-activity in rural areas through which the visitor has the opportunity to get acquainted with agricultural areas, occupations, local products, traditional cuisine and the daily life of people. Many countries have as main income the revenues from tourism, decisive for the levelling of the import-export balance. The fact that this is not happening in Romania is caused by the very serious crisis of tourism. In this study the authors present some facts concerning the current state of agro-tourism in Romania, as well as the main results of a survey realized in one Romanian county with high potential in agro-tourism.
KEY WORDS: entrepreneurship, agro- tourism, development JEL : Q0, Q2
1. INTRODUCTION
The tourism industry is one of the most profitable economic activities almost anywhere in the world. Many countries have as main income the revenues from tourism, decisive for the levelling of the import-export balance. The fact that this is not happening in Romania is caused by the very serious crisis of tourism (Rindasu et al., 2007). Economy suffers in general, but tourism has as main advantage the opening towards external markets, which can make it able to gain a certain independence compared to the economic trend. A legislative framework to favour the investments from agro-tourism area should also have favourable implication for the sustainable development in general (Halbac-Cotoara, 2006). The general development of tourism in Romania, as well as the orientation of Romanian tourists towards the short-term tourism forms directly influenced the demand increase in rural tourism, especially in agro-tourism (Tane & Thierheimer, 2009). Agro- tourism is that form of tourism which capitalizes on rural culture as a tourist attraction (GTZ, 2004). The transformation of rural areas in tourist centers is realized gradually, either through the initiative of entrepreneurial groups that develop small tourist businesses in order to attract tourists, or by discovery of the area by visitors which generate demand for tourist activities, demand to which the local community reacts. The success of tourism depends greatly on the capacity of the region to be a proper host for the rural tourism, on the capacity of planning and implementing development projects, taking into account all the changes that this type of tourism brings for the region, in general, and for the households, in particular (Bugnar et al., 2007).
297 The guesthouse, for instance, is not an invention of the 20th century. They have successfully operated for hundreds of years. Established as family businesses, run especially by single women or families in difficulty, they proved to be an attraction due to the family air they maintained, unlike the rather miserable inns. The guesthouse supposes and requires a certain conduct, as well as a closer relation between hosts and visitors. The hotel, in its turn, is based on services, the relations being built on this basis and not on personal relationships. A boarding house / guesthouse offers a residential frame. It is someone’s dwelling. The rooms contain souvenirs of the host, personal objects, everything is personalised. The meals served there depend on the host’s ability in the kitchen, comprising what can be called “the dish of the house”, a home menu that, although much limited compared to what a restaurant can offer, is attractive grace to the syntagm “home cooking”. Even among the guests certain relationships are shaped, due to the fixed hours of dinner or breakfast. From the architectural viewpoint, a boarding house / guesthouse is very similar to a dwelling. The accommodation capacity depends on the ratio of the number of guestrooms and the capacity of the dwelling’s kitchen. One must say that such a business can be maintained only through the hard work of the owners, the personnel that can be hired being very small, and the key of success is an intimate and family-like space, supplied at decent prices. The guesthouses have become more and more attractive in Romania lately, both grace to the financial accessibility and because they are a counterweight of tourism assured by the two- or three-star hotels, about which we can say they are “stuck” in the lack of specialisation, which tends to give them an air of low performance as far as the quality of services is concerned. As operational scheme, compared to the normal dwelling, a guesthouse has developed the cooking areas and the guests’ areas, but without reaching the performances of a restaurant. The menu, fixed or limited, allows the operation of a kitchen without the famous separations between the different type of cooking, “clean” and “dirty” tracks. Moreover, the personal relationship between the host and the visitor no longer imposes the strict separation of tracks and areas dedicated to personnel and guests. This type of accommodation is very similar to the normal accommodation of a guest in one’s own home. The visitor has the liberty (almost total) to wander throughout the house (observing nevertheless certain intimacies). In fact, the very system of “hosting” made career and will continue probably to remain popular. Selecting a group of hosts in touristic localities and setting up accommodation in their homes even for larger groups has often proved to be an attractive and viable system. The flexibility of such tourism, as well as the principle of mutual advantage, offer it good opportunities for the future. The performance criteria imposed by civilisation will certainly be sensed in this field too. The moment of complying with certain usual standards of an increasingly higher number of dwellings in the rural area, first of all, will become a re-launching point for this type of tourism. What we call today “agro-tourism” is a hybrid between guesthouse and the “host accommodation” tourism. In Romania more and more areas appear, inclined to supply this type of tourism. The power of example will spread this habit, rather impatiently expected. The real tendency of hosts to personalise and increase the attractiveness of the accommodation they offer is, certainly, a very good sign, the owners of guesthouses have tried to build ingenious small kiosks and pavilions, “trout ponds” where one can
298 feed the fish, minimal bathrooms, tables and chairs carved from huge logs, but also “tableaux” created by little local artists that cannot be called kitsch, beds made of various materials and many more. Another type of tourism is that of complexes of camping tents and small cabins. Consequently this programme depends on two distinct, well-delimited areas: the accommodation or camping area, the annex facilities area We must mention here the importance of these facilities: showers, toilettes, the minimum comfort dependent strictly on them. In our country the very low level of civilisation degree of almost all common areas makes the tourist consider this type of program as “sub-tourism”. The target is made of the persons who choose a cheaper type of accommodation.
2. CARAS-SEVERIN COUNTY, A COUNTY WITH HIGH POTENTIAL IN AGRO-TOURISM
The potential of agro-tourism is enormous, especially considering the low purchasing power of the population. The indifferent treatment of these small details “succeeds” in discrediting this potential, whereas enormous amount of money are lost, money that could be attracted to this field. We encounter such a situation in Cara -Severin also, where there are numerous possibilities for practising tourism. Beside the spa and treatment tourism, with ancient traditions, practised at B ăile Herculane, beside the mountain resorts of regional interest, the Cara -Severin county has a huge potential for the development of agro-tourism. Although nature has been extremely generous in the Banat Mountains, agro- tourism is weakly represented, and in certain areas it is practically absent as complementary economic activity in the rural economy. The entire county was focused on the industrial activity so that tourism as economic activity was granted a rather reduced importance. After 1989, after the collapse of the heavy industry, a large part of the rural population who used to work in the industrial sectors remained unemployed. It was the moment when the population and the authorities began to grant an increased importance to tourism. Nevertheless, the efforts concerning the development of tourism remained in the stage of good intentions and praises brought to the special natural environment. It is true that the period 1990-1995 showed a decrease of tourists' circulation on the entire territory of Romania, but the poor operation of the few State tourism units made the Banat Mountains lose segments of consumers who were loyal customers before. It was the case of Mount Semenic, where, because of the bad management of the ski slopes, of the accommodation supply exceeding the demand, and the lack of comfort, the number of ski tourists has continually decreased, ant they started to go to other locations, which supply better conditions.
3. METHODOLOGICAL FRAMEWORK
For the purpose of seeing how agro/tourism is perceived in the Caras-Severin county, we performed a survey attempting to find explanations and solutions, attempting to establish if agro-tourism is an accepted form of tourism., known and practised by Re iŃa’s inhabitants, Resita being the capital city of Caras-Severin county.
299 The object of survey was to determine the extent to which agro-tourism is practised by Re iŃa’s inhabitants. The research method used was the method of quotas associated with the areolar poll, assuring the representativeness of all districts of the town of Re iŃa. The information was collected directly from the consumers, performing a quantitative survey, on a sample made of 384 persons, and the investigation was done under the form of an occasional inquiry, i.e. an opinion poll; the structure of the population by genders, ages and occupations was supplied by the County Division for Statistics Cara -Severin. The criteria for the selection of the subjects were as follows: the gender criterion (male, female); the age criterion (< 20, between 20-29, between 30-39, between 40-49, between 50-59, over 60), the occupation criterion (pupils - students, workers, intellectuals, clerks, other occupations, retired person). We used a questionnaire made of 11 closed questions and 3 identification questions, regarding gender, age and occupation of the subjects. We point out that we used only closed questions with single answer, i.e. the subject could make one single choice from among a limited number of possible answers.The issues investigated within the questionnaire were the following: - Determining the degree of awareness about the Cara -Severin guesthouses; - Extend to which agro-tourism is known and practised by Re iŃa’s inhabitants ; - Their preferences for the agro-tourism areas of Cara -Severin; - Price – quality ratio offered by the agro-tourism guesthouses in Cara -Severin; - Determining the reasons for which agro-tourism is not practised.
4. CONCLUSIONS
The main conclusions can be summarized as below. The inhabitants of Re iŃa declared that: - they are aware of the existence of agro-tourism guesthouses in Cara -Severin; - As vacation or holiday period, the subjects prefer summer; - The Re iŃa inhabitants prefer agro-tourism in guesthouses to the traditional hotel tourism; - Agro-tourism compared to the traditional tourism offers lower costs; - Agro-tourism is an opportunity to relaunch the Cara -Severin tourism, consider the inhabitants of Re iŃa; - There are agro-tourism guesthouses in the areas they used to go on vacation; - The reason why the inhabitants of Re iŃa do not practice agro-tourism as form of tourism is the lack of financial funds - The source of information they used in order to learn about the offers of the agro- tourism households and guesthouses in Cara -Severin is represented by friends; - The inhabitants of Re iŃa are willing to practise agro-tourism in a year; - If they decide to spend a holiday in a boarding house / guesthouse, they indicate another area of Romania, different from the Cara -Severin area.
300 REFERENCES
Bugnar, N., Mester, L. & Bodog, S. (2007) The impact of rural tourism on long-term development of the Bulz area-Apuseni mountains, Annals of the Oradea University , Fascicle of Management and Technological Engineering, vol. VI (XVI) Halbac-Cotoara, R. (2006). Sustainable development and agro-tourism in Timis county. Perspectives, Buletinul USAMV-CN , 62/2006, ISSN 1454-2382 Rindasu, V.; Ciurea, J. & Irimia H. (2007) Management antreprenorial si inovator , Ed.E.Murgu, ISBN 973-8286-82-4, Resita Tane, N., Thierheimer W. (2009) Research concerning the tendencies of agro-tourism development in the Bran-Moeciu area , Conference 4 th Aspects and Visions of Applied Economcis and Informatics , march 26-27, Debrecen, Hungary *** (2004) http://www2.gtz.de/dokumente/bib/04-5104a3.pdf , - GTZ - Factsheets People & Biodiv- Agro-tourism and agricultural diversity, Accesed on: 2009-02-28
301 SOCIAL LEGISLATION IN THE ROMANIAN INTERBELLIC CONTEXT
Cristian RUDOLF Assistant PhD Candidate Faculty of Economics and Administrative Sciences, Eftimie Murgu University Re iŃa Romania
ABSTRACT The Roman statesman Gaius Julius Caesar said that collecting dues and taxes are the most important activity of a ruler. Fifteen centuries after his age the Sultan Suleyman Kanuni recommended his pashas to govern well if they desired profits. This Padishah of the Ottoman Dynasty swayed his ministers to keep control of the food supplies and of the commerce and to leave the rest to the foolish people. It was vitally important, however, that this control be exercised with subtlety so as not to give the population cause for revolt. In the following pages we shall make an analysis of the social life of the governments’ involvement in dealing with the grievances presented by the citizens during the interbellic period.
