Book of Proceedings Esd Bangkok 2016 Online

Varazdin Development and Entrepreneurship Agency
in cooperation with
University North
Editors:
Marin Milkovic, Goran Kozina, Dinko Primorac
Economic and Social Development

12th International Scientific Conference on Economic and Social Development
Book of Proceedings
Bangkok, 18-20 February 2016
Varazdin Development and Entrepreneurship Agency

in cooperation with
Editors:
Marin Milkovic, Goran Kozina, Dinko Primorac
Economic and Social Development

Book of Proceedings
Bangkok, 18-20 February 2016
Title Economic and Social Development (Book of Proceedings), 12th International Scientific Conference on Economic and
Social Development
Editors Marin Milkovic, Goran Kozina, Dinko Primorac
Scientific Committee Marijan Cingula, University of Zagreb, Croatia (President); Ayuba A. Aminu, University of
Maiduguri, Maiduguri, Nigeria; Gouri Sankar Bandyopadhyay, The University of Burdwan, Rajbati Bardhaman, India;
Haimanti Banerji, Indian Institute of Technology, Kharagpur, India; Alla Bobyleva, The Lomonosov Moscow State University,
Russia; Leonid K. Bobrov, State University of Economics and Management, Novosibirsk, Russia; Rado Bohinc, University of
Ljubljana, Slovenia; Adnan Celik, Selcuk University - Konya, Turkey; Angelo Maia Cister, Federal University of Rio de
Janeiro, Brasil; Mirela Cristea, University of Craiova, Romania; Sreten Cuzovic, University of Nis, Serbia; Oguz Demir,
Istanbul Commerce University, Turkey; T.S. Devaraja, University of Mysore, India; Alba Dumi, Vlora University, Vlore,
Albania; Ksenija Dumicic, University of Zagreb, Croatia; Galina Pavlovna Gagarinskaya, Samara State University, Russia;
Fran Galetic, Zagreb University, Croatia; Mirjana Gligoric, Faculty of Economics, Belgrade University, Serbia; Mehmet Emre
Gorgulu, Afyon Kocatepe University, Turkey; Anica Hunjet, University North, Koprivnica, Croatia; Oxana Ivanova,
Ulyanovsk State University, Ulyanovsk, Russia; Irena Jankovic, Faculty of Economics, Belgrade University, Serbia; Lara
Jelenc, University of Rijeka, Croatia; Myrl Jones, Radford University, USA; Ana Jovancai, Univerzitet Don Nezbit, Belgrade,
Serbia; Gorazd Justinek, Graduate School of Government and European Studies, Slovenia; Hacer Simay Karaalp, Pamukkale
University,Turkey; Dafna Kariv, The College of Management Academic Studies, Rishon Le Zion, Israel; Salih Katircioglu,
Eastern Mediterranean University, Northern Cyprus, Turkey; Hilal Yildirir Keser, Uludag University, Bursa, Turkey; Sophia
Khalimova, Institute of Economics and Industrial Engineering of Siberian Branch of Russian Academy of Science,
Novosibirsk, Russia; Marina Klacmer Calopa, University of Zagreb, Croatia; Vladimir Kovsca, University of Zagreb, Croatia;
Goran Kozina, University North, Koprivnica, Croatia; Lejla Lazovic Pita, School of Economics and Business, University of
Sarajevo, Bosnia and Herzegovina; Robert Lewis, Les Roches Gruyre University of Applied Sciences, Bulle, Switzerland;
Ladislav Lukas, Univ. of West Bohemia, Faculty of Economics, Czech Republic; Pascal Marty, University of La Rochelle,
France; Vaidotas Matutis, Vilnius University, Lithuania; Marjana Merkac Skok, Faculty for Commercial and Business
Sciences, Celje, Slovenia; Marin Milkovic, Rector, University North, Koprivnica, Croatia; Gratiela Georgiana Noja, West
University of Timisoara, Romania; Zsuzsanna Novak, Corvinus University of Budapest, Hungary; Mislav Ante Omazic,
University of Zagreb, Croatia; Vera Palea, Universita degli Studi di Torino, Italy; Dusko Pavlovic, President DIU Libertas
International University, Zagreb, Croatia; Dinko Primorac, University North, Koprivnica, Croatia; Zeljka Primorac, University
of Split, Croatia; Miroslaw Przygoda, University of Warsaw, Poland; Kerry Redican, Virginia Tech, Blacksburg, USA;
Katarzyna Szymanska, The State Higher School of Vocational Education in Ciechanow, Poland; Ilaria Tutore, University of
Naples Parthenope, Italy; Ilko Vrankic, University of Zagreb, Croatia; Rebeka Danijela Vlahov, University of Zagreb; Thomas
Will, Agnes Scott College, USA; Li Yongqiang, Victoria University, Australia; Peter Zabielskis, University of Macau, China;
Tao Zeng, Wilfrid Laurier University, Waterloo, Canada; Snezana Zivkovic, University of Nis, Serbia.
Review Committee Marina Klacmer Calopa (President); Ana Aleksic; Ayuba Aminu; Josip Arneric; Lidija Bagaric;
Tomislav Bakovic; Sanja Blazevic; Leonid Bobrov; Ruzica Brecic; Anita Ceh Casni; Mirela Cristea; Stjepan Dvorski; Robert
Fabac; Davor Filipovic; Ivica Filipovic; Fran Galetic; Mirjana Gligoric; Tomislav Globan; Anita Goltnik Urnaut; Tomislav
Herceg; Irena Jankovic; Dafna Kariv; Oliver Kesar; Hilal Yildirir Keser; Tatjana Kovac; Vladimir Kovsca; Marjana Merkac
Skok; Josip Mikulic; Ljubica Milanovic Glavan; Guenter Mueller; Ivana Nacinovic Braje; Zsuzsanna Novak; Alka Obadic;
Claudia Ogrean; Igor Pihir; Najla Podrug; Vojko Potocan; Sanda Renko; Souhaila Said; Armando Javier Sanchez Diaz;
Tomislav Sekur; Lorena Skuflic; Mirko Smoljic; Petar Soric; Mario Spremic; Ana Jovancai Stakic; Matjaz Stor; Lejla Tijanic;
Daniel Tomic; Boris Tusek; Rebeka Daniela Vlahov; Ilko Vrankic; Thomas Will; Zoran Wittine; Tao Zeng; Snezana Zivkovic;
Berislav Zmuk.
Organizing Committee Domagoj Cingula (President); Kristina Detelj; Marina Klacmer Calopa; Fran Galetic, Erlino
Koscak; Miroslaw Przygoda.
Publishing Editor Domagoj Cingula
Publisher Design Print Varazdin Development and Entrepreneurship Agency, Varazdin, Croatia
University North, Koprivnica, Croatia
Copies Online Edition
ISSN 1849-7535
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All rights reserved. Authors are responsible for the linguistic and technical accuracy of their contributions.
CONTENTS
Mohammad Hasane Jabbari NATIONAL COHESION IN ECONOMIC DEVELOPMENT
OF JAPAN AND IRAN IN RECENT CENTURIES ................................................................ 1
Melita Kozina, Anja Agnezovic SSESSMENT OF THE MATURITY LEVEL OF IT
FUNCTION IN A CROATIAN INSTITUTION ..................................................................... 16
Ovgu Cidar Iyikal, Aysem Celebi INVESTIGATING A QUALITY OF SERVICES IN
THE PUBLIC SECTOR: EVIDENCE FROM NORTHERN CYPRUS ................................. 25
Petar Kurecic, Goran Kozina NEOLIBERALISATION AT THE LOCAL SCALE:
CONTENT ANALYSIS OF THE TEXTS ABOUT NEOLIBERALISATION OF THE
LOCAL COMMUNITIES PUBLISHED IN ANTIPODE JOURNAL, 2010-2013................ 39
Daniel Tomic AN ALTERNATIVE APPROACH TO THE TRADE DYNAMICS IN
CROATIA ................................................................................................................................ 52
Petar Kurecic STUDYING OF URBAN MOVEMENTS THROUGH THE PARADIGMS
OF POPULAR GEOPOLITICS AND ANTI-GEOPOLITICS ............................................... 63
Richard A Owusu, Terje I Vaaland ACHIEVING LOCAL CONTENT IN EXTRACTIVE
INDUSTRIES OF AFRICAN COUNTRIES. ......................................................................... 74
Franciszek Kapusta, Rafal Parvi ORGANISATION OF THE SUGAR INDUSTRY IN
POLAND AND EFFICIENCY OF OPERATING SUGAR FACTORIES ............................. 83
Arpad Papp -Vary PRODUCT PLACEMENT IN MUSIC VIDEOS THE LADY GAGA
PHENOMENON ...................................................................................................................... 94
Sheetal Sharma, Krishne Gowda STUDY OF PATTERNS IN SURFACE WATER FLOW
IN URBAN AREAS IN THE CONTEXT OF PHYSICAL PLANNING IN THE CITY OF
BHOPAL, INDIA................................................................................................................... 106
Violeta Vidacek-Hains, Melita Kozina, Valentina Kirinic A MODEL OF EDUCATION
FOR ASSISTANTS OF STUDENTS WITH DISABILITIES SUPPORTED BY
INFORMATION AND COMUNICATION TECHNOLOGY.............................................. 126
Davide Gualerzi GLOBALIZATION AND NEW STAGNATION TENDENCIES ........ 136
Trina Mjeda, Mario Tomisa, Marin Milkovic THE IMPACT OF INTELLECTUAL

