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2013

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Albanian economy and MDG progress

Introduction

1. Global Recession

2. Albanian economy

Short presentation of Albanian economic system

Regional crisis impact on Albanian economy

Future perspectives

3. MDG progress in Albania

4. Marxist theory and Albanian economic development

Marxist theory

Periphery-center politics

Classes and class conflict

“Robin Hood” redistribution

Conclusions

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Introduction

The scope of this presentation is to analyze Albanian economic system, global

economic recession and its impact on Albanian economy. Albania managed to both avoid

recession and maintain financial stability in the wake of the global economic crisis. Until

recently, Albania coped with the unfavorable external economic environment quite well. The

economy avoided a sharp fall in output, inflation stayed low and stable, and the banking

system remained sound. Albania's main external links are through exports, banks, and

remittances, mainly with its two next door neighbors—Italy and Greece.

Despite the problems in Europe, spillovers to Albania through these channels have been

limited so far. There are several reasons for this. First, Albania’s exports are a small part of

the economy. And, since the onset of the crisis, the country has been able to reorient and

redirect some of its exports towards new products and markets. Second, although most banks

in the country are foreign owned, they depend largely on domestic deposits. This is partly the

result of sound regulatory policies adopted by the central bank prior to the global crisis,

which helped contain systemic risks. As a result, the Albanian banking system has not

experienced the kind of withdrawal of funding we have seen in some other countries in the

region. Third, even though remittances from Albanians living abroad—mainly those in

Greece and Italy—have been on a declining trend, the effect has been partly offset by

returning migrants bringing back their savings to Albania. Not least, the authorities’ timely

and sound policies in response to the crisis have also played a role. A fiscal stimulus at the

onset of the crisis, and more recently, the central bank’s gradual easing of monetary policy,

proved useful. In addition, policies to ensure that banks had adequate capital and liquidity

were instrumental in maintaining financial sector stability.

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1. Global Recession

“We now live in a nation where, doctors destroy health, lawyers destroy justice,

universities destroy knowledge, governments destroy freedom, the press destroys information,

religion destroy morlas, and our banks destroy the economy”1

In world history we mention permanent crisis in all ages of human development, from

antiquity to the present, but the impact of global crisis differes. In recent years, the term

“crisis” is used frequently: economic crisis, banking crisis, financial crisis, political crisis,

cultural crisis, structural crisis, food crisis, drug crisis, educational crisis, oil crisis, gas crisis,

government crisis, parliamentary crisis, etc. and all this terms with direct impact in our lifes.

Global recession is defined slightly differently than national recession. A nation would be

considered in a recession when GDP declines for two consecutive periods. A global recession

has to take into account developing nations as well as developed nations, therefore requiring

a benchmark for growth comparison which is set at around 3%. In early 2009, the IMF and

the World Bank predicted the global GDP growth rate to decrease to approximately 0.5%,

meaning they expect a global recession to persist through 2009.2 This is a global recession

definition, taken from the investopedia dictionary, but to understand better this terms, first of

all we need to find out origins of the crisis. The periodic crises resulting from the capitalist

business cycle now unfolds at the global level. The current crisis of the world economy is

an outcome of the consolidation of economic power that the globalization of capital has

secured for the transnational corporations. This has led to a string of problems associated

with the financial, banking, real estate, and productive sectors of the economy that have

triggered the current economic crisis. The central problem of our present capitalist economic

system is the recurrent business cycle which is now operating at the global level. It manifests

itself in a number of ways, including:

The problem of overproduction/underconsumption

Increasing unemployment and underemployment

Decline in real wages and rise in super-profits

The sub-prime mortgage and credit card debt

1 Chris Hedges2 http://www.investopedia.com/terms/g/global-recession.asp

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Speculative corporate financial activities

Increased polarization of wealth and income

The way how everything start, on my opinion, gives the possibility to look critic on

the way how things works, if we agree or not to this economical system, if political

intervention did the best to stop it, or at least if peoples reaction was good enough as the

only one who was “infected” directly from world crisis. I am a little bit sceptic on the way

how all it starts, also at our reaction, everything started from the Bank’s, we gave them

the opporunity to controll us, and this is what they did, they are controlling us. My

opinion is full of pessimism so i would like to stop it here and to face with the next

challenges.