KEY WORDS: interbellic, Romania, social context, community, legislation, strikes JEL: J5, J51
Approaching the frame of the social movements in interbellic Romania, generally and I the Banat Highland, particularly, we may notice an important concentration of highly qualified industrial metal workers and miners in this micro-region. The national-liberal government coincided with the period of economic expansion during the years 1922-1926. This fact allowed hegemony of the high and middle bourgeoisie over society but also permitted the solidification of the mass of industrial workers and peasants on the basis of the agrarian reform and of the universal suffrage. From 1930 to 1938 the number of industrial workers grew from 450000 to 800000. In some branches of industry, such as the clothing industry, the tobacco industry, the work force of the female population represented an average of 40%. The mineral industry, the energetic industry and the metallurgic industry reached in 1930 the high level of 250000 qualified workers, which represented a 60% increase compared to the level of 1914. One may notice a polarization phenomenon, many firms concentrating a significant part of the work force. In this sense we mention that in 1930, 101 firms had 115000 employees. The agricultural segment was however much larger numbering in 1930, 650000 employees. Their number grew constantly up to 1939, reaching the figure of 1 million employed persons. The Agrarian Reform of 1921 represented without doubt an act of social justice, of levelling the class differences from within the Romanian society. The landowning class disappeared as a socio-economic category, being replaced by and important group of middle farmers who applied the principles of capitalist economy in agriculture. The small farmers continued to produce in order to ensure their subsistence, but a large part of them became interested in selling the results of their labour on local and regional markets. The interbellic period was marked by a multitude of social conflicts related to labour that tested with different intensity the democratic exercise and the structure of a united society in our country. The strikes, mostly triggered by economic conditions, yet sometimes by political parties, were events that showed the cohesion of the workers from
302 different economic branches, or the lack of it. They also showed the capacity of the governing elements to solve the grievances of the citizens. Sadly, quite often the elected representatives proved little availability to solve the problems of the people that had secured their offices. The legislation was far from helping. Thus, by the Journal of the Council of Ministers from March 20 th 1920, the right to strike for the employees of the Department of Cults and Education was severely limited. Within the Labour Department, in April 1920 an Arbitrage Commission for Work Conflicts has been set up. The Minister Grigore Trancu-Ia i had initiated in September 1920 the Law for Regulating Work Conflicts. Based on this act, the right to strike was recognized only after the exhaustion of the reconciliation procedure and of the arbitrage from the concerned departments. Strikes with political context were strictly banned, and the arbitrage of the involved department for the solution of the conflict between employers and employees was mandatory. We do not have to feel surprise that in those conditions the Law for Regulating the Sunday Rest Day and the Legal Holidays, passed on June 18 th 1925 found many supporters among the industrial workers of the Banat Highland. The work conflicts were ever so present in the Romanian interbellic society, that the different legislatures tried adopting measures for the implementing of a social security program. In this sense we mention the law for the Protection of the Female and Infant Labour and the Law Regarding the Work Hours, both from 1928. By these legislative documents the work during night time was prohibited to employees less than 18 years. This restriction was extended to females and under aged children working in mines or in life endangering environments. There was also an attempt to organize labour on the basis of research and documentation, in this sense the Romanian Institute for Organizing Labour being founded. We must admit that during this period the employers manifested a reduced measure of social and legal responsibility often breaking the mandates of the Law Concerning the Work Contract, which stated a notice of 14 working days in case of a termination of the said work contract. This triggered numerous strikes, notably being those of the metal workers from the plants: Aug, Wolf, Lemaître, Malaxa, Vulcan, UDR, and TITAN- NĂDRAG- CĂLAN. King Alfred the Great of Wessex (849-871) had created an original timing system. A lamp made up of three candles, each burning 8 hours. According to the discipline of the Benedictine monks who had educated the monarch of that part of England, 8 hours were designed for work, 8 for rest and 8 for the personal usage of every Christian soul. More than 1000 years after the rule of Alfred the Great we may notice the tradition of the8 hours available for every working person to be present in the high region of the Banat. During the years 1934-1935 when the central hall of the Reschitzarer Arbeiterheim was being furbished the number of seats was set to 888 although the space permitted for more to be added. This number signified just the social-democrat creed of the workers grouped in different professional unions: 8 hours for work, 8 hours for rest and 8 hours for the personal use of every worker. In 1919 and 1920 there were 210 work conflicts culminating with the General Workers Strike that engulfed the entire Banat region. The strike was rampant among the industrial, forestry and mining workers from Re iŃa, Anina, O Ńelu Ro u, Boc a, Moldova Nou ă, Oravi Ńa, and Caransebe . These workers participated in the collective conflict from December 20 th 1920 that was shared by more than 500000 workers all over the country. As usual the grievances of the protesters were based on the obtaining of better working and
303 living conditions. These better working conditions were related to the 8 hours work day, the improvement of standard wages, the drafting of a collective work contract. In spite of the social program of the National Agrarian Party who succeeded at the government seat to the National Liberal Party beginning with November 1928 and some of its social protective measures for the population, the general trend for the different cabinets was to increase the size and prerogatives of the repressive apparatus through a series of legislatives measures. One of those was the Law for the Reorganization of the Rural Constabulary from March 4 th 1929, which sensibly increased the number and prerogatives of the constables. The rural constables had to go through a military profile school and were paid as non commissioned officers. The law put into being 8 battalions of constables attached to the 8 corps of the Romanian land armed forces. From a judicial point of view, however, the constables no longer depended on the War Department but on the Interior Department. We must hold our shield in the middle, as the Athenian politician Solon has taught us and admit that during the national agrarian government an important law was passed for all the workers in all the economic branches which regulated the work contracts. The norming act of April 5 th 129 regulated the relationships between employers and employees on the basis of social justice. By that law the employees received a series of advantages regarding the work hours during a day, the right to paid vacations: between 7 and 30 days a year, depending on the number of years in employment and regarding the 14 work days notice in case of a dismissal. A brand new element was the fact that this law regulated the four types of work contract: of apprenticeship, individual, of work crews and collective. It was forbidden to cancel a work contract in case of a strike, thus reducing the abuses of the employers in lying of their employees. If the employers failed to abide by the mandates of the collective contract they could be sued for financial damages by their employees. A terrible shock was caused by the suppression of the Lupeni Strike of August 6 th 1929. The citizens began loosing confidence in the national agrarian government. The public opinion had genuine believed in the promises of social justice and protection of the National Agrarian Party. In those conditions, the suppression of the strike, at the cost of 25 dead and 100 wounded amongst the protesting miners, proved even more hideous to the entire work force organized in unions. The workers from the industrial urban centres of the Banat Highland: Re iŃa, O Ńelu Ro u, Anina, Moldova Nou ă protested against the usage of brute armed force, deemed as absolute excessive in relation to their work colleagues who had done nothing more than express a series of absolutely justifiable economic grievances. These request referred to the 8 hours work days in mines, to a increase in basic wages of 20%, to the regular payment of wages, to the cancelling of dismissals and to the reinstatement of the laid of workers, but also to some measures of work protection. The shock was not to be the only one on the social level. During the economic crisis of overproduction the different governments implemented a series of measures of doubtful economic value but of a certain social lack of popularity. We have to mention the so called “sacrifice curves”, the first of then, put into practice in December 1930 referring to a 10% downsizing in the salaries of all state employees. The socially unstable situation determined the government to adopt punitive measures against those who expressed political grievances or conspired to topple the social order. The Mârzescu Law of May 3 rd 1933 stipulated drastic measures for the cases deemed as an attempt on the security of the state. The survival of the parliamentary democracy system and of the social justice amongst the people was shaken by the wave of political assassinations during 1933. These unlawful actions brought about an increased level of
304 state control on the public and private lives of the citizens. On April 7 th 1934 the Law for Protecting the Order within the State was passed. The measure provided some level of political safety in the sense that it banned the extremist right wing organizations. At the same time, the law complicated the complicate the activity of the syndicates by subjecting it to certain boundaries from the police and administration bodies. A complementary legislative act was the Entire Powers Law of July 9th 1935. This measure was responsible for strong resentment and upheaval amongst the industrial workers and government functionaries. The authoritarian regime lead by the monarch wanted to channel to force of the unionised workers, about 800000 in numbers during 1938, in a course that was favourable to the state. A first step was the dismantling of the unions in the course of September during that faithful year. The monarch, Charles the Second wanted to decrease the political basis of the Social Democrat Party, which, at that time numbered between 200000 and 250000 members, mostly industrial workers organised in unions. As the workers could not remain without a form of professional and social organization, on October 11 th 1938 the government ordered the creation of the guilds of state employees, of private entrepreneurs and craftsmen who were the owners of a small or medium size enterprise. According to the corporatist model intensely backed by an important social theoretician of interbellic Romania, Mihail Manoilescu, the guilds limited themselves to activities in the industrial, agricultural, commercial, technical, and cultural areas, any social or political activities being a posteriori excluded. The guilds functioned on a national but not on an international level, any professional contact abroad having to be approved by the Labour Department. The government hoped in this way to limit the contacts among unionised workers from similar crafts all over the continent. This fact was due to the existence of a strong historical connection on the social-democrat line between the native unions in certain industrial areas and the foreign ones with similar if not identical special crafts. The unions of the industrial workers from Banat, Cri ana, Maramure , Transilvania and Bucovina had multiple connections with the labour unions from Austria, Hungary, Czechoslovakia, Poland due to the fact that before 1918 these socio-professional organisations had backed the Social Democrat Party in the two parts of the dualist monarchy: Cisleithania as well as Transleithania. The youth played an important part in the plans of King Charles the Second for consolidating his authoritarian regime. The education of whole generations in the spirit of loyalty and obedience to the sovereign and the dynasty gave the possibility for creating a strong support for the regime based on the personal governance of the king. For this reason the younger generation of that age was conscripted in a paramilitary organization called Straja łă rii. The Law- decree of December 1938 stipulated that boys between 7 and 18 years of age and girls between 7 and 21 years of age must join this organization. The nominal leader was King Charles the Second bearing the title Mare Str ăjer who delegated his prerogatives to some trustees from the leadership of that organization. The purpose of this social structure was a dual one: on the one hand it was desired to educate the youth in the spirit of absolute loyalty towards the monarchy, making it insensible to the attraction of extremist rightist or leftist currents and installing a deep contempt for the democratic pluripartidist system. On the other hand it was desired to implement a program of physical training meant to improve the males’ performance during military service and to facilitate the integration of the girls to a special work place that was to be assigned to them in the case of armed conflict.