CAPITAL ON FIRMS DEVELOPMENT ........................................................................... 145
Boleslaw Stawicki CHALLENGE FUNDS AND INCLUSIVE BUSINESSES KEY TO
SOCIO-ECONOMIC DEVELOPMENT? ............................................................................. 155
Thabani T Madlala DO LARGE RETAILERS DISPLACE SMALL INFORMAL
RETAILERS? THE CASE OF A PICK N PAY STORE IN KWAMASHU, DURBAN,
SOUTH AFRICA ................................................................................................................... 163
Djuro Tunjic, Goran Kozina, Dinko Primorac CERTIFICATION EFFICIENCY OF
QUALITY MANAGEMENT SYSTEM IN METAL - PROCESSING INDUSTRY
ACCORDING TO STANDARD ISO 9001 IN THE REPUBLIC OF CROATIA ............... 174
Iana Justine Vea C. Cale, Peter Jeff C. Camaro, Kristel P. Melendres, Marie Antoinette L.
Rosete THE LUCAS PARADOX AND THE HUMAN CAPITAL RESOURCE CURSE IN
PHILIPPINES, INDONESIA, MALAYSIA, THAILAND AND SINGAPORE .................. 181
12th International Scientific Conference on Economic and Social Development - Bangkok, 18-20 February 2016
NATIONAL COHESION IN ECONOMIC DEVELOPMENT OF JAPAN

AND IRAN IN RECENT CENTURIES
Mohammad Hasane Jabbari
Faculty Member of Political Sciences in PNU, Iran
[email protected]
ABSTRACT
This paper examines the economic development in two countries of Iran and Japan in recent
centuries. In this article to be tried; modernization actions of Iran and Japan for economic
development with guidance and reforms of above by elites in other words by powerful forces is
examined. Two countries of Iran and Japan with regard to the economic superiority and
development of West tried to find an economic balance with the West. The modernization
actions of Japan began with Meiji revolution. Emperor with the Japan powerful forces by
territorial and financial reforms provided the necessary resources to the development of
industries and with the formation of heavy and light industries had a major role in the economic
development of Japan. In Iran, modernization efforts was formed in the Qajar and Pahlavi
period by Abbas Mirza, Amir Kabir, Sepahsalar, Constitutional Revolution, Reza Shah and
Mohammad Reza Shah but the result of efforts was different despite somewhat similar situation.
Japan succeeded in economic development but Iran could not reach to economic development
like Japan. In Japan there was consensus and harmony between powerful forces with a unit
goal to achieve economic development, but in Iran there was not such consensus and unanimity
to reach to economic development in both Gajar and Pahlavi period because personal interests
rather than national interests.
The research method of article is historical and descriptive. In this article be tried according
to the theory of habermas, the process of economic modernization is evaluated in two countries
of Iran and Japan to historical and descriptive method to reach economic development.
Keywords: Modernization, Development, Elite, Iran, Japan.
1. INTRODUCTION
Development, in other words, progress in different fields especially in economic field, needs to
a good condition to reach that. Economic development needs the economic stability and security
to create the good condition for business and production. Until such appropriate condition is
not created, development is faced with problem. One of the factors that have a fundamental role
in the stability, security and economic development can be internal cohesion in other words
consensus and solidarity of society to achieve development. Internal coherence between
powerful forces is the appropriate field to overcome underdevelopment. Such consensus creates
favorable conditions for economic progress and activity. Iran and Japan as two Asian countries
in recent centuries with respect to economic inequality with West follow a series of steps to
achieve economic development. The goal of these efforts was the gain of progress to deal with
the west superiority. Although such measures began in recent centuries in two country
somewhat at the same time. But the result of measures was different in the two countries.
Modernization actions in Iran was created by Abbas Mirza, Amir Kabir, Sebahsalar and
Constitutional Revolution in Qajar period and by Reza Shah, Mohammad Reza Shah in Pahlavi
period. Before such modernization measures had formed Safaviye centralized state in Iran with
Shiite official religion. The cultural conditions had provided a good opportunity for economic
security and stability. Therefore, the Shiite religious was a integrative factor in the course. But
such conditions rarely occurred with the fall of the Safaviye state. Until Qajar government
formed in Iran the late eighteenth century. In Qajar period Iran was faced the superiority of
Western countries. To overcome such superiority, Qajar state pursued corrective programs. But
1
failed in achieving to economic development. Japan also began modernization actions with
Meiji Revolution. Before the Meiji Revolution, Japan was isolated in Tokugawa period about
two centuries. In the two centuries Japan achieved national unity against foreigners. After the
Meiji revolution, Emperor and powerful forces on a appropriate cultural context started the
process of economic development with the modernization actions and ultimately reached
economic development in the Japan. in this article be tried to study the process of economic
development and modernization of Iran in Qajar and Pahlavi period and Japan in meiji period
in economic , industrial ,financial and land fields.
2. RESEARCH THEORETICAL FRAMEWORK
The internal coherence and consensus among influential forces in society is an essential basis
for the development. When consensus is created that is created common understanding and
interaction between different groups. So that the powerful forces reach a common
understanding with respect to the different views in an interaction. Integration means unity with
respect to the plurality of views. Unity in diversity needs a dialogue on a common framework.
Common symbols, values and beliefs can have effective role in the dialogue and mutual
understanding through intercultural interaction and communication. In interaction, individuals
with regard to their beliefs will adhere toward common beliefs at the macro and national level.
in fact communication arena depends on a common understanding with the different attitudes
to achieve the common language and belief by mutual interactions. This attitude is what
Habermas believes mentally a common understanding in the public arena of Interactions.
Habermas considers life-world as communicative act, agreement and consensus arena. in the
life-world, dialogue is based on debate and consensus. In this arena, compulsion have not basic
role in the agreement. The basis of arena is dialogue and understanding between different
interests within a democratic framework. In fact, in Habermas's communicative action,
participants expect to reach a consensus through communication and dialogue. According to
Habermas, the extension and independence of the life-world and the development of the field
of cultural rationality requires the ability of understanding and communication. Such a situation
could lead to rationalization of the life-world (Bashirieh, 2004, PP.225-226). In such
circumstances, individuals and groups debate in a suitable condition to reach consensus and
shared belief and choose the most appropriate method to achieve their goals.
3. NATIONAL COHESION ON THE FORMATION OF NATIONAL
CENTRALIZATION GOVERNMENT IN JAPAN AND IRAN
Iran and Japan are two Asian countries that followed modernize and reforms in the 19th century
because of its weakness against Western countries. The elites of both countries emphasized
modernization and reforms with guidance from above. Despite the similarities between the two
countries in the background of modernization and reforms by elites in two countries, both
countries have passed somewhat different historical path of modernization and reforms. In both
countries before the Meiji government of Japan and the Qajar government in Iran, powerful
governments had been elapsed like the Safavid Empire in Iran more than two centuries and the
Tokugawa government in Japan about two and a half centuries. Tokugawa government was
passed in isolation from the outside world, but Safaviye government especially during the Shah
Abbas period spent by interacting with the outside world. Despite the trade positive balance of
Safaviyeh government with the West, Safaviyeh government during the last Safavid king was
weakened and country was faced with scattered distribution of power and insecurity until the
rise of the Qajar government. The first king qajar, Agha Mohammad Khan Qajar, suppressed
internal riots and some other powers and then to neutralize internal riots and external
aggressions, Qajar government could create a strong and focused government. After Agha
Mohammad Khan death, border clashes were created between Iranian and Russian forces. The
Qajar government was faced with the military and economic superiority of the West. To achieve
the superiority of the West, qajar government followed a set of modernization actions. in japan
also before Meiji revolution, Daimyo( Great Feudals)dominated areas of the country. Daimyo
in this regions enjoyed traditionally bureaucracy and military forces. In the 17th century AD
Some Daimyo sought to expand their territory to occupy the territory of the other feudals.
Daimyo "Ayaso Tokugawa" prevailed over other feudals and created central government in the
country. Tokugawa government to the creation of national unity and Centralization applied
hostage system. According to any Daimyo was some time in the capital and some time in its
land and was traveling between the city and its land. The Tokugawa government action was led
to unification and centralization of the country. Therefore, Tokugawa government could control
the country with peace and tranquility for almost two and a half centuries of isolation from the
outside world. Although Japan isolation from the outside world created unity in the country but
this situation was led to a lack of Tokugawa government knowledge of progress in the West.
So that as soon as the entry of American troops to the port of Japan, the Tokugawa government
was faced with a serious challenge in dealing with the fleets and modern weapons. This situation
increased the Opposition of the tribes against the Shogun. Shogun due to increased domestic
opposition accepted the superior power of Emperor and power was restored to the Emperor.The
Meiji government began modernization actions for reaching to west progresses. Therefore, both
the government of iran and japan follow modernization against west progresses. But Japan
toward Iran was succeed in the field of modernization and reform. Here the question arises:
Why Japan was more successful than Iran? One of the most important reasons in this field was
consensus among elites in Japan. Meiji modernization was shaped with consensus between
traditional and new powerful forces and provided the path of modernization and reforms. So
that these groups participated in the power restoration of the Emperor. Emperor victory was
owe Chosho , Satosuma, Hizen and Thoosa tribes. These tribes restored the emperor power
with together coalition and merchants and nobles efforts and formed a centralized government
and removed Feudalist system. The four tribes of west Japan; Thoosa, Hizen, Chosho and
Satsuma, to create a centralized government after restoring power to the emperor agreed that
would give their property and military forces to the Emperor to create a centralized government.
The tribes in the time of transferring property to the emperor stated: in the realm of the Emperor
any spiritual belongs to the Emperor... nothings is not that is not subject to the Emperor.
Although Emperor power was decreased in the past, and was created a military class and was
divided the land between them. But now that the emperor was restored. How can take land that
belongs to the emperor and governs on the people that are servants of Him? Therefore, we give
all their feudal property... to create uniform rule throughout the country (Story, 1988, p. 99).
Meiji oligarchy disturbed the old structure of Tokugawa government so that the Samurai
privileges disappeared. In addition to the abolition of the Han and the establishment of
Governor in 1871 and the creation of a pyramid structure to the lowest point of the center of
the country, centralization was formed in the country. At oligarchic top were a few number of
Chou Shu, Satsuma, Hizen and tosa tribes with totalitarian forces. They managed ministries
with Samurai employees. The lower level was provinces, cities and villages (Tiption, 2002,
p.42). Compared with the coordination and integration of Japan's elites in the field of
modernization and reforms, powerful Iran forces and elites had not coherence and coordination
for reforms so that no coalition was formed between traditional and modern Iran forces like
Japan. Modern and reform elites faced with serious opposition so that the exception of the
Pahlavi regime that formed centralized government with the suppression of internal strong
forces was not resolved. Here the question happens what is the main obstacles to reform and
modernization in Iran compared to Japan? So that was mentioned, one of the main obstacles in
this regard was the lack of consensus and solidarity between powerful forces in Iran. So that
the conflict was continued between the traditional powerful forces like landowners, nobles,
princes, religious forces, monarch and reformist elites. If in Japan for the formation of the
central government, tribes and other groups gave their property, assets, and troops to emperor
to form centralized government, The traditional forces in Iran was not willing to give
concessions in favor of the modernization and reform, even Landowners were not willing to
grant financial assistance to the central government. If in Japan for their national interests, tribes
gave their assets to central government, in Iran personal interests was effective to action. So
that when the sepahsalar was going to centralization, the wave of opposition increased toward
sepahsalar. The autocratic rulers of states opposed with centralization and reduction of their
power. Because the Assembly of Options of sepahsalar considered peasant rights and would
decreased the power of the rulers. Some autocratic rulers like Ghouchan governor resisted
against options that sepahsalar deposed him. Some governors announced to the king their
opposition to the sepahsalar. The opposition of the rulers was of the serious obstacles in the
path of sepahsalar centralization. The question that arises here is: If the Iranian tribes such as
Japan gave their assets and property in the hands of the king, the central government was formed
and provided the path of modernization in Iran? As it was mentioned before, the emperor which
was the symbol of national union goes back to the long history of Japan and was sacred to the
people as if they didnt see the emperor. But in Iran Sultan didnt have such a position as sacred
as the emperor in Japan. Although in Safavid the king was kind of sacred, it was not so in
Ghajar. In addition the emperor in Japan had bestowed all the authority to the renovating elite
and some when supervised them. But in Iran the renovating elite didnt have such an authority
and the king acted upon the decision of powerful traditional forces and had lost his own
independence. On the other hand the traditional forces considering their own benefits didnt
like to have a solidarity and consensus with the renovating and reformer elite. Therefore this
lack of solidarity and consensus in Ghajar were serious obstacles to forming a focused
government and making suitable ground for renovation and reformation. Unlike the lack of
consensus among the elite in Ghajar, Reza Shah overwhelmed the opponents unilaterally and
could make a focused and absolute government in the country. It should be mentioned that
before taking the power by Reza Shah, riots spread out all over the country. In 1919 AD (1279)
England was up to support Iran and signed a contract with Vosugh Aldola. This action led to
many oppositions and resignation of Vosugh Aldola. After him Moshir Aldola took his position
and in his perion the country faced many serious tensions. Rebels and brigands revolt around
the country. Some of states and tribes didnt pay the taxes and didnt obey the central
government and on the other hand the financial situation of the country was very unstable
(Maki, 1363, pp. 23-24). The riots spread out in Gilan, Azerbaijan, Kordistan and Khorasan,
southern and other parts of the country which all were overwhelmed by Reza Khans coup and
taking the control of war ministry and making the central government. Unlike Ghajar
government in which traditional sources had power and dominance in the court, Reza Shah
overwhelmed the opponents and some of traditional forces who were opponent to the focused
and absolute government. He could destroy all the serious obstacles to the renovations and
reformations unilaterally and without the solidarity and consensus of the elite, he actually could
make a way for the renovation and reformation in the country. Therefore it could be said that
in Japan the elite make a way toward renovation and reformation but in Iran there was not such
a consensus among the elite in Ghajar and on the other hand without such a solidarity and
consensus among powerful internal forces the government in Pahlavi was formed unilaterally
and by overwhelming the opponents.
4. TERRITORIAL AND FINANCIAL REFORMATIONS OF JAPAN AND IRAN