Figure1. Global Recession 3

Recession Recovery Expansion At risk

Ireland USA Russia Canada

United Kingdom Brazil Norway Venezuela

Portugal Austria China Argentina

Spain South Korea Australia South Africa

France New Zeeland Colombia Germany

3 http://www.economy.com/dismal/map/

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Netherland Ecuador Switzerland

Italy Peru Denmark

Greece Poland Belgium

Czech Republic Turkey Slovakia

Hungary Indonesia Sweden

Slovenia Malaysia India

2. Albanian economy

Between 1990 and 1992 Albania ended 46 years of xenophobic Communist rule and

established a multiparty democracy. The transition has proven challenging as successive

governments have tried to deal with high unemployment, widespread corruption, a

dilapidated physical infrastructure, powerful organized crime networks, and combative

political opponents.

Short presentation of Albanian economic system

The  Albanian economy in the 1990s experienced a rapid recovery from its near-collapse

in 1992. The rapid economic growth between 1993 and 1996 was exceptional by East

European standards, and represented the highest rate of sustained economic growth of all

transition economies. This investigation indicates that the standard explanations for recovery

and growth in transition economies, such as the pace of economic reform or the levels of

domestic and foreign investment, do not adequately explain the rapid growth of the Albanian

economy. Factors specific to Albania also need to be considered. The main conclusion drawn

here is that the success of the Albanian economy in the mid-1990s rested largely upon the

inflow of remittances from Albanians working abroad. These remittances are shown to have

been much greater in value than was previously assumed by the IMF: in the region of $700

million per annum rather than $400 million. Remittances are also found to have played a

much greater role in Albania's economic recovery than was previously recognised. It is

demonstrated that the rise of pyramid investment schemes in 1996 was closely linked to the

inflow of remittances. Such schemes are also found to have played a part in fuelling the rapid

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economic growth in the Albanian economy, before their collapse in 1997.4 Emigrants

remittances are an important source of income for Albanian households and a source of

employment for many Albanians.

Regional crisis impact on Albanian economy

The global financial crisis, which originated in the advanced economies,

has hit the rest of the world strongly, with some developing countries

being particularly affected. However, the impact on economic activity has

varied widely across countries.

The global financial crisis. The Albanian economy was not as

adversely affected by the 2008–2009 global financial and economic crisis

as were other economies in Europe, including in the south-east. Even

though the crisis was primarily external in nature, it did test the efficacy of

the country’s macro-economic equilibrium, structural reforms, financial

and banking systems and resiliency of the private sector. Withdrawal of

deposits was the first sign of financial crisis contagion, beginning in late

2008 and extending into early 2009. The Law on Deposit Insurance was

quickly revised by the authorities to increase the insured amount of

deposits, and this proved to be an important measure in restoring

confidence in the financial system. Another major result of the crisis was a

drop in GDP growth to an estimated two to three per cent in 2009 from

the high level of about six per cent experienced between 2002 and 2008.

Recent data show a return to positive territory in early 2010 though with

less strong growth. The relatively positive performance over the past

couple of years is seen as a function of the rapid crisis response of

government in terms of providing some fiscal stimulus combined with

prudent approaches to monetary policy.

4 ***Korovilas, James P., Post-Communist economies: The Albanian economy in transition: the role of Remittances and Pyramid Investment Schemes, 2010, p. 239

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Future perspectives

Before i start to analyze the Albanian tax system, i will show how taxes can be

categorized. Taxes can also be categorized as either regressive, proportional, or progressive,

and the distinction has to do with the behavior of the tax as the taxable base (such as a

household's income or a business' profit) changes:5

A regressive tax is a tax where lower-income entities pay a higher fraction of their income

in taxes than do higher-income entities. (Regressive taxes can also be thought of as taxes

where the marginal tax rate is less than the average tax rate. This will be discussed in more

detail later.)

A proportional tax (sometimes called a flat tax) is a tax where everyone, regardless of

income, pays the same fraction of income in taxes. (Proportional taxes can also be thought

of as taxes where marginal and average tax rates are the same.)

A progressive tax is a tax where lower-income entities pay a lower fraction of their income

in taxes than do higher-income entities. (Progressive taxes can also be thought of as taxes

where the marginal tax rate is higher than the average tax rate).