305 The gradual accession of the legionaries to government starting with June 1940 has led to a change in scope concerning the governments’ state policy towards minorities. We have to speak about the Jewish minority who, until that moment had enjoyed civil and politic wrights under the 1923 Constitution as well as under the fundamental law of 1938, at least on a formal plan. With the accession to power of the government presided by Ion Gigurtu, in which the legionaries held three departments, a profoundly racist legislation was implemented through the Law- decree of August 9th 1940. This bill set up a social and political framework that was absolutely discriminating against the Romanian citizens of Jewish faith. According to this official act the Jews could no longer hold public office; they could no longer be part of administration boards, own real estates in the countryside and were also forbidden from being part of the professional military.
CONCLUSIONS
One of the generous goals set up, during the 1920s, 1930s and 1940s by any Romanian government, be it of national liberal, national agrarian or national unity denomination, was the creation of an effective bureaucratic apparatus capable of efficiently solving the more or less usual problems of the citizens on a local, regional or central level. In a social context we must draw the readers’ attention to the fact that the interbellic years were marked by numerous problems, due not lastly to the economic fluctuations on a national and international level. Although the legislation passed by de different parliaments was well meant and some particular ministers endeavoured to effectively and correctly implement it, we may state that on the whole the governments’ interest for solving the grievances of the citizens, who chose them as representatives, was sensible to stimulation only when certain electoral manoeuvres had to be carried out. These manoeuvres generally attracted the presence of large numbers of voters who were used by the different parties as a political bargaining tool.
REFERENCES
Ancel, Jean, Contribu Ńii la Istoria României, Problema evreiasc ă, 1933-1944 , vol. 1, Bucure ti, Editura Hasefer, 2001- 2003. Báthory, Ludovic, Muncitorii din întreprinderile Societ ăŃ ii „TITAN-NĂDRAG- CĂLAN” în lupta pentru drepturi politice, pentru ameliorarea situa Ńiei lor social-economice (1918-1940) , I, în Acta Musei Napocensis, XX, Cluj-Napoca, 1983, pp. 293-311. Báthory, Ludovic, Muncitorii din întreprinderile Societ ăŃ ii „TITAN-NĂDRAG- CĂLAN” în lupta pentru drepturi politice, pentru ameliorarea situa Ńiei lor social-economice (1918-1940) , II, în Acta Musei Napocensis, XXI, Cluj-Napoca, 1984, pp. 353-368. Bell, Karl, Das Deutschtum im Aussland. Monographiensammlung, Dresden, Deutscher Buch und Kunstverlag, 1926. Enache, Răzvan , Structura fic Ńiunilor comunitare . Tradi Ńional i modern în discursul politic românesc interbelic , Cluj-Napoca , Editura Casa C ărŃii de tiin Ńă , 2007. Iancu, Gheorghe, Justi Ńie româneasc ă în Transilvania (1919 ), Cluj-Napoca, Ecumenica Press, 2006. Jurca , Nicolae , Istoria social-democra Ńiei din România , Bucure ti , Editura tiin Ńific ă, 1994. Jurca , Nicolae , Mi carea socialist ă i social-democrat ă din România: 1934-1944: pozi Ńia sa fa Ńă de fascism i r ăzboi , Bucure ti , Editura Litera , 1978. Jurca, Nicolae , Social-democra Ńia în România: (1918-1944) , Sibiu , Hermann Verlag, 1993. Marin, William, Kurze Geschichte de Banater Deutschen. Mit besonderer Berücksichtigung ihrer Beziehungen zur rumänischen Bevölkerung und ihrer Einstelung zur Vereinigung
306 von 1918, Temeswar, Facla Verlag, 1980. Scurtu, Ioan , Istoria României în anii 1918-1940: evolu Ńia regimului politic de la democra Ńie la dictatur ă, Bucure ti , Editura Didactic ă i Pedagogic ă, 1996. Setlacec, Dan, Medicina româneasc ă - Medicin ă european ă 1918-1940 , Bucure ti, Editura Humanitas , 1998. Syed, Ahmed Z., the Zenith of an Empire: The Glory of the Suleiman the Magnificent and the Law Giver , London, A.E.R. Publications, 2001. Zaharia, Gheorghe , Politica de ap ărare na Ńional ă a României în contextul european interbelic : 1919-1939 , Bucure ti , Editura Militar ă, 1981. ***, Was wollen die Banater Schwaben? Wahlprogramm mit Erläuterungen , herausgegeben von der Deutsch- Schwäbischen Volkspartei, Temesvar, Druck der „Deutschen Wacht” Verlags AG, 1928.
307 THE ROLE OF ENTREPRENEURSHIP IN ECONOMIC DEVELOPMENT
Adrian T ĂNASE Lecturer PhD Faculty of Economic and Administrative Sciences, Eftimie Murgu University of Resita Romania
ABSTRACT The role of entrepreneurship and an entrepreneurial culture in economic and social development has often been underestimated. Over the years, however, it has become increasingly apparent that entrepreneurship does indeed contribute to economic development. Transforming ideas into economic opportunities is the crux of entrepreneurship. History shows that economic progress has been significantly advanced by pragmatic people who are entrepreneurial and innovative, able to exploit opportunities and willing to take risks .
KEY WORDS : economic development, entrepreneurship, competitiveness, business. JEL : O1, L26, L21
1. INTRODUCTION
The European Union is beginning to pay more attention to rural development beyond simple agricultural support, and just as the opinion is beginning to install itself that business creation and development may be the best strategy for rural development, new reports from different international sources are now questioning the benefits of entrepreneurship support for the economic development of rural areas. A recent study of OECD indicate the influence of entrepreneurship over local economic development involving 30 countries concluded that stimulating entrepreneurship can provide an alternative to paying unemployment insurance in rural areas, but that the direct employment and growth effects in these areas are modest and often favour specific segments of the population. According to the study there are many obstacles that hinder entrepreneurship in rural areas, influencing both the extent and form of entrepreneurial activity and its prospects for survival. The study concludes that informal institutional factors, such as the lack of positive entrepreneurial examples (role models) and limited networks are some of the most important barriers that restrain rural entrepreneurship. In the absence of entrepreneurial role models, economic agents are not as propelled to take the different decisions needed to become an entrepreneur. For the entrepreneur, the implications of the study indicate that in all institutional frameworks, entrepreneurial self-confidence is a driving force leading individuals through the different stages of the entrepreneurial process. Entrepreneurial self-confidence is a natural consequence of prolonged exposure to positive entrepreneurial examples. An individual with entrepreneurial ambitions can gain the necessary confidence in his/her own entrepreneurial skills by being in close personal contact with individuals who have themselves successfully established their own businesses.
308 2. ENTREPRENEURSHIP AND ECONOMIC COMPETITIVENESS
As we know, company competitiveness is influenced by many factors from external and internal (especially by entrepreneur profile and ability) environment Competitiveness should be understood as the ability of companies, industries, regions, nations to generate, while being and remaining exposed to international competition, relatively high factor income and employment on a sustainable basis (OECD 1998). Competitiveness is determined by productivity, depends on firms strategies, is, partially, the results of relationship between firms and local business environment, depends on social and economic objectives synergy and is influenced by factors from external environment (M. Porter). According to Porter, there are four conditions (internal and external factors) which allow firms to compete successfully: factor condition (availability of skilled labour and infrastructure); demand conditions for the products; related and supporting industries-competitive suppliers; firm strategy, structure and rivalry. Entrepreneurs produce solutions that fly in the face of established knowledge, and they always challenge the status quo. They are risk-takers who pursue opportunities that others may fail to recognize or may even view as problems or threats. Whatever the definition of entrepreneurship, it is closely associated with change, creativity, knowledge, innovation and flexibility-factors that are increasingly important sources of competitiveness in an increasingly globalized world economy. Thus, fostering entrepreneurship means promoting the competitiveness of businesses. Private sector development and entrepreneurship development are essential ingredients for achieving the Millennium Development Goal of reducing poverty. While sound macroeconomic policies and providing market access are crucial, emerging markets need to nurture and develop entrepreneurs able to take advantage of opportunities created by globalization. For many developing countries, private sector development has been a powerful engine of economic growth and wealth creation, and crucial for improving the quality, number and variety of employment opportunities for the poor: - Economically, entrepreneurship invigorates markets. The formation of new business leads to job creation and has a multiplying effect on the economy. - Socially, entrepreneurship empowers citizens, generates innovation and changes mindsets. These changes have the potential to integrate developing countries into the global economy. The rules of entrepreneurship still apply in principle, but the medium has changed drastically. This is probably the best time in our history to pursue entrepreneurship. Entrepreneurs are defying the logic and business rationale to make things happen individually. Gone are the days when you needed huge capital and veteran management teams to form companies and to wait for another several years to rake in the profit. Entrepreneurs must take the lead in conceptual economy. Corporate world usually takes the back seat when it comes to adapting new ventures and most likely will be the last group to realize and accept the arrival of this economy.