In some European and non-European countries agriculture had been the background for
industrial investment and supply financial sources of the government. Japan as a non-European
country also made agriculture the basis of industrial renovation and it could supply the
government financial sources in difficult conditions. Aligarshi Miji didnt borrow money from
European countries because they had a colonial vision of them. They believed that borrowing
from European countries not only would lead to their entrance and dominance in Japan but also
make their economic independence unstable and doubtful. They made agriculture the basis of
supplying financial sources of the government. Miji government could supply preliminary
finance for developing the industry by putting up territorial taxes on territoriews and other
internal financial actions. As if in the end of 19th AD century (the second half of 13th century)
about 80% of the government financial income was supplied from taxes of territories. Therefore
in Japan the agricultural revolution was before the industrial revolution (Naghizade, 1372, p.
62). Peasants who had territories had to pay a yearly permanent quantity of taxes based on the
price of their territory. This tax system was the main part of government income which mostly
was used for strategic industries. The government made the village as the back of the city (Story,
p. 11). In addition to its wealth of owners who had desire for reservation was an important factor
in forming massive assets for industrial and economical plans. The development of agricultural
methods and many unemployed labors in villages also supplied human sources for occupation
in industries. In comparison with Japan, in Iran agricultural renovation was seriously started in
Amir Kabir period in recent centuries. Amir Kabir believed that developing agriculture needs
social security and preserving peasant's rights. He could get the social security by overwhelming
the riots and on the other hand the amount of agricultural productions were increased and new
products were implanted by destroying Siversat old tradition and supporting the peasants
(Adamit, 1384, p.391). Amir Kabir in addition developed agriculture by building huge dams in
different parts of the country and rebuilding of aqueducts and also producing new products. His
other action was taking taxes from owners who didnt pay their taxes. This action was opposed
by those who may concern and had benefits. Seif Aldola prince was among those supported by
British legation, he went to London and was its pensioner. When he came back in Mohammad
Shah period, Petrakh Tappe was given to him and his wife also was paid 200 tomans yearly.
Mirza Taghi Khan cut this payment of the princess and asked for the product taxes of these
several years. As Seif Aldola didnt pay it his land was taken back. The British minister opposed
to this action but Amir didnt answer him (pp. 268-269). Even though land owners and
governors and some of courts were opposed to Amir Kabirss reformations and were up to plot
against him. From among them we can name Soleiman Khan the brother of Mahd Olia, Shir
Khan Ein Almalek the nephew of Mahd Olia and so on (ariayee, 1372, p.59). Since Anir Kabir
period to Reza Shah period there was not any serious agricultural reformations. Although the
actions of Reza Shah were toward his own benefits. After gaining the power he took many
territories of Khans and the feudal by force and assigned them to himself or his officers and
relation and therefore he became one of the biggest land owners. He passed some laws
substituting old system of ownership by a new one. Before that the law of estate and title deed
registration was passed in 1923 AD (1302). Those laws passed in 1928 AD and 1929 AD (1307
and 1308) officially strengthened the owners right in personal ownership and water resources,
and the taken or bought or state territories were made legal and juridical ( Ivanov, yi ta, pp.6970). In addition in new law of 1931 AD (1310) the rights of territory owners were mentioned
and taking taxes system was created (p.70). Although Reza Shahs territorial reformations in
estate and deeds registration and legalization of territories were positive, his actions in taking
forcibly the estates if Khans and the feudal and repressing them caused fear among other owners
and prevented them from investing more in estates. It should be mentioned that taking estates
and territories and becoming a big land owner was very prestigious for him and he believed that
in this way he could supply the government budget. But actually because of oil resources,
agriculture was almost the main supplier of industrial reforms. While in Japan agriculture was
supplier of government financial sources in industrial and other investments. Territorial
reformations were started widely in Mohammad Reza Shah period. The US role in territorial
reformations of Iran was very crucial. Based on bitter experience of Asian southeast and Latin
America events and peasants redeemer role in wars of 1950s AD (1330) such as Vietnam,
China, Algeria, Cuba wars in which territory and peasant were their main factors, the western
countries and especially the US concluded that by performing up to down territorial
reformations anti alien and anti-autarchy movements could be prevented and get the stability of
ready countries for reformations. Western allies of Mohammad Reza Shah were concern about
old agricultural structure and traditional social relations in villages increasing country power
against communism and the possibility of outbreak a political revolution ( Azghandi, 1379,
pp.176-177). In 1960s AD (1340) because of Kennedys government pressure, the revival of
national deploy and also the hypothesis that territorial reformations would destroy land owners
power in benefit of government power and peasants would remain loyal to themselves,
developed the program to the overall territorial reformations. By performing territorial
reformations unilaterally and without consultation of land owners, the shared peasant
agricultural system and the dominance of land owners were destroyed (Ghuran, 1382, pp.472473). Irregular migration of villagers to the cities was another backwash of territorial
reformations. As if in 1930s AD (1310) 68/6% of population lived in villages and 31/4% in
cities. In 1976 AD (1355) more that 47% of population were inhibited in cities. The number of
big cities increased. In 1966 AD (1345) Tehran has the population of 500.000. In 1976 AD
(1355) four big cities had such a population. In addition in 1645 AD (1324) cities with
population more than 100.000 had 21% of the population. While in 1976 AD (1355) it reached
to 29% (Kamali, 1381, p.194). Therefore it becomes clear that Mohammad Reza Shah unlike
Miji government which made agriculture its main income supplier and industrial investment,
made it peripheral because of huge oil benefits. Mohammad Rezas objective from territorial
reformations was more political. As it was mentioned before his political objective in gaining
peasants support was under the Kennedys and western pressure for territorial reformations. In
addition to agriculture Miji government needed immediate budget for forming offices and
performing laws and sending armies to different parts. In 1868 AD (1274) the government for
supplying the budget asked for merchants help and forcibly borrowed a loan of three million
Rios from them. This amount formed the government budget and Mitsui Gumi company was
assigned for directing government treasury bargains. In 1868 AD (1274) the government spread
48.973.973 Rio bills and it was going to be gathered again after 13 years. Although the
government was up to use this amount for industry, it was used for paying debts. Because of
the government financial problems Mitsui Gumi paid a gratuitous bounty loan of one thousand
and other investors paid such bounties to the government (Rafat, 1340, p.151). to have a better
currency progress the government established a mint in Osaca in 1871 AD (1250) and Yen
became its currency and metal currencies were minted. Mitsui Gumi was assigned to money,
gold and silver exchanges and gathering old currencies and transforming them into gold and
silver bars. After a short period it established a huge plant for printing bill (p.152). In 1879
(1258) the government also imposed a new law for banks which led to establishment of national
bank. In 1879 AD (1258) about 150 banks were established. In 1882 AD (1261) Matsuka
Tamasayushi the financial minister of that time established the bank of Japan. This bank was
established for government financial affairs and in 1896 AD (1275) the loan bank was
established and in 1900 AD (1279) the industrial bank was established for industrial affairs
(p.198).
In comparison with Japan that Aligarshi Miji supplied government financial sources through
getting loans and establishing banks in the country in addition to agriculture; Amir Kabir tried
to battle with financial corruption. When he became the first minister he faced the lack of
budget. This lack of budget was because of Mirza Aghasis bestowments to a punch of useless
people. In his period Aghasi had given money to different people that increased the govern
debts. Amir Kabir was up to survey these money (Avari, 1363, pp.123-124). He considered two
ways for solving this problem; to validate or invalidate all that money. The first way was not
applicable because of government financial problems and the second way would make the
government broke and invalidate. Amir chose a better way. The real government debys were
gradually paid and those which were unnecessary bestowments and bounties and Aghasis
prodigality were completely omitted the government was not supposed to pay them (Adamit,
ppp.262-263). In addition Amir for balancing cost and income considered a committee to adjust
the country budget. This committee appointed the lack of income about one million Tomans.
For solving this problem Amir decreased the salary of those who were paid from government,
from Shah to servants (p.263). Amir Kabir stopped illegal bureaucracy taxes. Based on tax
system the employees must not take the taxes and illegal money from people. He made a regular
tax system which has important role in increasing government incomes and decreasing the role
of clergymen in gathering the taxes (Kamali, p.95). He also prevented them who were paid from
budget without any right. For example the royal guard was actually exists in Fath Ali Shah
period and it was formed of 600 persons but now they were up to 4000 persons were considered
as royal guard just on paper. While the actual number was less than 300. Amir adjusted all of
them and stopped budget prodigality (Arbabi, p.30). Amirs battle with financial corruption and
bribery had an important role in increasing government financial incomes. In Japan the
merchants supplied the government financial sources in addition to agriculture but in Iran not
only commercial companies were not established as Japan but also if it was so the companies
would not cooperate. Because in Iran personal benefits were prior to national benefits. If
Japanese companies helped the government financially believed it was for national elevation
and had a definite unique objective but in Iran the objective was not national elevation and
personal benefits were prior to national ones. Both Amir Kabir aand Miji governments didnt
