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Central/Eastern Europe: Global Economy Offers Opportunities For Job Growth

  • Breffni O'Rourke

Prague, 12 November 1997 (RFE/RL) -- One of the greatest challenges facing governments as the globalisation of the economy takes hold is how to ensure their people gain a share in the worldwide competition for jobs.

East Europe, with its low wage structure and skilled or relatively skilled populations, is in a good position to take advantage of the new economic order -- but only if governments follow the right policies.

Peter Cornelius, a senior analayst on globalisation at Deutsche Bank Research in Frankfurt, says the transition economies have the natural advantage of geographical closeness to the European Union market of over 300 million people, with high buying-power. They also have in varying degrees labour pools with wage costs sometimes one-tenth those of their Western neighbours. Further, they have good educational levels, better in some cases than those in the West today.

So at first sight the East has good prospects for competing not only with West Europe, which has grown complacent after decades of success, but also with developing markets in Asia and Latin America. Cornelius says however, that investors will be looking beyond those factors to a combination of political and economic elements: namely work discipline, individual productivity, political stability, and a favourable tax structure and investment climate.

He says Britain provides a good example of what can be done in this direction in a relatively short time. In the 1970's and 1980's Britain was characterised by falling incomes, the closure of old industries, and pessimism as to the future. There were frequent references to the inevitable "de-industrialisation" of the country. However, successive British governments undertook sweeping and often painful reforms, including liberalising the tax regime, increasing productivity and making the labour market more flexible. Today Britain, although still behind other leading European Union member states in standard of living, is growing more rapidly than the other EU economies.

Cornelius says the Eastern countries must stay on their reform course to produce a similar "circle of virtue." He notes good progress in countries like Estonia, the other two Baltic states, the Czech Republic, Hungary and Poland, but less in other countries like Ukraine. He predicts a growing gap between those countries which have persued reform effectively, and those which have been slow to abandon the inefficiencies of central planning. He notes that those in the latter category are still experiencing declines in output.

Returning to Britain, a good example of how to cope in the new era is provided by the North East Region, centred on the city of Newcastle upon Tyne. After the Second World War, the region saw increasing unemployment and recession as old industries closed, and population began to drift away.

However 11 years ago an agency called the Northern Development Company was formed to take a vigorous role in atttracting new investment to the area. Since its foundation, The NDC has attracted more than 500 projects worth almost $15 billion. Some 75,000 jobs have been preserved or created. Among companies which have opened factories in the area are Samsung of South Korea, Fujitsu of Japan and Siemens of Germany.

NDC director David Bowles says the hunt for foreign investment will continue, and he acknowledges that his area is facing increasing competition from other sites. One new investor is pondering whether to build a plant near Newcastle, or instead to establish itself in Hungary.

The head of the local Chamber of Commerce, Llew Aviss, says the big advantage of North East Britain remains its highly skilled and trainable workforce. He acknowledges wages may be lower elsewhere, but he says it is the contribution of people to their companies which counts most.

Analyst Cornelius says that economic globalisation will bring considerable challenges, but these must be faced by governments, companies and individuals alike. He says having an open world market presents many opportunities for those willing to grasp them.