309 The entrepreneur has been a fundamental agent in most production, distribution and growth theories. The role of entrepreneurship as the driving force of economic growth found its most explicit foundation in Joseph Schumpeter's theory of long waves. According to Schumpeter, "Everyone is an entrepreneur when he actually carries out new combinations". Finding new combinations of factors of production is a process of entrepreneurial discovery that will become the engine that drives economic development. These "new combinations" constitute better ways to meet existing demand or create new products, often making current technologies and products obsolete (in a "process of creative destruction"). The firm of the innovative entrepreneur will, consequently, grow through the dual process of taking market share from existing suppliers and increasing overall demand for the products offered in the market (by extending the boundaries of economic activity). Thus, the process of creative destruction is built on dynamic, deliberate entrepreneurial efforts to change market structures and can be propitious for additional innovations and profit opportunities. Based on the concept of creative destruction, Schumpeter formulated his theory of long waves of business cycles and economic growth. Business cycles are seen as the result of innovation, which consists of the generation of a new idea and its implementation in a new product, process or service, leading to the dynamic growth of the national economy, the increase of employment, and creation of pure profit for the innovative enterprise (Schumpeter 1911: 78; Schumpeter 1942: 83–84). On the basis of two new conceptual frameworks linking the actions of individuals to the realm of macroeconomics, a comprehensive approach to the promotion of entrepreneurship rests on two primary pillars: strengthening of entrepreneurial skills and improvement of entrepreneurial framework conditions. These two pillars should be considered as an interlinked set of policies for the following reason: on the one hand, entrepreneurs do not act in a vacuum, but whether and how they use their skills and motivations to transform business ideas into profit opportunities is shaped by existing framework conditions. On the other hand, entrepreneurial behaviour can always be traced back to individuals and their entrepreneurial attitudes, skills and motivations. Experience shows that when these attitudes and skills exist, adverse framework conditions cannot totally suppress them, and individuals will seek to find ways that allow them to capitalize on their ideas. However, whether entrepreneurship will be allocated predominantly to activities that add to the social product or to activities that are unproductive or even destructive depends greatly on the reward structure of the economy (Baumol 1990). Hence, policy makers face the question of how to create framework conditions conducive to entrepreneurial activities and how to ensure that entrepreneurial skills are allocated to activities adding to the social product. It is self-evident that almost any economic, institutional or cultural framework condition has some impact on entrepreneurship. It is, for instance, significantly easier to carry out entrepreneurial activities in a stable macroeconomic environment with low inflation, which allows entrepreneurs to clearly interpret signals about demand and prices and to develop consistent long-term business plans.
310 3. CONCLUSION S
Entrepreneurship is closely associated with knowledge and flexibility, two factors that have gained new significance as a source of competitiveness in an increase singly globalized world economy. The shift in industry structure towards less concentration and more decentralization that OECD countries experienced between the mid-1970s and the early 1990s is only one indicator of this development. With technological change and the intensified global competition brought about by globalization and economic liberalization, the assumption that fostering entrepreneurship means fostering a country's competitiveness today appears more valid than ever. Entrepreneurship is increasingly being recognised as an indispensable tool for consolidating the market based economic system adopted by transition economies. Despite this, little is known about the factors that influence the decision to become entrepreneurially active in these countries.
REFERENCES
Baumol, William J. (1990) “Entrepreneurship: Productive, unproductive and destructive”, Journal of Business Venturing 11: 3–22. Porter, Michael E. (1990) “The Competitive Advantage of Nations” New York: Free Press. Schumpeter, Joseph A (1911) “The Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest and the Business Cycle” 1934 translation Cambridge, MA: Harvard University Press. Schumpeter, Joseph A. (1942) “Capitalism, Socialism, and Democracy” 3 rd ed. New York: Harper and Bros. *** OECD (2002) “Organisation for Economic Co-operation and Development” *** OECD (2002) “Benchmarking: Fostering Firms Creation and Entrepreneurship” Directorate for Science, Technology and Industry, Paris. *** United Nations Conference on Trade and Development (2004) “Entrepreneurship and Economic Development: The Empretec Showcase”, Geneva, http://www.unctad.org/en/docs/webiteteb20043_en.pdf
311 ENTREPRENEURSHIP DEVELOPMENT – AN IMPORTANT PILLAR OF NATIONAL COMPETITIVENESS
Diana T ĂNASE Assistant. PhD Candidate Faculty of Economic and Administrative Sciences, Eftimie Murgu University of Resita Romania
ABSTRACT Most industries that are labor-intensive and science and technology intensive, are very easily imitated, and unable to maintain their competitive advantage for long. Enduring competitive advantage can only be created within an economic system that is founded upon a rich culture. But such a system requires innovativeness as its core skill in order to lend momentum and value to economic development This is why the cultural innovation industry has become an important indicator of national competitiveness all over the world .
KEY WORDS : development, entrepreneurship, business, competitiveness JEL : O1, L26 , L 21
1. INTRODUCTION
The global economy continues to weather the most difficult climate in generations. What began as a financial crisis in the United States and the United Kingdom quickly turned into the largest global recession in decades. In this context, policymakers are being confronted with new economic management challenges. All over the world governments have taken an active stance in addressing the crisis and the ensuing recession. Banks have been bailed out or nationalized on an unprecedented scale to buffer the immediate impact of the financial system’s collapse. These emergency measures have been complemented by large stimulus packages and countercyclical policies intended to support the economy and facilitate recovery. These developments have led observers to question the prevailing paradigm regarding the optimal level of state involvement in the economy. Today’s difficult economic environment underscores the importance of not losing sight of long-term competitiveness fundamentals amid short-term urgencies. Competitive economies are those that have in place factors driving the productivity enhancements on which their present and future prosperity is built. A competitiveness supporting economic environment can help national economies to weather business cycle downturns and ensure that the mechanisms enabling solid economic performance going into the future are in place public institutions, private institutions are also an important element in the process of wealth creation. The recent global financial crisis, along with numerous corporate scandals, has highlighted the relevance of accounting and reporting standards and transparency for preventing fraud and mismanagement, ensuring good governance, and maintaining investor and consumer confidence. An economy is well served by businesses that are run honestly, where managers abide by strong ethical practices in their dealings with the
312 government, other firms, and the public. Private-sector transparency is indispensable to business, and can be brought about through the use of standards as well as auditing and accounting practices that ensure access to information in a timely manner.
2. THE ROLE OF ENTREPRENEURSHIP FOR NATIONAL COMPETITIVENESS
„For the emerging knowledge-based economies and societies a new type of university is emerging and the start-off regards both - its management, which is to become ever more entrepreneurial, and its knowledge production and transmission functions, which should become more business oriented. Knowledge societies and knowledge-based economies need entrepreneurial culture in higher education and their societal organization to contribute towards prosperous socioeconomic development” (Green Paper (2003)). Entrepreneurship is no longer an abstract concept. There is increasing demand and interest in placing ‘Entrepreneurship’ (new business formation) as a key element within the development and revitalisation process of lagging European areas. Furthermore, the growing awareness over the last decades of the importance of new enterprises and small and medium sized enterprises (SME’s) within economic development has led many public administrations from all political ideologies and of all administrative levels to develop policy favouring and stimulating the creation of new enterprises. Entrepreneurial activity has also attracted the interest of many academic researchers who have demonstrated that increase levels of entrepreneurial activity can have positive repercussions on employment generation and on economic growth. Business sophistication is conducive to higher efficiency in the production of goods and services. This leads, in turn, to increased productivity, thus enhancing a nation’s competitiveness. Business sophistication concerns the quality of a country’s overall business networks as well as the quality of individual firms’ operations and strategies. It is particularly important for countries at an advanced stage of development, when the more basic sources of productivity improvements have been exhausted to a large extent. The quality of a country’s business networks and supporting industries, which we capture by using indicators of the quantity and quality of local suppliers and the extent of their interaction, is important for a variety of reasons. When companies and suppliers from a particular sector are interconnected in geographically proximate groups (“clusters”), efficiency is heightened, greater opportunities for innovation are created, and barriers to entry for new firms are reduced. Individual firms’ operations and strategies (branding, marketing, the presence of a value chain, and the production of unique and sophisticated products) all lead to sophisticated and modern business processes. Enterprise enriches life. Culture lends substance to society. Innovation not only creates business opportunities, but is also the very basis of business competition, the key to business operations. The fusion of the cultural industries and innovation, moreover, will assist with driving the creative and aesthetic economy, which brings added value to culture. That is why the cultural innovation industry is an important item in the national development plan.
313 To accompany the introduction of this policy, the National Youth Commission uses its limited resources to bring young people and creativity together; In 2005, to raise entrepreneurial interests and aspirations among young people, it held Cultural Innovation Industry Youth Enterprise Plan Competition activities and chose as their themes, “the music industry” and “product design,” both of which are youth-intensive. It will continue next years to hold these competitions, and will produce a comprehensive plan incorporating the initial enterprise education stage, the intermediate enterprise cultivation stage, and the follow-up advisory system in order to make the advancement of the youth cultural innovation industry as comprehensive as possible. The hope is to inject the ingenuity of innovation into our cultural assets, to breathe new life into culture, to enable the cultural industry to claim new entrepreneurial territory. Entrepreneurship is increasingly being recognised as an indispensable tool for consolidating the market based economic system adopted by transition economies. Despite this, little is known about the factors that influence the decision to become entrepreneurially active in these countries. Academic research has recently demonstrated that differences in entrepreneurship levels are in-part explained by the varied impact across territories of entrepreneurial role models. Because Romania passed from a formal institutional framework based on central planning to one oriented towards a market economy, it had a near absence of entrepreneurial role models when it abandoned central planning. These radical institutional changes happened almost two decades ago, and the question rising is how did this affect those younger individuals that have lived most of their lives under a market system? Moreover, does the role model effect that existed under the previous institutional framework automatically disappear? Or is there an ‘institutional memory’ when it comes to entrepreneurial role models which can help maintain the influence of entrepreneurial role models beyond the change in direction of a society’s institutional evolutionary path? The presence of individuals that have started their own businesses influence others within their social network towards a similar behaviour. A positive entrepreneurial example leads to an increase in the likelihood that other agents also become entrepreneurs. Once a critical mass is overcome, the local institutional framework evolves to include a new social cognitive perception that is more fertile for entrepreneurial activity. As a consequence, the acceptance of entrepreneurial activity within the region becomes socially embedded.
3. CONCLUSION
We discuss entrepreneurs and entrepreneurship not only in underdeveloped countries but also in the underdeveloped areas of developed countries. Entrepreneurs are one of the most important factors to drive economic development. However, entrepreneurs are born only in the social environment of entrepreneurship which has existed in a kind of industrial clusters. The cause of low employment and low income is not lack of resources but rather lack of the ability to utilize resources. All resources do not have any value without being utilized. How to coordinate existing capital, existing labor and existing technology is important. Advanced technologies are not transferred without the ability of coordination.