accept western loans because of their colonial vision toward western countries. In Jpan financial
sources problem was solved through merchants save agriculture but in Iran Amir Kabir supplied
the government financial sources through battling with financial corruption in addition to
agricultural taxes which was opposed by many groups and powerful forces and led to Amir
Kabirs deposition and therefore his long term ideals for industrial renovation and independence
were not fulfilled. Like Amir Kabir, the financial reformations of Sepahsalar were battling with
bribery and preventing from getting court gifts. He believed save common taxes and definite
claims which are up to the people, the governors shouldnt take anything else under any title
(Zibakalam, 1377, p.289). His another action was establishment of state bank which
Merton plan was passed with some modifications (Adamit, 1378, pp.299-300). The
government also brought Austrian Baron Dostein with a group to iran to make new financial
systems. Sepahsalars objective was to use Stein to coordinate internal taxes and custom
traditions with Europe but when the financial conselors mission ended he didnt succeed. Even
though money and coinage reformation had a very considerable progress in Sepahsalars period.
This action fulfilled by the help of a mint master from Austria called Pashan (p.314) and
silver gheran and one toman gold coin were common in Iran. The price of one gheran equated
one frank and one gold toman equated ten franks. Therefore a new money spread in the country
(pp.315-316). Unlike Miji government using merchants financial helps for supplying
government financial sources and industrial investments, Sepahsalars government didibt have
such a powerfull financial support. While like Amir Kabir his financial reformations could
supply the government financial sources and make a way for industrial investments. But battling
with bribery and financial corruption faced them with the opposition of those who enriched
through bribery and financial corruption. It should be mentioned that solidarity and consensus
of Japans higher class especially land owners, merchants, emperor and so on led to supplying
government financial sources and industrial investments but in Ghaar period there was not such
a solidarity and consensus. In addition if the Japanese elites could establish new banks to
progress currency, in Iran the establishment of national bank faced problems because there was
no reliance among powerful forced themselves and also government, and if some banks were
established with high financial support by Russia and England they were toward their benefits.
Although in Mashrouta period some financial actions were performed, they did not succeed. As
if in second Majlis, Shushtar was invited to Iran for financial reformations and he could adjust
the government financial sources through taking taxes but faced Russian opposition. Because
some of owners and merchants were supported by Russia and Russia could not tolerate taking
taxes from them and asked for Shushtars deposition from Irans financial affairs. Or in the first
Majlis period when getting loan from British loyal bank or Russian loan bank was discussed,
one of the majlis representatives called Moein Al Tojjar represent a plan based on establishing
national bank based on the merchants and people investments but he didnt succeed and loyal
and loan banks continued to abuse Irans treasures by giving loans with high interests and
bringing the government their indebted. As if one of government actions was repaying its debts
to Russian and British banks. After forming Pahlavi government by Reza Shah, financial
reformation were one of its important objectives. After his coup an American delegation under
the supervision of Milspo entered Iran on September 1922 AD (shahrivar 1301) for financial
reformation. In 1923-24 AD (1302-03) Milspo could balance the budget and the government
income got to about 5.768.173 and costs around 5.827.44 Lire. Commodity payments were
stopped in 1923 AD (1302). But lack of reliance of Sardarseoah to the aliens and his wish for
freeing Iran from aliens presence and especially his severe anger for Milspos delay in
designation of army budget led to Milspos mission (Avri, pp.501-503). Reza Shahs another
action against alien banks was the establishment of national bank. The establishment of national
bank was one the nations wishes. So the national bank of Iran was established by a German
expert and the monopoly of printing the bill was transferred from loyal bank to the new bank
(Katuzian, 1372, pp/157-158). The development of bank branches in the cities, supplying expert
human force by sending 6 persons to Europe, employing German experts and establishment of
bank instruction office for instructing bank sciences, calculating, economics, law, and
progression of bank stock to 300 million Rials in 1935 AD (1314) resolved some of bank
problems gradually (Khalili, 1373, p.190). The government income sources in Reza Shah period
were as follows: oil incomes, customhouse incomes, other indirect taxes and taxes on incomes.
Direct and indirect oil incomes were the biggest government incomes. The increase of oil
income led to supplying 1.3 of the total government costs (Katuzian, p.159). In comparison
with Japan which financial renovation formed through Aligareshi cooperation and consensus
and the merchants helped the government financially, in Iran the merchants and land owners
almost never had any plan about helping government financially to supply its financial sources
and investing in industry. The only way remained for reformer elites was leading their ideals
by themselves. In Ghajar period because of gaps in power, the reformer elites couldnt succeed
and if there were any actions they faced many serious obstacles because of powerful forces,
land owners, merchants and other oppositions but Reza Shah solved the problem of lack of
consensus and cooperation among powerful sources by repressing internal powerful sources
and taking taxes from land owners and other government financial suppliers.
Reza Shah powerfully took taxes from tax payers and no one dared to object. In addition to
taxes he supplied government incomes and paved the way for economical and industrial
investments through oil sources. His actions were continued after him by his son Mohammad
Reza Shah. He also considered huge oil sources as the government income source and industrial
and non-industrial investment sources, he could make economical and industrial progressions
in the country.
5. ECONOMICAL AND INDUSTRIAL IN JAPAN AND IRAN
In recent centuries both Iranian and Japanese reformer elites by beholding western countries
developments and their own weaknesses and also their pessimistic colonial vision toward
western countries were up to industrial and economical renovation and independence. In Japan
Aligarshi Miji by beholding the world evolutions and industrial international competitions and
for defending itself against alien intervention, considered strengthen military forces in addition
to economic powers. They could import money through agricultural products such as silk and
tea, and also they considered industrialization as a factor against importing western goods
spreading Japanese markets. It was needed lots of money for heavy industry but other industries
which were more applicable and cheaper could be a good model for importing more money and
progressing heavy industries. Most of economic experts believed that loom industries
progression after Miji period is a good example of material evolution of the country. Loom
industries needed less technical sciences and investment in comparison with machinery
industries and through them small workshops could be established. These workshops used labor
forces coming easily from peasant families. Loom industries was the first in attracting largely
personal investments and had no more need to the governments helps. Silk textile and
spinsterhood industry were almost progressed. The spinsterhood industry was mechanized. In
this industry spinners from 8000 in 1878 AD (1269) reached to 77000 over ten years. In addition
in 1893 AD (1272) 382000spinners were permanently activated and the yearly production of
cotton got to 88 million. This progression was along with the increase of raw materials. The
fast progression of the market since 1890 AD (1269) mechanized the loom industries and supply
suitable export opportunities (Rajabzade, 1365, p.299). Japan was the first non-European
country in using western industrial and commercial techniques in large scales and could reach
a unique position. Cheap eastern labor and western technology made a perfect mixture for
producing cheap commodities. The rest of Asia had cheap labor but they needed technical skills.
Europe and North America had higher technology and more natural resources and also higher
life standards and higher salaries over Japan. This difference between eastern and western life
standards and non-western industrial weaknesses made a unique situation for progressing
industrial and commercial activities in Japan. Textile forms more than the half of plant
productions and by the end of 19th AD century (second half of 13th century) was the main
exportation. Steel and ship industries were made because of their strategic importance
(Reischouer, 1946, p.15). In addition the cooperation of state and private parts had a crucial
role in economical and industrial development of Japan. This cooperation was very close and
they helped each other in critical situations. The objective of economic development was not
just the internal markets but also the government had higher international objectives. Before
the revival of Miji there were a few companies like Mitsui. But Miji government supported
private part under any conditions to achieve higher objectives and private part worked toward
governments objectives, too. There was an acceptable relation between government and
private part. This cooperation made both strong. They were both after the national objectives.
The financial support of private part had an important role in the victory of Miji revolution. The
financial private part especially Mitsui company in early Miji when it needed money, was a
reliable source for the government. In addition commercial companies were devices for
strengthening military powers and developing exports. The cooperation of private part and
government led to strengthen the private companies and increase their efficiency and therefore
they could penetrate their neighbors (Motevaseli, 1374, pp.195-197) and decrease their
competitors penetration. By special plans of the government and the private part the industrial
and commercial activities of private part increased and they could penetrate Asian countries. In
addition they politically could supply weaponry and military support for the government. They
paved the way for penetration in Asia and could made more markets there as a non-European
country. After Miji this economical and industrial development continued. As if Japans
investment largely increased during the First World War. As if over 1913 AD and 1920 AD
(1292 and 1299) steel efficiency increased from 255 to 533. The potential of electrical energy
was also doubled in that period. Even though Japans industry did not yet get to Germany,
England or the US. Among the interval of two world wars Japans economy was mainly based
on small plant systems or even peasant system which was under the rule of some of Zaibatsues