Most societies have progressive income-tax systems, since it is (rightly or not) viewed as

fair for higher-income entities to contribute a higher fraction of their income in taxes, since

they are spending a much lower fraction of their incomes on basic necessities. Progressive

income-tax systems also partially balance out other tax systems that are likely to be

regressive in nature.

If we see Albanian history, it was concquered from Otoman Imperial for a period of 500

years (till 1912), after that there were consecquences from Balkan Wars (1913), First Wold

War, Second World War and than 45 years under Comunist Regime. It shows shortly that

those who loose in this case are the people, after 1991 in Albania it was implemented flat tax,

which, as i show, is a tax where everyone, regardless of income, pays the same fraction of

income in taxes. Albania does not have the luxury where 95% of peoples who win less

money, to pay the same with that 5% of those who already control everything. Albanian

economy is now in most critical stage of crisis. Growth economic model without

employment, even negative economic growth recently has caused more poverty and a greater

5 http://www.ecol.ro/content/the-economic-jerry-built-of-optimal-taxation-progressive-vs-flat-tax

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number of unemployed people. Entrepreneurship in Albania has become excruciating.

Clientelism has taken all paths of competition. Corruption has wedged state. Albanian capital

is concentrated in the hands of only 5% of people, while the system of taxation is the image

of injustice: who wins more pays less, who wins less pays more. Finding a job is almost

impossible. So as a future perspective the only way that Albania and albanians, recover their

economy, is a fair taxation. Taxation wich is proposed from the Socialist Party, wich on the

23d of June’s ellection, have the opportunity to take the power to governance. They propose

a progressive tax, to give power to majority (95 %), but this doesen’t mean that this model is

against rich peoples, no, it is for all the citizens, is a possibility to stop clientelism, to stop

monopollies. I will give here an example: teacher’s in Albania has a medium income per

month 300 US$, with the existant system of tax they need to pay 10% or 30$, a Member of

Parliament takes 1500 US$ and pays 150$. But is it the same? The teacher left with 270$ to

take care of his/her family, while a Member of Parliament has 1350$.

The problem on this case, is that there will be a lot of difficulties to implement a

progressive tax, on my opinion, peoples will see the results after 2 years. From one side is the

Democratic Party wich is trying to convince peoples that it is wrong to change it, and the

Socialist Party wich says that it is necesarlly and fundamenally to do this thing.

3. MDG progress in Albania

United Nations (UN) Global Summits and Conferences on global social, economic and

environmental issues facing both developing and developed countries were synthesized in the

Millennium Summit of September 2000, where 147 heads of state and of government and

191 nations, including Albania, adopted the Millennium Declaration. On July 2003, the

Albanian Parliament passed a resolution in support of the Millennium Declaration “…

encouraging all stakeholders to track progress in achieving the [Millennium Development

Goals] MDGs on a regular basis through national monitoring and evaluation systems and the

preparation of annual progress reports that encourage public debate and offer

recommendations on ways to improve national… development policies.”6

Progress:

6 http://planipolis.iiep.unesco.org/upload/Albania/Albania_MDG_2010.pdf

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Since 2002, Albania’s strong economic growth has been a major contributing

factor to its positive tracking toward the achievement of a number of MDG targets

in such areas as combating extreme poverty and gender inequalities, improving

some aspects of health and expanding access to safe drinking water and sanitation.

On the positive side, the proportion of the population in absolute poverty declined

from over 25% in 2002 to 12.4% by 2008. Maternal mortality rate in 2008, at 10

per 100,000 was down by half from the 2001 level and is well on track to meeting

the 2015 target. Considerable progress has been made in eliminating gender

disparities (especially in education) and there is a moderate chance that the 2015

targets will be met.

In some of the infrastructure areas, a greater proportion of the population (82.1%)

had access to drinking water by 2009, though the 2015 target of 98% will not likely

be reached. With a strong probability of continued domestic and external financing

on sanitation, it is likely that the 2015 target of 90% of the population having

access can be reached.

One of the most successful areas has been Albania’s investment in information and

communication technology (ICT) as both an indicator of better governance (in

terms of, for example, reduced corruption, and increased transparency of, and

improved access to, some government services) and in building strong partneships.

partnerships.