314 Technology interdepends on culture, life style, values, society, and economy in an area or in a country. They form a “social system”. The “social system” of transferor is incompatible with that of transferee, so there is a limitation which the latter cannot easily absorb the technologies transferred by transferor. As a first step, a “mechanism” for utilizing resources must be formed under the “social system” in an area. It is the “mechanism” that coordinates existing capital, existing labor and existing technology. The only way of economic development is to evolve the “mechanism” through education, training, technology transfers etc. Entrepreneurs search for business opportunities, and make a decision on the appropriate combination of capital, labor and technology, targeting for the market, which means to organize a “mechanism” of production. In addition, entrepreneurs always look for the opportunities and reorganize the more efficient “mechanism” under competition. As a result, their activities contribute to the innovation of the “mechanism” and to the evolution of the “social system”. Entrepreneurs search for business opportunities and transform them into businesses at their own risk. Though their attempts sometimes fail, the market economy cannot develop without entrepreneurs.
REFERENCES
Cojanu Valentin, Bîrsan Maria, Unguru Manuela (2007) „The Competitiveness of Romanian Economy: Necessary Policy Adjustments in the Light Of Lisbon Agenda” European Institute of Romania, Bucure ti; Gibson, D. (2004) “Role-Models in career development: New directions for theory and research”, Journal of Vocational Behavior 65. Katz, J. (1994) “Modeling entrepreneurial career progressions: Concepts and considerations. Entrepreneurship Theory and Practice” Porter M.E., (1990), “The Competitive Advantage of Nations” The Free Press; *** Global Entrepreneurship Monitor (GEM) (2006) “Annual report available” at www.gemconsortium.org *** Green Paper (2003) “Entrepreneurship in Europe” presented by the Commission of the European Communities Brussels, 21.01.2003 *** Romanian Institute of Statistics (2007) "Activitatea întreprinderii”, Romanian Statistical Yearbook. *** World Economic Forum (2009), “The Global Competitiveness Report 2009-2010”.
315 LEGISLATIVE INNITIATIVES, EVOLUTIONS AND CONTRASTS IN THE ROMANIAN INTERBELLIC ECONOMY
Vasile Mircea ZABERCA Professor PhD Faculty of Economic and Administrative Sciences, Eftimie Murgu University of Resita România
ABSTRACT The historian Fernand Braudel was of the opinion that geography dictates history due to the fact that it imposes on a certain region or states a particular characteristic of the economic life. Trade and commerce were often called in the mercantile period the blood flow of a nation. The vitality of this element during the interbellic era can be observed during the next pages.
KEY WORDS: economy, interbellic, Romania, growth, depression, capital JEL: N4, N44
Romania’s economic recovery after World War I was uneven. This fact becomes obvious if we take into account the following situation: in 1919 the production volume from the steel plants was only 19, 4% out of the volume produced in 1913 although there were abundant resources. In 1923 the furnaces of Re iŃa and Hunedoara produced 23000 t of raw pig iron although their yearly production capacity was 120-130000 de t. The insufficient development of the metallurgic industry meant that this branch could only feebly participate in the development of the native economy. In 1924 it covered 46% of the domestic consume. The mining industry experienced significant improvements regarding production. The level of 1, 5 million t of coal extracted in 1920 was raised to 2, 5 million t of coal in 1923 and to 3 million t in 1928. The oil production grew from 1, 8 million in 1924 to 3, 4 million t in 1928. There were also some notable progresses in the area of salt, copper, lead and other metals extraction and processing. The food industry experienced an increase in the numbers of firms: from 842 in 1924 to 1133 in 1928, while the clothing industry registered an increase from 377 enterprises in 1924 to 570 enterprises in 1928. In the same the industry became more and more automatic. The 73000 CP used at the beginning of the 1920s were increased to 96000 CPs at the start of the 1930s. Never the less, from the aspect of capital distribution, Romania remained a predominantly agrarian country. During the interbellic period the average annual budget of the industry was 39 billiard lei whereas the agriculture received a yearly average of 84 billiard lei. The Mining Law of June 4 th 1925 was fundamental for the organising of the extraction of the resources located underground. Using the articles of the Constitution from March 28 th -29 th 1923, this legislative act increased the states hegemony over the riches located in the Romanian underground. Also it imposed a strong control of the native capital in mixed companies. According to that law, there was the possibility to exploit the underground resources in firms based on mixed stocks. In this case the rule was that the native stock holders should own 60% of the invested capital and should make up two thirds of the administrative board of the said society. Government changes bring changes in education. A party ascending to government often modifies or replaces the legislation issued by the previous political body in power. The national- agrarian government issued on March 28 th 1929 the Law for modifying the
316 Mining Law of June 4 th 1924. This new law was faithful to the model of the national- agrarian open door policy and opposed to the national liberal policy concluded in the syntagm: through ourselves . Although both doctrines targeted the general progress and the development of the Romanian society, they were different in the means and methods of achieving these goals. These differences are visible in the legislative text under discussion. The Romanian state granted for extraction on the basis of a simple authorization parcels of land containing the resources that could be found in the X Class. These areas included lands rich in: minerals, mineral waters, salt rich lagoons, therapeutic clays. The repartition of the said real estates was carried out through public auction. The paragraphs of the law stated a classification and separation of the underground resources. The Romanian state was the owner of the natural deposits of metals, natural fuels and bitumine. The private contractors were the owners of construction material quarries, common rocks and of turf. A certain area of real estate may become a mining property only after it has been proven by prospects that certain resources are present. The claimed area could vary between 4 and 10 km 2 and the perimeter was drawn up according to geologic conditions, the technical capacity and the work program of the contractor. In order to be leased to a private enterprise it was mandatory that the whole perimeter of a real estate parcel be prospected. The leasing act and the establishment of the state reserve were done through the Department of Industries. The mining leasing was accomplished through the payment of a fix tax on the profit towards the state. The leasing period was set to 30 years. The state and the contractor had the possibility to form an association. The years of the world economic crisis brought with them a recession marked by the decrease of the buying power of the population but also by the reduction of the state orders for products. This fact triggered a drop in production in some economic branches such as: steels plants, coal extractions, processing plants, forestry, construction, the average drop rate being 57%. As a paradox we may notice that some braches such as the oil industry but also the production of consumer goods: sugar, vegetal oils and fats, wheat products, clothing registered a significant growth during the 1929-1933 years. The economic crisis determined the change of perspective in the government policies. In 1938 the industry was allotted a massive 72, 5% of the yearly budget. During the 1934-1938 periods the Romanian economy knew an ascending line due to the states strong involvement. This fact was in concordance with the neo- liberal doctrine of involving the government in economy and of creating a state of affairs favourable to the development of the native forces in the areas of banking, industries and export trade. The figures back up this statement: in 1934 there the extraction of iron related minerals had reached 84000 t whereas in 1938 it was at 134000 t, the coal production grew from 1,5 million t in 1934 to 2,5 million t in 1938, the oil production from 8,7 million t in 1934 to 13 million t in 1938. The foreign investments in finances and industries continued to represent an important part of the capital available to these economic branches. As a second global conflagration appeared to be imminent the main contenders began competing for the control over the Romanian economy. In April 1935 the Romanian government concluded a contract with the Skoda Plant in Czechoslovakia for the delivery of weapons to the Cugir and Re iŃa Plants. The legislation passed by the national- liberal government at the end of the interbellic period had had benefic effects on the national economy. Through the Law-Decree of May 10 th 1937 settled the regulation and control over cartels in respect to the founding of new factories. For such an endeavour one would have needed the favourable notice of the Department of Industries, fact that implied the control of the state over some industrial
317 branches such as weapons production. The beginning of the second global conflagration brought the military control in some firms and economic society connected to industries, banking and trade. This was the case of the following enterprises: Astra Român ă, Concordia, Columbia, and Societatea Româno - American ă. The geographic and demographic conditions given by the habitat of the population concentrated the larger number of inhabitants in the rural areas. This led to the situation where most of the population was employed in agriculture. The destructive effects of the First World War were annulled up to 1922, further on the agricultural production being marked by an ascending trend. The laws for the agrarian reform in Banat, Cri ana, Maramure , Transilvania, Basarabia and Bucovina had a benefic effect on the production. This measure was completed by the Law for Setting up the Agricultural Committee of March 1920 and by the one for establishing the common grazing lands of August 1920. In 1928 the cultivated areas were larger by 20% than they had been six years earlier. The cereal production had grown from 7, 3 million t in 1924 to 9, 6 million t in 1928. The world economic crisis brought the agricultural prises to a crumbling downfall. While in 1929 a tone of cereal was paid with 7000 lei, in 1933 it valued only 1600 lei. This worth was extremely unfavourable to the Romanian economy since one tone of imported industrial products was paid for in 1933 with 28000 lei. The agricultural production, appreciated in 1929 at 88 billiard lei, war only worth in 1933 a mere 30 billiard lei. Despite the years of economic recovery, 1934-1938 the level of mechanization in Romania’s agriculture remained minute. Thus, in 1937, there were only one plough at 5, 9 ha land and one sewing machine at 185 ha, whereas the tractors available could be measured only 1 at 3000 ha of land. The small property, ranging from one to 3 ha, was predominant, making up 48, 5% of the whole agricultural real estate. Despite the agricultural reform of 1921 the economic global crisis took a heavy tall on the farmers, 1 million peasants being deprived of land. The interbellic legislation tried to help the agricultural workers establishing state pensions for those who worked up to 70 years of age. In this sense we may view the Law for Regulating the Property Laws, issued on August 20 th 1929 by the national-agrarian politician Ion Mihalache. The text of the document stated a series of measures meant to complete the land reforms of 1921, of course in a national-agrarian fashion. Thus, the land parcels received in 1921 could be exchanged or sold; measures to felicitate this were being enacted. As well as some lines of credit with very low rates of interest in order to avoid the taking over of the land owned by poor peasants through rich peasants or money lenders. The investments in agriculture were kept at a relatively low level and were initiated mostly by the national-agrarian governments in the years 1928-1931. As the Second World War drew ever nearer, the leading class began measures in order to help agriculture. The end was to create a significant stock of food that could make up the states strategic reserve in cases of armed conflict. These reserves grew exponentially with the beginning of the royal dictatorship and were successively supplemented over the years 1938, 1939, and 1940. Starting from a political program that granted the hegemony in Romanian society to the people in the rural areas, the national-agrarian government tried over the course of their successive terms in office to combat the effects of black marker, of money lending, of the so called Balcanic interest rates that had catastrophically effects on the small and medium sized owners especially during the years of economic crisis. On of the Parliaments measures referred to the organization of the Agriculture Chambers. The measure was adopted by the National Representatives Assembly on July 1 st 1930. The central idea of the norming act was to protect the cereal production and to make