plants. The Zaibatsue got to the peak of its power in 1929 AD (1308) i.e before the great
inactivity crisis. This group increased its penetration in agriculture and small industries through
supplying financial sources and ruling the market (Moore, p.270). The Zaibatsue which Mitsui,
Mitsubishi, and Yasuda were its main companies had a very close relation with government
and invested in government plans and on the other hand gained its support. Their activities
range from banking and heavy industries to the other beneficial grounds. These big financial
and industrial complexes supported multilateral benefits. They successfully passed economic
crises and ruled small production institutes (Alipour Tehrani, 1372, p.414). Industrialization
elevated the peoples lives especially in cities. Since agricultural productions were fixed after
1920 AD (1299) the villagers came to the cities after jobs and were employed in big or small
plants. Japan took many advantages from the first world war and after the war not only was
among prior powers in international societies but also its economy jumped and was activated.
As if by the end of war Japan became an industrialized country. But this progression led to
political and social movements and new forces entered the social and political life (Rajabzade,
p.387). In addition these economical evolutions developed urbanism. Although still there were
many populations in villages. Industrialization made the ground for increasing urban population
and welfare. One of the qualities of industrial and economical developed countries is the
formation of average class. After the First World War the condition was suitable for forming
such a class in Japan. Another factor of industrialized and developed countries is the labor union
defending vast labor force rights. Labors in Japan were increased in quantity and quality and
they had preliminary equipments. The development of Japanese companies continued up to the
Second World War in which the US attacks and Japan defeat challenged Japans economic
activities. As if after their defeat colonizers were up to destroy Zaybatsues, Kartels and other
financial unions. Their objective of such a destruction was decreasing the economic and
political focus which was the main factor of militarism but by the end of occupation Zaibatsues
started again and controlled many industries. Another objective of colonizers was forming the
labor unions to preserve labor rights against economical and commercial companies and to
prevent them from increasing blocking of labor rights to the benefit of their own capitals
(Motevaseli, pp.202-204). But since confederates especially the US had controlled over Japan
and their systems were based on capitalist democracy and because they considered one of their
early objectives forming of constitution based on western democracy and competition of
different parties and groups in elections, made it necessary that to battle against communism
they should have a recess from destroying Zaibatsues and financial, economical monopolies.
Therefore the condition was good enough for Zaibatsues to start again. Financial and
economical monopolies could increasingly developed the country again over two decades and
Japan again became a prior industrial and economical power. In addition along with economic
development and forming political parties and some welfare, democracy was also fixed in Japan
and as a democratic country continued its economic development by having interactions with
10
other countries in the world. Like Miji government Amir Kabir was also after economical and
industrial independence and decreasing the dependence to western countries. He believed that
free commerce policy is beneficial for Europeans and would destroy internal economy in long
term. In addition to form a rate system to support Iranian merchants, he also encouraged the
establishment of national industries. Like Miji government Amir Kabir sent some of talented
Iranian masters to western countries to gain experience and decided to employ some western
experts and technicians. He encouraged those who had talent in industry. As if when he was
informed about a pot which was a gift by Russian head merchant Vish Ghartsov in 1849 AD
(1227) gave it to one of Isfahans artists to make a model of it. The Isfahani artist succeeded
and took the monopoly of producing that kind of pot. Amir Kabirs action toward industrial
independence and cutting the dependence on the west led to forming small industries in the
country and made a crucial evolution. But in comparison with Japan he didnt have such
financial sources and the support of internal powerful sources. As it was mentioned before the
solidarity and consensus between the government and private part in Japan ha d an important
role in its economic development. It should be mentioned that like Japan in Iran the private pa
did not formed before Amir Kabir. In Japan private companies were formed in Tokogawa
period. As if this private part, and merchants had an efficient role in reviving Mijis power.
After the emperor revival financial helps were given to the government to supply its financial
sources and different investments and the government also started to invest in heavy and other
industries by consensus and solidarity. Then these industries were given to the private part. But
in Iran not only such private part and commercial companies were not formed before Amir
Kabir but also there were not any consensus or solidarity among powerful forces if the country.
As if not only traditional powerful forces didnt like to help the government financially but also
they reacted harshly because their benefits (sush as decresing court salary and so on) were in
danger. Addition to internal problem Amir Kabir faced foreign problem, too. His ministry was
along with imperialist development of England and Russia. Amirs economical reformations
restricted Russian and British merchant's benefits in favor of Iranian merchants. His actions in
changing their favorable governors were opposed by England and Russia. Russian activities in
occupying some of the islands of Caspian Sea for controlling Irans commerce in north and
political (slave commerce in Persian Gulf) and economical (controlling commerce in Persia
Gulf) pressure of England are the examples of their negative positions (Kamali, p.100). Along
with these internal and foreign oppositions Amir how could developed economical and
industrial and other renovations and reformations in the country. Japanese could defeat western
colonial policies by consensus and solidarity but in Iran lack of such solidarity and consensus
led to more penetration and intervention of colonial countries in internal affairs. Like Amir
Kabir one of Sepahsalars objectives was industrial and economical renovation. But there was
a difference in which Sepahsalar made a priority for foreign investment in Iran because of lack
of invests that led to his deposition. If in Japan the investment in industries by private part was
prior and there was no need to foreign investment, it was because the ground for developing
commerce and private part for investment was already formed. In Iran the private part was not
formed as in Japan in which it could invest in any government plan and give financial helps to
the government for investments. In Japan also a regular tax system was formed and supplied
government financial sources while, there was not such a thing in Iran. In Iran private part and
financial and economical companies not only didnt developed but also the government didnt
have enough financial sources for investing in industries. Therefore Sepahsalar believed the
only suitable way for industrial and economical investment is through foreign companies. This
interest to foreign investment and signing a contract with Reuter led to his deposition. As if
after the signing of Reuters contract internal and foreign oppositions increased especially from
Russia. Because of these oppositions he was deposed by Shah.
11
Amir Kabirs efforts for industrial and economical renovation were based on internal invests
and Sepahsalars efforts were based on foreign invests, both of them faced serious obstacles
and by their depositions the way toward economic development remained unstable in Ghajar
period until by the entrance of Reza Shah and forming an absolute government economical and
industrial renovation seriously started again. Reza Shah started economical and industrial plans
in the country by structuring tax system and oil incomes. His economic policy was based on
nationalism support and the Soviet Union economical and industrial development model. He
tried to develop private industries through custom exemptions, some tax exemptions, Industry
and Agriculture banks established in 1933 AD (1312) and also by using supportive actions such
as rate and shares. In addition the government tried to establish loom plants, sugar infiltration,
cement and other industries. The government built a small iron melting plant in 1940 AD (1319)
(p.150). Reza Shahs support the industry led to increasing the budget in this ground. In 1941
AD (1320) industrial budget was about five times of 1934 AD (1313). In result the industrial
and commercial share from 3.1% in 1934 AD (1313) got to 24.1% of the total budget of the
country (Katuzian, p.181). In his reign Reza Shah invested around 260 million dollars in railway
and 260 million dollars in industries. His national interests led to his opposition against foreign
loans. The cost of most plans was paid through taxes and oil income. Social results of his
economical reformations were somehow more important for social and political development
than economic development. For example labor force in Iran tripled during 1938-1941 AD
(1317-1320). By the end of Reza Shah period about 700 thousand labors were employed in
older industries such as carpet, fishing, and also new industries (Kamali, p.151). Reza Shahs
reformations led to more urbanism and forming new classes such as labors, bureaucrats and so
on in the country which were different from traditional classes belonging to the pre Reza Shah
reformation period. These new forces and classes which mostly were formed by economical
and industrial renovations have a share in political decisions of early Mohammad Reza Shah
period. It should be mentioned that like Aligarshi Miji Reza Shah could make evolution in
economical and industrial renovation by suitable economical programming and management.
There was a difference in which Aligarshi Miji after industrial and economical investments
gave them to the private part and paved the way for solidarity of private parts and forming
Kartels and financial and commercial monopolies in order to continue Japans industrial and
economic development and gain penetration in neighbors for huge profits. In Iran although
Reza Shah supported private part, it was not as powerful as Japans private part. Reza Shah in
addition restricted the economy to the government and after governments investment didnt
give it to the private part. In Mohammad Reza Shah period the economical and industrial
renovation and development had priority in the countrys policies. He took the power after the
coup of 28 mordad and for gaining legitimation among people continued territorial reformations
and economical evolutions. Iranian government as the receiver of oil money was the main factor
