Tag Archives: economy

Why is the premise that the conflict in Macedonia was initiated to prevent the construction of the Turkish Stream wrong?

This premise is completely wrong, and I see the propaganda is trying to place, and impose it as relevant, so it can serve as an excuse to transfer the guilt to somebody else for the conflict that is taking place in our country. While working at the Center for Resource Economy at the Russian Presidential Academy, my colleagues and I did the calculations for the economic profitability of the Turkish Stream project.

The Turkish Stream is a very unprofitable project. The NPV (Net Present Value) of the project is measured in negative of billion dollars, and by no economic logic should such a project take place. The only thing that keeps this project alive is the potential political gain, since Gazprom is not managed as a corporation, but it rather serves as a political tool of Russia.

Turkey does not want to participate with the percent that Gazprom requires for it from it, i.e. Turkey does not want to pay as much money as Gazprom requires, whereas in the case of Greece, even if the country wanted to take part, at the moment they do not have the money. The West knows this, and they are aware that the prospects for a failure of this project are quite high. An additional burden to the project implementation is the fact that Gazprom diversified its export towards China. Europe, as well, wants to become less dependent on the Russian gas, and each year they buy less Russian gas.

Due to this, Russia has no real need to construct new infrastructure for gas transmission towards Europe. Even the existing capacities of the North/Nord Stream Gas Pipeline are not fully utilised. The EU regulation of gas transportation is another difficult issue that the EU and Russia need to resolve, and a compromise is not likely in the near future. All efforts are directed to the Power of Siberia project, through which China will be purchasing gas from Russia. This project, for the most part is financed by China, so the country can buy cheaper gas from Russia in the future. With this project Russia enters the market of the biggest gas consumer in the world, which reduces its need to sell gas to Europe.

Additional reason that reduces Russia’s interest to invest in a foreign project, especially projects which are economically unprofitable, is the decline of the Russian Ruble. The conclusion is that the story of the Turkish Stream is very uncertain, and it is only a matter of time when will this be officially announced.

 

Nikola Kjurchiski

Center for Resource Economy
Russian Presidential Academy for National Economy and Public Administration

 

References:

  1. Stern, Jonathan, Simon Pirani, and Katja Yafimava, Does the Cancellation of South Stream Signal a Fundamental Reorientation of Russian Gas Export Policy?, Oxford Institute for Energy Studies (2015).
  2. Russia’s New Turkish Stream Gas Strategy More Bark Than Bite. The Moscow Times (2015)
  3. EU energy chief voices concern over Russia’s Turkish pipeline plan. Reuters (2015)
Работнички права

Regular assembly: Labour rights in a neoliberal and post-socialist Macedonia

Along with the explicit, even if only declarative, commitment to transition to a democratic society, all governments since the independence have been unconditional promoters of market economy and neoliberalism. This, inter alia, significantly redefined labour rights. Between the socialist legacy, the poorly implemented privatisations, the labour unions’ partisanship, the neoliberal legal reforms, and the populist rhetoric, the Macedonian worker has been put in a specifically precarious position. It is for this reason that this assembly brings four analyses of the state of labour rights in the Republic of Macedonia:

 

photo: Radio Free Europe

Labour rights from the point of view of a fetishist

Part of the virtual assembly “Labour rights in a neoliberal and post-socialist Macedonia” Author: Branimir Jovanovic

For a minute, I’ll pretend to be a narrow-minded macroeconomist, who cares only for GDP. A GDP fetishist, as Joseph Stiglitz would put it. Why should I care for labour rights then?

Labour rights affect the bargaining process between employees and employers. Lower rights raise the bargaining power of the employers. This means that bigger share of the new income will end up in their hands. How will this affect GDP afterwards depends on the multiplier effect, which itself depends on the marginal propensity to spend, i.e. on the share of the new income that is spent. If marginal propensity to spend is higher, so will be GDP growth. Economists usually think that the propensity to spend decreases as income grows (simply put, there are fewer things to spend the money on). Employers usually have higher income than workers. Therefore, lower labour rights may hamper GDP growth, because they make more money end up in the hands of the employers (capital owners), who tend to spend less and save more.

This refers to the short run only. There may be other, longer-term effects, too. For instance, through income inequality. Since lower labour rights redistribute income from workers to capital owners, and since the latter tend to be richer, lower labour rights increase income inequality. Higher inequality is believed to reduce growth in the medium to long run.

What does the Macedonian evidence say about this? Since 2005, there is a downward trend in labour rights in Macedonia. According to the Economic Freedom of the World report, the labour market regulation index in Macedonia rose from 5.9 in 2005 (same as Austria) to 7.6 in 2012 (same as Singapore). This is a significant worsening in the regulation, i.e. labour rights. In accord with the redistribution argument, during this period there is a notable increase in the income of the rich and only minor increase in the income of the others – real income of the top 1% income earners rose nearly threefold between 2005 and 2010, while income of the remaining 99% increased only 11%. In accordance with the argument about the low marginal propensity to spend of the rich, this period is marked with increased savings, but also with an increase in the “passive money”, i.e. money which end up in central bank bills instead of in credits. The stock of central bank bills in 2005 was around 3% of GDP (9 billion denars), while in 2012 it reached 6% of GDP (26 billion denars). Income inequality rose during this period, too – the top 1% income share was around 5% in 2005, to reach 12% in 2010. Finally, all these developments are associated with a slowdown in the GDP growth – real GDP per capita grew by 4.4% per annum during 2003-2007 (when the labour regulations index was 6.1 on average) and only 1.7% per annum during 2008-2013 (when the labour regulations index was 7.8 on average). Findings remain unchanged even when growth is observed in relation to the world GDP, or 2009 is excluded (because of the crisis), or 2007 is included in the second sub-period. Needless to say, these are just stylised facts, based on simple correlations, but in my opinion, they are indicative enough.

But, if I leave the role of a GDP fetishist and return to my true self, the answer to the above question would be much simpler – labour rights are important because they prevent serfdom.

 

* The views expressed here are those of the author and do not have to represent the views of the institutions with which he is affiliated.