318 benefit both the state and the private owners. In the real plain of action we have to admit that these institutions were created in order to satisfy the grievances of the local national- agrarian supporters. The Agricultural Committees, the County Agriculture Centres, the Regional Agriculture Centres and the Union of Agriculture Chambers became genuine fostering institutions for the political supporters of the party governing at one moment or another. Whether it was the national-liberal or the national-agrarian party, they often exacted a disloyal pressure on the public life at local, county and regional levels. The legislative act, though well intended did not succeed to lead to an increase in the production of the small and medium sized funds, which were deeply affected by the crisis and by high taxes. The funds wee just insufficient for renting on large scale agricultural machines or for selecting performant seeds as well as for eliminating gradually the ploughing animals. The measures of apparent aid for the agricultural workers continued. The Iorga- Argetoianu government, initiated on December 18 th 1931, the first Law for Suspending the Debt Executions. In theory, the measure supposed to protect the small farmers from the abuses of the creditors and to provide them with time and favourable conditions to pay their debts. In practice, the measure was largely devoiced of efficiency. The government was forced to adopt complementary measures. One of them referred to the first Law for the Conversion of the Agricultural Debts issued in April 1932. The measure was supposed to, at least in theory, to offer solutions for the debts and to establish viable conditions for their payment. The state reimbursed some banks, the particular debts being enclosed in the state budget. The agricultural owners were temporarily exempted from debts payment and became debtors of the state for the next 30 years. These measures, although laborious in theory, were put in to practice only at a reduced level. The legislative measures of the Iorga-Argetoianu government were deemed as wanting by the next team in office belonging to the national-agrarians. This was one of the reasons for seeking effective means in order to alleviate the material and social plight of the agricultural producers affected by the crisis. In October 1932 the first solid element of these plans appeared: the second Law for the Conversion of the Agricultural Debts. The central element of this legislative act consisted in the suspension of the measures stated in April of that year until the clearing of the differences between debtors and creditors on the principles of social justice. Through such a measure, the national-agrarian government hoped to broaden its social basis and to win more supporters from the population. The gain of an increased number of supporters was designed as the creation of a broad mass of manoeuvre that was to help the accession to the government and was to ensure the permanence in power. The aim was also to regain some of the popularity los tin the heavy years of governing under the economic crisis and the profound social convulsions the practical applicability of this norming measure left much to be desired. Therefore this particular law was completed in April 1933 with a law for Regulating the Agricultural and Urban Debts. This last law proposed the conversion of the agricultural debts with 75% of their rough value. It was undoubtedly an act of social justice initiated in the favour of the small land owners, giving lots of political support to the political base of the national- agrarians. Even after the conclusion of the economic overproduction crisis and the global recovery in the aspect of goods production and demand of services the situation in agriculture remained dire. In 1934 the livelihood of the small and medium farms was far from better. One could not imagine an overproduction let alone an export. Dealing with problems arisen from the payment of the bank credits, from the acquisition of performant
319 machines, necessary for an agriculture based on capitalist principles and a strong competition abroad, the land owners petitioned the government in order to present a series of grievances. The Law for the Cancelling of Agricultural debts from April 7 th 1934 dealt precisely with such problems related to agricultural credits. The reduction of debts toward the state or private institutions, varied according to the economic level from 50% to 70%. The rest of the borrowed sum had to be reimbursed in 15 years with an annual interest of 3%. The measure brought a temporary improvement of the material state for a part of the farmers but failed to completely remedy the catastrophically effect of the economic crisis on the rural population. Our country suffered from the lack of an adequate road system. The often government changes, which in turn affected the structure of the various departments did not help improve this situation. For instance, the Autonomous House of the State Roads from the Department of Public Works and Communication was replaced in 1932 by the General road Authority. Between 1936 and 1938, 425 km of asphalt roads were built for the next two years another 1800 km being planed. This fact indicates a rather weak development of infrastructure compared with other European countries of that age, for example Sweden. In order to extent correctly our scope on other means of transportation we must state that the civil car park of the population was mot expanded either, comprising in 1938: 20000 automobiles, 7700 lorries, 2300 busses. The railway network was better off, in 1939 11410 km of track being repaired in the workshops of Re iŃa and of Bucharest. During the national-liberal government a series of railways had been built, qualified as secondary from an economic point of view, yet of primary importance from a strategic point of view. One can name two such segments: Ilva Mic ă - Vatra Dornei and Re iŃa - Caransebe . The internal and international commerce, en gros and en detail followed a sinuous movement due to the dependency on financial and banking global networks. The period of economic ascension from 1924 to 1928 followed the years of economic crisis 1929-1933 which in turn were followed by years of growth in the transaction of goods and service, namely 1934-1939. An example supports this last information, during the years 1930-1936 the number of commerce establishment in Romania raised and fell with and average index of 43, 5%. The First World War affected negatively the balance of commerce exchange in our country. Thus, in 1919 the figures reached only 2, 5% of the export and 37, 7% of the import experienced in the year 1914. The balance of imports and exports inclined clearly towards the first with 68, 8% compared to 31, and 2%. By means of a series of banking measures, meant to completely cover the Romanian currency with precious metal in all international transaction it was possible to diminish the commercial deficit from 583 million lei in 1919 to 156 million lei in 1921. During the years of the economic overproduction crisis the level of imported values dropped drastically from 29, 7 billiard lei to 11, 7 billiard lei, whereas the exports shrunk from 18 billiard lei to 14 billiard lei. The years of the financial ascension, 1934-1938, were marked by a great diversity of exported goods. In this sense we may observe the decrease in the traditional export goods: oil, cereals, lumber, building materials from 97, 5% to 79%. In the field of public finances we may notice that in the year 1922-1923 the first unified budget for Romania was drawn up. The public debt grew as a result of the first global conflict from 1400 billiard lei in 1914 to 20000 billiard lei in 1921. This state of affairs can be explained by the fact that the first sum represented only the debts of the
320 Romanian Kingdom, in its 1914 form, while the second sum represented the debts of Greater Romania, a state entity that came into existence after the unification acts of 1918. As a result of the currency reform implemented by the Secretary of the Treasury, Nicolae Titulescu, some units in the national coinage system were downsized, the number of billiards in the public expenses going down as well. The currency reform proved to be healthy for the Romanian economy taking into account that there were several foreign coinage systems circulating in our country as a result of the global conflict. The Occupation Lei minted by the Banca Româno- Germană, the Tsarist Rubble, the Austro- Hungarian Crown, as well as some treasury bonds and Lei of the Old Kingdom were redrawn from circulation and replaced by the new issues of the Romanian Leu. In spite of this measure the record was reached in the years of the economic crisis, on January 1 st 1933 Romania’s public debt reaching 127 billiard lei. Generally, the foreign loans contracted during the national-agrarian governments brought with them steep interests of 8, 9%. The proffered currency was US Dollars next to French or Swiss Francs. On the whole the interbellic years knew significant fluctuations, the Romanian state being often in debt to the internal and external capital circles. In the time frame following immediately after the First World War that the number of the anonymous banking societies grew from 487 in 1919 to 556 in 1921. The owned capital expanded from 10 billiard lei in 1922 to 24 billiard lei in 1924. At country level the best representation favoured the following institutions: Banca Na Ńional ă Român ă, with 25 subsidiary banks and 52 industrial enterprises; Banca de Credit Român, which owned most stocks in 46 other credit institutions; Banca Marmorosch Blank with 9 affiliated banks and 58 industrial enterprises. Next to these we must mention: Banca Româneasc ă and Banca Comercial ă Român ă. The years 1924-1928 were marked by an increase in the number of banks from 683 to 1922. For the organisation of the financing and crediting activity the Superior Banking Council was formed in 1934. The global interbellic economy functioned on the basis of evaluating the currencies against the gold scale. Any currency had to be covered, at least partially by precious metal deposits. We may easily draw the conclusion related to the negative results determined by the overproduction crisis. More and more currencies from the world market lack the coverage of precious metal. This valuable or had proven insufficient when compared to the quantity of banknotes and coins released on the internal and external markets. In the inflationary conditions, different states issued more and more series of banknotes and coins to replace the ones that rapidly lost their value, only to grasp with awe that even the most recent coinage issues lost their value just as rapidly. Romania’s situation must be interconnected with the one of the global economy. Similar to other states the Romanian one attempted measures of economic relief. In this sense we mention the Law for the Currency Stability from February 7 th 1929. This law reglemented the issue privilege of banknotes and coins to the Banca Na Ńional ă a României. The law stipulated clearly that only 25% of all deposits had to be covered in gold. Divisionary coins of 1, 2, 5, 10, 20 lei were issued, their total worth not exceeding 3 billiard lei. In February 1929 the national-agrarian government passed the Law for Modifying the BNR Statute, a measure attempting to be an act of social politics meant to increase the populations’ confidence in the main credit institution of the country. By this law the social capital of the BNR expanded from 100 to 600 million lei, the state appointed one third of the directors’ board and the Chambers of Commerce and Industry 10% of the board members. This brought the numbers of the states employees on the directors’ board to 43%.
321 In the years of the economic overproduction crisis the Romanian government often used foreign loans. The main partner when it came to financial engineering was the American, French, Belgian, Dutch, German, Austria, Czechoslovakian capital. The loans were usually taken on 40 years with a fixed interest rate of 7, 5 %. In these extreme conditions the government used the BNR reserves to pay the salaries and pensions of the state employees. Due to the budget downsizing measures these sums proved insufficient, fact which was negatively felt at the level of purchase ability of the population. The national-liberal government introduced a change in the economic policy of the country. A series of protectionist measures were launched in order to boost exports but also to decrease imports considered without primary importance. In this framework we may consider the Law Regarding the Setting up of machine Factories and the Importing of Non- manufactured Goods for the Industry of July 31 st 1937. This law gave a series of advantages to native firms. It stated that Romanian firms can receive an 18 or 36 months state monopoly for a certain product. In this period no other foreign firm may import a similar product. Thus new industrial branches were created such as the steel tube industry, the radio lamp industry, the industry of electric cables, the colorant industry, and the industry for navigational aero-nautical instruments. In 1936 the government passed a law regarding the mandatory usage of native raw materials for the creation of goods. For instance, for the clothing industry one could import wool only if one exported native wool 5 times the amount of the quantity imported. The customs policy of the government was to reduce taxes for certain industrial products and to ban the tax exemption for the import of machines of any sort as well as for other goods. In this way new industrial braches were created even if of modest sizes.