of industrial development. It performed this policy from different ways (Holiday, 1358, pp.159160). 1. The government directly invested in industries. Based on the third program about
53.1% of the total industrial investment was belonged to the government. The government share
increased to 38.8% in forth program and 40% in fifth. The increase in oil price in 1973 AD
(1352) increased this ratio. As if in 1975 AD (1354) 60% of investments were belonged to the
government. 2. The government supplied the private part for investments. Private banking was
never powerful and couldnt act as industrial invest supplier. Tehran exchange was established
in 1967 AD (1346) but it was not that much successful. The government supplied invests
through special institutes. Four important institutes were as follows: industrial credit bank,
industrial and mineral development bank, industrial guaranty box, and Iran development and
investment bank. The national bank was the biggest bank of the country and gave credits to the
countrys industrial development. In this way the government supervised an industrial bourjois
development. 3. Financial actions had an important role. Heavy taxes were put up on imports
12
to support internal productions. The government exempted the companies from taxes in their
early stages of work and those invest commodities needed to import for building plants were
also exempted from taxes. 4. Iran government was responsible of basic constructions for
industrial development in building ways, ports, and power systems in which private invests had
no share. Industrial boujois had also a role in private capitalism which had three parts: 1.
Owners after territorial reformations, 2. Government employees who gathered capitals through
savings and administrative corruption, 3. The market. In addition to the government and
industrial boujois, foreign investment had also a role in the development of capitalism. The
government developed investment in Iran by giving some grants such as custom and financial
exemption and the right of transferring benefits the same as the money invested at first, and
finally this led to the foreign companies desire for investing in Iran. Considering these actions
toward industrial development, the industry faced a basic evolution in this period. From 15%
yearly development in 1967-1975 AD (1344-1355) to 14.6% in 1976-1977 AD (1355-1356)
and 9.6% in 1977-1978 AD (1356-1357). It was probably the highest rate among third world
countries. As if it was two times of developing countries. The formation of impure fixed capital
was even higher and it was about 18.4 in 1963-1977 AD (1342-1356) (Ghuran, p.483). Industry
development led to the labor force increase in industries. In 1977 AD (1356) about 1.5 million
persons were employed in industries and from the total of 250000 industrial institutes about
6000 institutes employed more than 10 persons. Not considering petrochemical part, other
industrial units such as iron melting plants; increasing automobile, buses, trucks industries;
machinery plants; electronic devices montage plants and so on. Automobile efficiency
increased from 2300 in 1964 AD (1343) to 73000 automobiles, 1911 buses, and 29360 trucks
in 1974-1975 AD (1353-1354) (Holiday, p.157). The other industrial numbers and statics show
a little increase in small plants (with 10 to 49 labors). In 1953 AD (1332) the number of these
plants were less than 1000 units but in 1977 AD (1356) they were more than 7000 units. There
is the same increase in average plants (50 to 100 labors); i.e from 300 units to 830 units. Big
plants (more than 5000 labors) have increased from 19 units to 159 units. The number of
industrial labors in 1977 AD (1356) got to the 2.5 million persons. Thanks to the supportive
rates and granted monopolies, the capital interest in 1970s AD (1350s) was 30% to 50%
(Ghuran, p.484). Mohammad Reza Shah was stock between the need for private capitalist
cooperation and the political need for national and popular government. Since 1975 AD (1354)
he started a triple battle to gain people support as follows: battling with high prices, corruption,
and fixing labors stock in industries. The objective of labor stocks was motivating them for
staying in their workplaces. Battling with high prices led to catching and pecuniary punishing
of about 8000 tradesmen and merchants. Battling with corruption caused some attacks to
foreign companies such as Grooman weaponry company, British shekrtit and lile company
and German Zimens company, and labor stocks in plants became a danger for private
investment and deceased it. About 2 billion dollars of Iran private capitalists (i.e 10% of total
oil income) was sent to foreign countries in the same year (Holiday, p.166). Economical
evolution led to wide migration of villagers to the cities and forming labor class. Industrial
development increased the number of labors and they became a rich class in the country who
challenged industry and economy by their strikes. Pahlavi government wasnt able to stop them
and they had an important role in Shahs overwhelming. Based on these explanations and
statistics it is became clear that Mohammad Reza Shahs economical reformation can be to
some extent compared with Miji period reformations. There is a difference in which
Mohammad Reza Shahs renovation and reformation was mostly based on oil incomes and
agriculture was peripheral so oil price updowns hurt the economy of the country but in Japan
agriculture was continually considered by Aligarshi Miji all over their period. In addition
Aligarshi Miji was based on internal capitals while Mohammad Reza Shah considered both
13
internal and foreign capitals in industrial investment which in turn along with the exit of foreign
capitals the country faced economic problems.
6. CONCLUSION
According to what discussed above the renovation of Japan and Iran to achieving economic
developments have some things in common but their economic development results are
deferent. Japan could get economic development by renovating actions but in Iran although
there were efforts in Ghajar and Pahlavi periods, they didnt lead to economic development.
Actually successful renovation needs a series of suitable grounds for renovation. One of these
suitable renovating grounds is the solidarity and consensus in renovation. This condition was
different in Japan and Iran. Miji revolution in Japan was formed after two decades of Japans
seclusion from the world. A Japan was not informed of universal events. Japan gained these
information through putting Japanese warships and finding the world priority over Japanese
forces which led to oppositions to Shuguns government ruling about two centuries and making
emperor ceremonial. The revival of the emperors power a supporting him made a way toward
a development equating western priority. Therefore Japanese different tribes prevent tribal
conditions and gave their authority and financial sources to the government to have an important
share in developing Japan. In addition to tribes, commercial companies also helped the
government financially if it was needed. This solidarity and consensus in Japan was a suitable
support for economic development. Therefore traditional and modern forces unlike their
different interest and visions unified to get the economic development and considered national
interests prior to their personal interests and in renovation and territorial reformation was by
their government side. Such a condition led to suitable financial sources for government for
forming suitable conditions for developing small industries and then enough sources for heavy
industries a Japans economic development. But in Iran the situation was different. As if
renovation in Ghajar in Abbas Mirza period his renovation was opposed by those who saw their
personal benefits in danger. Such condition led to Irans defeat by Russia and England. In Amir
Kabir period the condition was not that much suitable. athough Naser Aldin Shah personally
chose Amir kabir, his financial and territorial renovations faced princess, court, land owners,
England and Russia oppositions and he couldnt continue his renovations. Penetrating and
powerful forces didnt like to consensus in getting economic development and supplying
national interests. In Sepahsalars period the situation was the same. If Amir Kabir believed in
internal financial interests and economic independence, Sepahsalar focused on internal and
foreign sources. He signed a contract with Reuter which caused a lot of oppositions and finally
led to his deposition. Even though the opponents of his renovating financial actions such as
battling with bribery took this opportunity for his depositions. Economical renovations
continued in Reza Shah period. He could make a central government by repressing his
opponents and had some economical actions in some industries deep structure connections but
his actions in repressing powerful land owners and some of traditional classes such as
clergymen and the tradesmen and other classes caused that they didnt support him against the
confederates. In Mohammad Reza Shah period economical financial and territorial renovations
were also increased by giving internal and foreign grants but his renovating actions like his
father was along with repressing powerful clergymen, commercial and other forces which led
to no consensus. Therefore this lack of consensus in Ghajar period caused by the lack of
cooperation of powerful forces with renovating actions but in Pahlavi period it was caused by
repressing these forces.
14
LITERATURE
1. Arbabi Behdad, Dawn of Resurrection, Tehran, Behdad Press, 1
2. Azghand Ali Rez, The History of Political and Social changes of Iran,Tehran, Samt Press,
2000.
3. Avari Peter, The Contemporary History of Iran, Translated by Mohammad Rafiee
Mehrabad, Tehran, Atai Press, 1984,
4. Adamit Feridon, Ideas of Progress and The Rule of Law,Tehran, Qzinesh Press, 1999
5. Alipur Behzade Tehrani, State and Private Communication Mechanism, Tehran, the
Ministry of Foreign Affair Press, 1993.
6. Adamiyat Feridon,Amir Kabir and Iran, Tehran, Kharazmi press,1969.
7. Bashirieh Hussein, The History of Political Thought in the West ,Tehran; Ni Press, 2004.
8. Fouran Jan,Fragile Strenghth,translated by Ahmad Tadaion,Tehran,Resa Press,2003.
9. Halliday Fred, Dictatorship and Capitalist Development in Iran, Tehran, Amir Kabir
Press, 1979.
10. Ivanov Mikhail Srgyh Albion, Iran's modern history,Tehran, Aslvch Press, Tehran.
11. katozeyan Homayon, The Political Economy of Iran, Tehran, Center Press in,1973.
12. Kamali Masoud, Modernization and Government and Civil Society in Iran, Tehran,
Recognition centre of Iran and Islam press,2002.
13. Motevasseli Mahmoud, Japan's Economic Development with an Emphasis on Human
Power Training, BusinessStudies Press, Tehran,1995.
14. Moore Barrington, Social Origins of Dictatorship and Democracy, Translated by Hosain
Bashiriyeh,Tehran, Tehran University Press, 1990.
15. Maki Hussein, a 20-year History of Iran,Tehran, Nasher Press, 1984.
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Press, 1993.
17. Richard Story, The history of Japan, Translated by Firouze Mohajar, Tehran, Papyrus
Press ,1988.
18. Rafat Yadollahe, Enormous Changes in Japan in the last century,1961.
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23. Zibakalam Sadegh, Tradition and Modernity,Tehran,Rouzane Press, 1998.
15
ASSESSMENT OF THE MATURITY LEVEL OF IT FUNCTION IN A