Challenges remain in a number of other target areas. For example, whereas there

has been a minor decline in unemployment since 2002 to a current level of 13.1%,

it is unlikely that the targeted 9% level will be reached by 2015.

Enrolment in basic education has also fallen, and considerable disparities remain

between rural and urban areas, among regions and for disadvantaged groups such

as the Roma. Of some concern is the under-five-year child mortality rate, which

remains high with the 2015 target unlikely to be met, despite the fact that there has

been a steady reduction in both child and infant mortality.

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Achieving governance improvement targets will be difficult without a major

government effort and investment in capacity development, administrative reform

and anticorruption measures.

4. Marxist theory and Albanian economic development

The political and economic philosophy of Karl Marx and Friedrich Engels in

which the concept of class struggle plays a central role in understanding society's

allegedly inevitable development from bourgeois oppression under capitalism to a

socialist and ultimately classless society.7

Marxist theory

Marx can be thought of as having offered two sets of ideas, the first of which we can

accept if we wish to, without accepting the second.8

 

1. Marx gave us a theory of society, i.e , an explanation of how society works, of

how and why history has unfolded, and especially an account of the nature of

capitalism. These are of great value for the task of describing what is going on in

the world and for understanding the problems and directions of our society today.

 

2. But Marx also regarded capitalism as extremely unsatisfactory and he was very

concerned with getting rid of it, via violent revolution and the establishment of a

communist society. Marxism is therefore also about political goals and action.

 

Obviously very few people in western society today accept this second set of ideas;

most seem to think capitalism is desirable, most do not want to see it destroyed and most do

not like the idea of revolution or communism.

The following notes are intended to show the value of the first of these sets of ideas. One can

accept Marx's concepts as being very useful for the purpose of understanding our society

without accepting his condemnation of capitalism, his political values or his

recommendations for political action. In other words, if you do not agree with Marxist social

7 http://www.thefreedictionary.com/Marxist+Theory8 http://socialsciences.arts.unsw.edu.au/tsw/Marx.html

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ideals and implications for action, don't let this interfere with your evaluation of Marxist

theory about how our society works.

Periphery-center politics

The centre-periphery model is a spatial metaphor which describes and attempts to

explain the structural relationship between the advanced or metropolitan 'centre' and a less

developed 'periphery', either within a particular country, or (more commonly) as applied to

the relationship between capitalist and developing societies. In sociology, however, centre-

periphery models are most likely to be encountered in studies of economic underdevelopment

and dependency and tend to draw on theInternational Journal of Economic Development

Research and Investment, Marxist tradition of analysis.

Different regions are endowed with production factors and characteristics that offer

different opportunities for specialization, which can be transform to a regional comparative

advantage. Many outlying regions (peripheral regions) suffer from a high rate of

unemployment, low level of per capita income and net out migration. Outlying areas attract

less investment in comparison to central regions. This is because of the low marginal

productivity of factors of production in the outlying areas. In order to alleviate these

hardships, inflicted on outlying regions, central governments often devise incentive and

investment programs whose main objective is to reduce the gap between regions in the

country and thus reduce regional inequalities.9

Albania as a country, or a political system, has always been influenced by external

countries, wich makes its political or economical system “peripherical”. Mostly this thing

happends with non-developed countries, and a new way of valuing incommes, by including

progressive tax, will help it to recover and to continue the road to European family.

Classes and class conflict

The social relations of production involve different classes. The basic determinant of

one's class is one's relationship to the means of production. For example in late capitalist

society the two basic classes remaining are the owners of the means of production, capitalists,

and those who own only their labour, the workers or proletariat. 

9 http://ideas.repec.org/p/wiw/wiwrsa/ersa11p1192.html

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So in any historical period dominant and subservient classes can be identified.

Inequality in wealth and power was of fundamental moral concern to Marx. Some groups

come to dominate others and to win for themselves a disproportionate share of the society’s

wealth, power and privileges. The ultimate goal Marxists aim at is a classless society, i.e., a

society in which all enjoy more or less equal wealth and power. Marx said history is basically

about the struggle between classes for dominance. "The history of all hitherto existing society

is the history of class struggles".10

  Marxists stress that social analysis should focus on class structure and relations. In

other words the most important questions to ask about a society are to do with what groups in

society dominate or gain most benefit from the status quo, or whose interests does the

situation or policy or proposal serve most?