CONCLUSIONS Taking a global survey of the interbellic period, we may conclude that after the completion of the national united state, Romania entered a new phase of its historic development In spite of somewhat contradictory evolutions, determined by the international context, the economic, social, political and cultural life has experienced an ascending trend, fact favoured by the intensive usage of all the resources from above and bellow the ground, including the human potential.
REFFERENCES
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322 Montan , Re iŃa, Editura Banatica, 1997. Gräf, Rudolf, D omeniul b ănăŃ ean al STeG: 1855-1920: minele i uzinele aferente , Cluj- Napoca, Editura Universit ăŃ ii Babe -Bolyai, 1997. Greffner, Otto, Popula Ńia văbeasc ă (german ă) din Banat. Cine sunt, când au venit i de unde? Arad, s.n., 1994. Herrschaft, Hans, Das Banat. Ein Deutsches Siedlungsgebiet in Südosteuropa , Berlin, Grenze und Ausland, 1942. Hockl, Hans Nikolaus, Auf den Wege zur Nation. Beiträge zur politischen Geschichte der Banater Schwaben , Temeschburg, in Kommission W. Vuortesch, 1934. Hromadka, Georg, Kleine Chronik des Banater Berglands, München, Verlag des Südostdeutschen Kulturwerks, 1993. Iancu, Gheorghe, Problema minorit ăŃ ilor etnice din România în documente ale Societ ăŃ ii Na Ńiunilor 1923-1932 , Cluj-Napoca, Editura Argonaut, 2002. Munteanu, Ioan. Popula Ńia Banatului istoric la începutul secolului al XX-lea. Structuri sociale i profesionale (Population of the historical Banat at the beginnig of the 20 th century. Social and professional structures). PB, 2005, 4, pp. 233-265. Mure an, M., Mure an D., Istoria economiei , edi Ńia a doua, Bucure ti, Editura Economic ă, 2003. Nedelea, Marin , Prim-Mini trii României Mari: ideile politice , Bucure ti , Garell Press, 1991. Petri, Peter Anton, Biographisches Lexikon des Banater Deutschtums , Marquartstein, Th. Breit Druck+Verlag GmbH, 1992. Predescu, Lucian , Enciclopedia României : Cugetarea: material românesc: oameni i înf ăptuiri , Bucure ti , Editura Saeculum Vestala , 1999. Riegel, W. M., Das Schicksal der Deutschen in Rumänien. Eine Dokumentation. Band IV, Augsburg, Weltbild Verlag, 1994. Rieß, Josef, Deutsches Volkswerden im Banat. Reden und Aufsätze Dr. Kaspar Muths, Timi oara, Graphisches Unternehmen Ideal, 1935. Saon, Stelian , Agricultura României în al doilea deceniu interbelic , Bra ov , Editura Universit ăŃ ii "Transilvania" , 1999. Sbârn ă, Gheorghe , Partidele politice din România: 1918-1940 : programe i orient ări doctrinare , Bucure ti , Editura Sylvi , 2001. Schöffler, J., Teil II: Deutsche Arbeit und ihr Erfolg. Mit Karten und Tabellen versehen, Hermannstadt, Ostdeutsche Drukerei und Verlags AG, 1925. Scurtu, Ioan , Civiliza Ńia româneasc ă interbelic ă: 1918-1940, Bucure ti , Editura Funda Ńiei "România de Mâine" , 2008. Senz, I. V., Die Kathollischen Donauschwaben in der Doppeltmonarchie 1867-1918. Im Zeichen des Liberalismus , Stuttgart, Verlag Buch und Kunst Kepplerhaus, 1977. Stelu , erban, Elite, partide i spectru politic în România interbelic ă, Bucure ti , Editura Paideia , 2006. andru, Dumitru, Reforma agrar ă din 1921 în România , Bucure ti , Editura Academiei R. S. R., 1975. Zaberca, Vasile Mircea , Momente din istoria economiei na Ńionale române ti , Re iŃa, Editura "Eftimie Murgu" , 1996. ***, Das Banat als kulturelles Interferenzgebiet: Traditionen und Perspektiven; Hrsg. Horst Förster und Horst von Fassel, Tübingen, Institut für Donauschwäbische Geschichte und Landeskunde Verlag, 1997. ***, Enciclopedia României, vol. III: Economia na Ńional ă, Bucure ti, Editura Carte i Produc Ńie, 1940, f.a. ***, Kulturdialog und akzeptierte Vielfalt? Rumänien und rumänische Sprachgebiete nach 1918 , Hrsg. Horst Förster und Horst von Fassel, Stuttgart, Thorbecke Verl., 1999.
323 QUANTITATIVE ANALYSIS OF THE INNOVATIVE PERFORMANCE INDICATORS CASE STUDY: MINING AND METALLURGY INSTITUTE BOR (SERBIA)
Dragana Živkovi ć University of Belgrade, Technical Faculty, Department of Management Nada Štrbac University of Belgrade, Technical Faculty, Department of Management Ana Kostov Mining and Metallurgy Institute Živan Živkovi ć University of Belgrade, Technical Faculty, Department of Management Ivan Mihajlovi ć University of Belgrade, Technical Faculty, Department of Management Dragan Manasijevi ć University of Belgrade, Technical Faculty, Department of Management Irena Ili ć University of Belgrade, Technical Faculty, Department of Management Serbia
ABSTRACT Innovative activity depends on the characteristics of organization and different indicators influences achieving good results in the firm business. Since the purpose of innovation is improvement of a firm, it is very important to examine innovative activity in the company. The results of quantitative analysis of the innovative performance indicators in the example of the Mining and Metallurgy Institute Bor (Serbia) are presented in this paper. The input in innovation process was examined through expenditure and income of R&D, number of researches, number of researches compared to the total number of employees in the company, the number of high educated experts; then the output of innovation process was examined through the number of inventions, technical solutions, licenses, projects, published studies; and finally, the output of innovation process was examined – through the valorisation of what have been found, exploited, in other words - new technological procedures, processes, means and methods which had an effect in new technology, product or service.
KEY WORDS : innovation, innovation activity, innovative performance indicators JEL: L20, L60
1. INNOVATION AND INNOVATION ACTIVITY – GENERAL FACTS
Earlier surveys of innovation relied on expert opinions and/or extensive surveys of technical and trade literature to identify major innovations [1]. More information was provided on the technical characteristics of each innovation and their antecedents but less information on the innovating firms and the sources of innovation than the current generation of innovation surveys. On the other hand, their economic and technical impact over time could be assessed more objectively and with more precision [1-3]. It is now accepted that the development and diffusion of new technologies are central to the growth of output and productivity. After collecting internationally comparable data on R&D activities since the early sixties, OECD in collaboration with
324 EUROSTAT launched in the early 90s a concerted effort to collect information on the whole innovation process [4], and was able to give a more general definition of an innovation as the the implementation of a new or significantly improved product (good or service), or process, a new marketing method, or a new organisational method in business practices, workplace organisation or external relations . The innovative ideas, within the firm, come from management, R&D staff, and frequently from sales, marketing and production personnel, but management of the firm is often the main source, especially in smaller firms without a separate R&D division [1-3]. In addition to mentioned internal resources, most innovating firms also use extensively ideas and suggestions from various external sources. Market partners - clients, suppliers, competitors, related firms and consultants are often at the origin of an innovation idea [1]. To reduce the risk involved in innovation, to access complementary expertise and share the costs and risks, innovating firms increasingly collaborate with other firms as well, sometimes even with their competitors, with universities and public research institutions [1,5]. Precious information is also obtained from services and institutions of ‘technology infrastructure’ [1-3] such as publications, trade fairs and conferences, patent and regulatory information to name only the most important sources. Sources of innovation vary according the type of innovation [1,6], the technological or scientific field and the novelty of innovation. The sources of innovation are not distributed randomly, and are, to a certain degree, predictable and determined by the nature of innovation (product, process, combination of product and process) and the functional group (manufacturers, users, suppliers and others) most likely to benefit most from the innovation [7,8]. One among the most important components in the innovation activity of the firm is the research and development sector (R&D) [6]. Product-related R&D activity expands existing or creates new markets and process-related R&D activity reduces production cost [1]. Even though some innovations are introduced by firms not involved in R&D, innovation surveys demonstrate that it is the most important, but far from the only, input in the innovation process [1,9]. Innovations often require R&D expenditures on the acquisition of technological knowledge (patents and trademarks, licenses, consulting services, and disclosure of know-how), on development (engineering, design, prototype and/or pilot plant construction and testing), on manufacturing start-up (engineering, tooling, plant arrangement, construction, and acquisition of equipment), and on marketing start-up activities [1]. Finally, it has to be stated that the marketing effort required to bring innovations to consumers is about as important as the R&D components.
2. RELATIONSHIP BETWEEN INVENTIVE, TECHNOLOGICAL AND INNOVATIVE PERFORMANCE
Concepts such as invention, technology and innovation and the related performance of companies have to be clearly defined in order to improve comprehension of some technical issues related to the measurement of innovation [10]. Therefore, a brief outline of each of these concepts is given. Inventive performance can be defined as the achievements of companies in terms of ideas, sketches, models of new devices, products, processes and systems [11,12].
325 Inventive performance is frequently measured in the context of patents where both raw counts of patents and patent citations are taken as the actual measures. Technological performance can be defined as the accomplishment of companies with regard to the combination of their R&D input, as an indicator of their research capabilities, and their R&D output in terms of patents [10]. Considering innovative performance , it can be differentiated in the narrow and in the broad sense [10]. Innovative performance in the narrow sense refers to results for companies in terms of the degree to which they actually introduce inventions into the market, i.e. their rate of introduction of new products, new process systems or new devices [10,12]. In that case new product announcements can be applied as an indicator of innovative performance. A broader understanding of innovative performance encompasses the three previous measures of performance as it indicates the achievement in the trajectory from conception of an idea up to the introduction of an invention into the market [10,11]. This broad innovative performance therefore overarches the measurement of all stages from R&D to patenting and new product introduction. In other words, this definition of innovative performance in the broad sense focuses on both the technical aspects of innovation and the introduction of new products into the market, but it excludes the possible economic success of innovations as such [3, 10-12].