CROATIAN INSTITUTION
Melita Kozina
Faculty of Organization and Informatics, Croatia
[email protected]
Anja Agnezovic
Faculty of Organization and Informatics, Croatia
[email protected]
ABSTRACT
Modern business companies are investing large sums in information and communication
technology (ICT) due to the fact that various aspects of this highly dominant technology have
a great impact on business and the competitive position of the company on the market. Use of
IT is no longer adequate on operative level only; ICT investments are expected to yield better
business processes, connected value chain in organizations and expanded business.
Furthermore, IT organizations have to provide the quality of IT services related to the business
requirements and to concentrate on customer oriented approach. In order to accomplish these
goals, the companies must develop adequate IT management methods and establish systems of
measurement, monitoring and evaluation of the effects of the ICT investments. It will raise the
maturity level of IT function as well as to provide a higher business value of ICT investments.
The purpose of the paper is to conduct an assessment of the current maturity level of IT function
in the higher education institution in Croatia using the one of the most comprehensive goodpractice framework such as CobIT (Control Objectives for Information and Related
Technology). Furthermore, the paper presents whether the current role of ICT deliver business
value to the institution and suggests improvements to the optimal level of informatization in
accordance with the institution's objectives.
Keywords: ICT role in the business company/institution; maturity level of IT function;
assessment the maturity level of IT function; CobIT framework.
1. INTRODUCTION
Companies invest high amounts into information and communication technology (ICT), since
various aspects of this highly dominant technology have made a great impact on the competitive
market positioning. However, in order to achieve a greater effectiveness of investing into ICT
and the higher business value, it is necessary to apply adequate concepts and methods of
managing ICT potentials and establish systems of measurement, monitoring and evaluation of
the IT function within the company.
In general, the role of ICT within the business company can be defined as follows: ICT as a
technological support for business, ICT as a service (process) partner, ICT as a strategic partner.
The goal of modern companies is to improve the maturity of the IT function/department and
achieve the role of ICT as strategic partner for the business. Accordingly, a specific focus on
governance of enterprise IT (GEIT) has arisen over the last two decades and the business
systems are increasingly making investments in GEIT and its relevant mechanisms such as IT
Balanced Scorecard, CobIT 4.1/CobIT 5 (Haes, Grembergen,2015).
The implementation of these methods/ concepts/frameworks for managing the ICT potentials
is often perceived as costly and complex, while its return in stakeholder value is difficult to
measure in tangible (often financial) outcomes. A number of studies show that in business
practice such methods are not applied enough, and the effect of ICT investments is not at a
16
satisfactory level. The purpose of the paper is to conduct an assessment of the current maturity
level of IT function in the higher education institution using the one of the most comprehensive
good-practice framework such as CobIT (Control Objectives for Information and Related
Technology). Furthermore, the paper presents whether the current role of ICT provides
business value to the institution and suggests improvements to the optimal level of
informatization in accordance with the institution's objectives.
The research was conducted as an online survey. The questionnaire was mainly built according
to the CobIT 4.1 Maturity Model as an IT governance tool that allows a company to assess AsIs maturity level of IT function, and define To-Be maturity level as well as gaps to fill. The
maturity model allows a company to grade itself from nonexistent (0) to optimized (5) maturity
level. According to the CobIT 4.1 process reference model that includes 34 IT processes, 15
representative IT processes were selected for this study. The business and IT managers within
the higher education institution were invited to complete an online questionnaire. Case study
includes one business company.
2. THE POSITIONING OF THE ROLE OF ICT IN THE BUSINESS COMPANY
High investments in ICT are not a guarantee of the better business benefits. For executive and
IT management, it is important to understand and align strategic potential of ICT with the
business needs of enterprises. Managing the maturity level of IT function is a precondition for
a better use of its potentials. Depending on the governance of enterprise IT as well as business
requirements for the ICT, information and communication technology can has a role of
technical support or strategic partner within the business company (Selig, 2015). Table 1 shows
three generic roles of the ICT within the business company: IT Infrastructure Management
(ITIM), IT Service Management (ITSM) and IT Governance as a strategic business function
(Salle, 2004). Modern IT management methods and standards raise the maturity level of IT
function and improve the role of ICT within the company. To be a strategic partner to the
business company means to coordinate the business strategy with the IT strategy and make that
the base for adequate development of the information system (IS). The company should also
improve its business strategy using new technology.
Table 1: Different roles of ICT within the business system (Authors)
17
Transfer from a lower level of maturity to a higher one requires the transformation of the IT
function, implying changes to the vision and strategy of the IT function, IT processes, IT staff
knowledge and competences, technology and culture (ISACA,CobIT 5, 2012). Gargallo-Castel
and Galve-Grriz (2012) found the complementary effect between the usage the information
and communication technology and organizational factors in the business companies. The
increasing of the technology in the business companies is linked with the process of the strategic
human resource management (Tohidi, 2011). Each higher level of maturity, despite the higher
business risk, should result in a greater business value of IT as well as the higher motivation for
IT staff and higher user/buyer satisfaction. Fig.1 shows how companies are progressing toward
achieving IT-related goals and enterprise goals based on the main CobIT enablers.
Figure 1: CobIT 5 Goals Cascade (Haes, Joshi, Grembergen, 2015)