 In capitalist society the capitalist class benefits most; those who own and control the means

of production receive a disproportionate share of wealth, power, privileges and status. There

are other classes but as time goes on these are squeezed into either the small capitalist class or

the large working class. Note that there is an important distinction between big business,

which includes the transnational corporations and banks, and small business. Many small

firms and family farms and shops are usually struggling, only providing their owners will low

incomes. These people are not investing capital in order to make profits from enterprises in

which they have no other stake, so they are not really part of the capitalist class. They are

more like peasants who own and work on their own farms. It is also important to note that

most people own some wealth, such as their house, but this is not capital. Most capital,

factories, money, is owned by very few people, perhaps as few as 2% of the world’s people.

“Robin Hood” redistribution

The Robin Hood plan, was a media nickname given to legislation enacted by the U.S.

state of Texas in 1993 to provide court-mandated equitable school financing for all school

districts in the state. Similar to the legend of Robin Hood, who "robbed from the rich and

gave to the poor", the law "recaptured" property tax revenue from property-wealthy school

districts and distributed those in property-poor districts, in an effort to equalize the financing

of all districts throughout Texas.11 Poverty reduction is arguably the single most relevant

10 http://www.icidr.org11 http://en.wikipedia.org/wiki/Robin_Hood_plan

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measure of welfare state redistribution and, unsurprisingly, it has become the favoured

approach in empirical research. Theoretically, it provides a good test of the Rawlsean

maximin principle of justice, namely that any redistribution should be to the greatest benefit

of the worst off. It also speaks most directly to vertical, Robin Hood-redistribution. For two

reasons, research has especially centered on child poverty. One is that poverty in childhood is

known to have seriously adverse consequences for later outcomes such as schooling, health

and social integration.

I can say that the progressive tax, implemented on Socialist Party political program,

as a future tax, instead of flat tax, is same (esencially) with the Robin Hood destrebution of

power (money), by helping those who win less to recover their economies.

Conclusions

What other challenges does Albania need to tackle? What matters over the medium

term is how rapidly Albania can embark on a high and sustained economic growth path.

Attracting investment from domestic and international sources is critical. In addition to the

measures discussed above, the authorities need to address the constraints that hinder private

sector investment in Albania today. These are uncertain property rights, weak enforcement of

the rule of law, and inadequate physical infrastructure. Although with similar socialist legacy,

the peculiarities of Albania and its low level of incomes set it apart from other ex-communist

countries in Eastern Europe. Considering the initial conditions, the path to a new market

economy along with a new democratic society will be painful and not short. Besides the

macroeconomic imbalances, several political, social and mentality constraints determine

endogenously the speed and the strategy of the reform. The economic changes in Albania

began after the political breakthrough and are strongly effected by it. The delayed entering

and rapid changes are accompanied with social uncertainty. Yet, the initial political instability

and the lack of democratic tradition set their own marks on the Albanian transition and make

it more difficult. The economic changes that began in 1991 were the first serious step towards

a market economy. Interrupted by political events the process began in mid 1992 with a

coherent and comprehensive program. The stabilization elements were the main issues in the

short and medium term program. Although based on the well-known packages, stabilization

measures in Albania are more painful than in other Eastern European countries. As a country

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who suffered in all its history, Albania deserves a new government who thinks for the 95 %

of people and not a kind of Plutocracy government, where the reachest create the monopolity

and have the power.

Bibliography

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1. ***Korovilas, James P., Post-Communist economies: The Albanian economy in transition:

the role of Remittances and Pyramid Investment Schemes, 2010, p. 239

Web:

http://www.investopedia.com/terms/g/global-recession.asp

http://www.economy.com/dismal/map/

http://www.ecol.ro/content/the-economic-jerry-built-of-optimal-taxation-progressive-

vs-flat-tax

http://planipolis.iiep.unesco.org/upload/Albania/Albania_MDG_2010.pdf

http://www.thefreedictionary.com/Marxist+Theory

http://socialsciences.arts.unsw.edu.au/tsw/Marx.html

http://ideas.repec.org/p/wiw/wiwrsa/ersa11p1192.html

http://www.icidr.org

http://en.wikipedia.org/wiki/Robin_Hood_plan