3. MEASURING INNOVATIVE PERFORMANCE OF A FIRM
Measurement of innovative performance of a firm is important for understanding of the innovation mechanisms and their impacts on the organization. Generally accepted indicators of innovative performance presents a common set of input, process, performance, output and outcome indicators [10,13]. Input indicators are mainly taken as measure resources that are put into the innovation process – intellectual, human and technological capital. Process indicators reflect the organisational and innovation process management systems. Performance indicators identify the results of organizational innovation. Output indicators represent the realised, shorter term success of innovative activity (patent numbers and rates, patent quotes, number of new products, percentage of sales with innovations and others) [13]. Outcome indicators represent the realised, longer term success of innovative activity, for example, medium to long term – firm profit margins or market share, firm growth rate, dominant designs or technological standards shaped by firm innovations, second and later stage innovations derived from an originating innovation, degree of disruptiveness [13].
3.1. Innovative peroformace indicators (IPI)
Quantification of the effect of innovation for technological changes caused by the results of scientific work, is difficult because of disagreement about the basic principles of classification of innovation inputs and outputs, as well as the lack of appropriate data bases that are necessary for the analysis of global levels. Quantitative indicators, relevant to the innovation process, are [6]: - quantification of direct inputs - inputs in the innovation process, such as costs or funds allocated for research and development, the number of researchers in the absolute number or the number of employees in the firm or the national economy, the number of employees highly skilled workers;
326 - quantification of indirect output - output, innovation process, the number of innovations that are patented, the number of inventions that are registered in accordance with the norms of protection of copyright and intellectual property rights; and - quantification of direct output – output of the process innovation that valorized what was found, protected, patented, and changed, and new technological procedures, processes, tools and methods that are effected in the new technology, product or service. Among different indicators to be used for analyzing technological performance, inventive performance, and innovative performance in the narrow sense, R&D inputs, patent counts, patent citations, and new product announcements are usually applied [10]. These indicators can be used individually or combined in a multi-dimensional setting to measure innovative performance in the broader sense. - R&D inputs: The literature usually takes R&D expenditures primarily as an input indicator of the efforts that companies make in establishing R&D that might eventually lead to output [10]. - Patents: As most of the other indicators, the patent measure, in particular takes into account the use of raw patent counts [10]. International and sector differences in patenting behaviour, differences in patenting between large companies and smaller firms, the identical weight given to some very important patents as well as to run-of-the- mill patents, the fact that patents only cover a part of the overall trajectory from R&D to innovation, all of these ‘shortcomings’ feature in the literature that discusses the use of patents. However, it appears that, certainly in large parts of the economics literature, raw patent counts are generally accepted as one of the most appropriate indicators that enable researchers to compare the inventive or innovative performance of companies in terms of new technologies, new processes and new products [10]. - Patent citations: Increasingly researchers are using patent citations as an indicator of inventive performance of companies. Compared to raw counts of patents, which generate a purely quantitative measure, patent citations also include a measure of the quality of patents. The basic assumption in using this indicator is that there is a positive relationship between the importance of a patent and the degree to which a patent is cited in later patents [10].
4. QUANTITATIVE ANALYSIS OF THE IPI IN THE EXAMPLE OF THE MINING AND METALLURGY INSTITUTE BOR (SERBIA)
Institute of Mining and Metallurgy (Bor, Serbia) was founded in 1963 as a social enterprise, working from the start in the field of research and experimental development in the technical - technological sciences - research in mining and metallurgy, and the realization of the sector in business and entrepreneurial sectors. Institute of Mining and Metallurgy covers a wide range of expert, current and useful activities: a) research and development work; b) the design, engineering, consulting; c) experimental and special production; d) control of the quality and quantity of goods, the environment, and control of the production process; e) testing of materials, equipment, devices, and industrial plants; and f) other services. The research presented in this paper gathered data on innovation activities of the Institute of Mining and Metallurgy in the period 2002 - 2006 year. In order to make a quantitative analysis of the innovative performance indicators of investigated institution, innovative activities including product innovation, process
327 innovation, innovation in the organization of enterprise and innovation in marketing were taken into account. During the period mentioned, the company introduced new or significantly improved products and services, improved methods of production and procurement and delivery of physical products and services, new or significantly improved knowledge management techniques to improve or exchange information, knowledge and skills within companies, significant changes organization of work, developed in cooperation with other enterprises and institutions, universities and other higher education institutions, and state research institutes. Following activities has been performed: • the occasional internal research and development activities of external R&D services; • procurement of machinery, equipment and software; • purchase of other forms of knowledge; • education and training of employees; • the innovation to market. Expenditure on internal research and development activities was about 40%, and expenditures for the procurement of equipment, machines and software was about 60%. Aggravating factors for innovation activities that are rated as important were: the cost of financing innovation, availability of financing, lack of financial support from public funds as well as the uncertain demand for innovative goods or services. Quantitative inovative performance indicators (IPI) used to describe the innovation activities and innovation potential of investigated institution – the Mining and Metallurgy Institute (MMI) in Bor in the period 2002-2006, were following: • Educational structure of the employees with university degree • Number of R&D projects and studies/survies/published papers according to the type of research • The number of survies according to the type of research • The number of published studies and R&D projects • The number of registered inventions, technical solutions and licenses • Valorization of technical solutions and new technical procedures, and • Investment in research, training, equipment and instruments. Since the highly educated employees are one of the main sources of ideas for new products and in this sense the main drivers of innovation activities, the starting point in this research is the innovation potential of enterprises that can be seen through the structure of highly educated employees in the company. The results on educational structure of the employees with university degree involved firstly determination of the number of employees with university degree (DSc, MSc, Bsc, specialists) given in Figure 1.
328 2006
2005 BSc specialists 2004
year MSc 2003 DSc
2002
0 50 100 150 number of employees
Figure 1 - Number of employees with university degree: DSc, MSc, Bsc, specialists (MMI, period 2002-2006)
The number of researchers / total number of workers is given in Figure 2, number of researchers by age and gender (Table 1) were determined.
2006
2005 number of researchers 2004
year total number of employees 2003
2002
0 100 200 300 400 500 number of employees
Figure 2 - Number of researchers / total number of workers (MMI, period 2002-2006)
In the reporting period the relationship between the total number of employees did not significantly changed: in the year 2002 researchers made 6% of the total number of workers, in 2003 and 2004 - only 5%, in 2005 there was 4% of researchers employed in relation to the total number of workers, while in 2006 6% of researchers were among the total number of employees, which can be seen in the following image. Number of researchers by rank was also taken as an adequate descriptive parameter. At the end of 2006 the total number of researchers with scientific and research degree who are employed full time at the Institute was 36 - scientific advisors: 2, senior research associates: 5, research associates (DSc): 2, research associates (MSc): 14 and research trainees: 13. Total number of researchers with an university degree and professional degrees who are employed full time at the Institute was 42 - professional associate: 20, senior experts: 18 and professional advisors: 4.
329 Table 1 Number of researchers by the age structure (MMI, period 2002-2006)
Scientific and research Professional degrees Age degrees total women total women up to 29 / / / / 30 - 34 1 1 6 5 35 – 39 3 2 15 8 40 – 44 2 1 12 7 45 – 49 2 / 8 5 50 – 54 1 / 11 6 55 – 59 2 / 9 2 60 and older 1 / 2 / Sum: 12 4 63 33
Since R&D is defined as "systematic creative work in order to increase the amount of knowledge, including knowledge of man, culture and society, as well as the use of the knowledge base for the development of new processes“, its importance from the point of view of innovative behaviour is clear. Therefore, the activities including the notion of research and development through fundamental, applied and development projects, studies and survies, done at Mining and Metallurgy Institute in Bor in period 2002-2006, are very important and are present in Table 2 and 3.
Table 2 Number of R&D projects and studies according to the type of research (MMI, period 2002-2006)
Development Fundamental Applied projects and Year Projects and Projects and Total studies Studies Studies
2002 2 38 27 67 2003 2 4 2 8 2004 / 1 / 1 2005 1 2 / 3 2006 2 / 7 9
7 45 36 88 Sum
330 Table 3 The number of survies according to the type of research (MMI, period 2002-2006)
Year Fundamental Applied Development Total
2002 / 33 25 58 2003 / 2 / 2 2004 / / / / 2005 / / / / 2006 / / / /
/ 35 25 60 Sum
One of the steps in the research process is the presentation of the results achieved during R&D activities, where there are two main possibilities: communications at the scientific meetings or publications in scientific journals. Table 4 shows the number of published papers in own publications, other publications in the Republic of Serbia and international publications in the period 2002 - 2006. Table 4 The number of published papers (MMI, period 2002-2006)
Papers published in: other Year own national International Total publications serbian journals publications 2002 39 44 6 89 2003 2 11 8 21 2004 28 4 3 32 2005 3 11 10 24 2006 30 40 20 100 Sum 102 110 47 266
The Mining and Metallurgy Institute registrated 18 technical solutions – 3 in the period 2002-2003 and 15 in the period 2004-2006, had 29 employees possessing the license to a responsible designer and did a lot of work in the valorization of technical solutions and new technical procedures, and investment in research, training, equipment and instruments. It has to be mentioned that Mining and Metallurgy Institute passed through a racionalization phase recently, but nevertheless some main problems concerning
331 innovative performance indicators are still present. In example, the number of researchers (specialists, MSc, DSc) compared to the total number of employees (BSc) is very small and even decreases from 2002 to 2006. More, age structure shows that the most represented are middle-aged and older researchers, while number of young researchers is negligible. The number of research projects, studies and survies is also decreasing with time, but number of published papers and technical solutions started to increase in last two investigated years, which is a good hint. Such obtained innovative performance indicators indicate to possible problems in innovation activities strengthening after 2003, which also may be the reason for reduced research activities during the period investigated.
5. CONCLUSIONS
The results of quantitative analysis of the innovative performance indicators in the example of the Mining and Metallurgy Institute Bor (Serbia) are presented in this paper. The analysis inlcuded educational structure of the employees with university degree, number of R&D projects and studies/survies/published papers according to the type of research, number of survies according to the type of research, number of published studies and R&D projects, number of registered inventions, technical solutions and licenses, valorization of technical solutions and new technical procedures, and investment in research, training, equipment and instruments.
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