3. COBIT FRAMEWORK
CobIT as the Governance framework offers the varoius management tools how to conduct the
control and audit of IT function within the company. One of them is business-focused and
enables business companies the support related to aligning the business strategy with the IT
strategy (shown in Fig 2).
Figure 2: Business and IT goals alignment (ISACA, CobIT 4.1, 2007)

Furthermore, CobIT framework is also the process-oriented framework because it defines IT
activities in the generic process model through four domains. These domains are: Planning and
organization, Acquisition and implementation, Delivery and support and Monitoring and
evaluation.
18
The effective IT Governance means to define organizational structures, processes, obligations

aimed at realizing business values of IT and ensuring that ICT investments are coordinated and
are supporting the business strategy. The entire example of the CobIT framework is shown on
Fig. 3 (ITGI, CobIT 4.1, 2007). The process model is based on 4 domains of IT processes
managing IT resources in order to ensure the information necessary for conducting business.
Figure 3: CobIT framework (ISACA, CobIT 4.1, 2007)

Furthermore, CobIT framework is also the control-based framework. A control procedure is
built into every IT process. The control procedure is designed in order to check the coordination
of processes with the defined goals, demands and standards, thus preventing unwanted events
and initiating necessary corrections. Each IT process has control goals (a minimum of demands
and results and the purpose wanting to be reached by installing the control procedure in the IT
process). Each IT process also contains detailed control goals.
CobIT framework is also the measurement-driven framework. Each control procedure is
connected to measurements aiding the management in assessing the current state and the level
of maturity of IT activities. Performance goals and metrics are defined for each IT processes
as follows:
a) The business level: IT goals and metrics (measurements) are factors in successful
realization of business goals (what the business expects from IT);
b) The IT level: Process goals and metrics are factors for successful realization of IT
goals;
c) The process level: Goals of activities and metrics are factors for successful of processes
and successful realization of process goals.
19
Additional main management guideline is the assessment of the maturity of each IT process
using the Capability Maturity Models (CMM). This assessment is the basis of benchmarking
in relation to other IT functions/organizations. The maturity levels are described on Fig. 4.
Figure 4: CobIT Maturity Model (ISACA, CobIT 4.1, 2007)

4. THE RESEARCH AND RESULTS
Case study includes one business company. The research was conducted as an online survey.
The questionnaire was mainly built according to the CobIT 4.1 Maturity Model for the
assessment of the maturity of IT function in the Croatian higher education institution. The
business and IT managers within the higher education institution were invited to complete an
online questionnaire. Participation was at the volunteering based.
The observed business institution of higher education is very similar to other higher education
institutions in the Republic of Croatia according to the technical characteristics, management
structures and methods as well as the implemented information systems. Therefore, it represents
a good example of how to obtain general overview of the real maturity of the IT function within
the higher education institutions. According to the CobIT 4.1 process reference model that
includes 34 IT processes, 15 representative IT processes were selected for this study. Pederiva
methodology (Pederiva, 2003) was used for assessing the maturity of IT function within the
higher education institution. The questionnaire with statements was created according to the
description for each maturity level (0-5) of the selected IT processes. What is a description of
each maturity level for each IT process? The description of each maturity level for each IT
process within the CobIT 4.1 framework is based on the following important criteria: awareness
of the application of IT process, work activities within the IT process, IT responsibilities,
measurement and improvements of the IT process. Each selected IT process within the study
had an average of 20 to 30 statements, depending on the process to be monitored. Table 2
displays an example of the questionnaire with the statements that were created according to
each maturity level description (0-5) for the CobIT process PO1 Define a strategic IT plan.
20
Table 2: Questionnaire with the statements created according to each maturity level
description (0-5) for the CobIT process PO1 Define a strategic IT plan
(Agnezovi and Kozina, 2014)
For each statement should answer whether you agree with it. There were four possible answers:
NO, Usually NO, Usually YES, YES. The response NO has been added to 0, the response
Usually NO 0.33, the response Usually YES 0.66 and the response YES 1. The statements are
grouped according to the level of maturity. For each IT process individually set an average of
20 to 30 statements depending on the process to be monitored. The calculated overall maturity
for the CobIT process PO1 - Define a strategic IT plan is shown in Table 3.
21
Table 3: The overall maturity for the CobIT process PO1 - Define a strategic IT plan
According to the conducted research for the CobIT PO1 process -Define a strategic IT plan
(shown on Table 3), we can see its overall maturity level: 1,936. CobIT maturity model defines
that maturity level 1 or 2 mainly focuses to the processes that are not documented processes
and have defined responsibilities. In this business case, the process Define a strategic IT plan,
assessed within the higher education institution, is not documented process and it is necessary
to implement the improvements. The emphasis is on stronger alignment between IT strategy
with the strategy of the institution as well as the involvement of business and IT management
in the decision-making process related the strategy of informatization for the higher education
institution. This method of data collection and analysis has been applied to all 15 of the CobIT
selected process. The results of the maturity level of the analyzed IT processes are shown in
Figure 5 and Table 4.
DS114,00
DS10
PO1
PO2
3,00
PO3
2,00
DS7
PO5
1,00
0,00
DS5
PO7
DS4
PO9
DS1
PO10
AI6
AI5
Figure 5: The maturity level of analyzed IT processes

22
Table 4: Results of the assessed maturity level of analyzed IT processes

Furthermore, it is also necessary to improve the following processes:
a) PO3 (Determine Technological Direction): the institution must continually introduce
improvements of existing technology and know how to manage risks of the new technology.
b) PO5 (Manage the IT Investment): the institution should apply the modern method for the
assessment of the benefits of ICT investments and raise awareness of the importance of this
process.
c) PO7 (Manage IT Human resources): it is necessary to carry out continuous training of IT
staff and regularly monitor business changes and accordingly to employ and improve
existing IT staff. This institution has a poor communication between the employees and
there is no well-defined responsibilities. Usage of the good quality management system has
positive impact on the human resource management within IT function.
d) The processes such as PO9 (Manage IT Risks) and PO10 (Manage Project) should be
improved, standardized and documented, continuously evaluated.
e) AI5 (Procure IT resources): the institution should introduce documented business policies
and all procedures related to procurement of the IT resources.
f) AI6 (Manage Changes): IT change should be integrated with all other business changes and
implement the standard processes of the change management.
g) Furthermore, it is important to improve the education of users (DS7) as well as the problem
management (DS10).
5. CONSLUSION
According to the results of the research it can be concluded that the overall maturity of the IT
function within the business system of higher education is between levels 1 and 2. What does
it mean? This means that IT processes are, as enablers for achieving IT-related goals and
23
enterprise goals, poorly structured and documented without defined responsibilities. The role
of ICT within the observed institution is located between the level of ITIM and the level of
ITSM (shown in Table 1) and requires improving the maturity of IT functions (IT processes
and other enablers such as organizational structure, services, infrastructure and applications,
people, skills, culture ,ethics, policies, information). If the needs of the business company for
ICT are higher than the level of maturity of IT functions within the company, we have an ICT
deficit. On the other hand, if the needs of the business company for ICT are less than the level
of maturity of the IT function, we have an ICT surplus. For each business company (institution)
is optimal when the business requirements for ICT (ICT role) are aligned with the level of its
maturity. The results of this research show that the role of ICT in the higher education institution
needs to be improved as well as the maturity level of IT function within this institution and all
of its important enablers.
LITERATURE:
1. Agnezovi, A. (2014). Managing the development of IT in the company. Mentor of the
Diploma Thesis, Associate Professor M. Kozina.
2. Carrillo, J. (2013). IT Policy Framework Based on CobIT 5. ISACA Journal, Volume 1,
2013.
3. Department of Communications Information Technology and the Arts. (2005). Achieving
value from ICT: key management strategies.ICT Research Study. Australia.
4. Gargallo-Castel, A.F., Galve-Grriz, C. (2012). A Firm-level Investigation of the
Complementarity between Information and Communication Technology and
Organizational Resources. Procedia - Social and Behavioral Sciences, Volume 41, 51-58
5. Haes,D.S.,Grembergen,V.W.(2005). IT Governance Structures, Processes and Relational
Mechanisms: Achieving IT/Business Alignment in a Major Belgian Financial Group.
Proceedings of the 38th Hawaii International Conference on System Sciences.
6. Haes, D.S., Grembergen, V.W.(2015). Enterprise Governance of IT: Achieving Alignment
and Value. Springer, USA.
7. Haes, D.S., Joshi,A.,Grembergen, V.W.(2015).State and Impact of Governance of
Enterprise IT in Organizations Key Findings of an International Study. ISACA Journal,
Volume 4, 2015.
8. ISACA, CobIT 4.1 (2007). Retrieved 10.06.2015 from https://www.isaca.org/KnowledgeCenter/cobit/Documents/COBIT4.pdf.
9. ISACA, CobIT 5 (2012). Retrieved 10.06.2015 from https://www.isaca.org/cobit.
10. Pederiva, A. (2003). The Cobit Maturity Model in a Vendor Evaluation Case. Information
System Control Journal, Volume 3, 2003.
11. Salle, M.(2004). IT Service Management and IT Governance: Review, Comparative
Analysis and their Impact on Utility Computing. Retrieved 20.07.2015 from
http://www.hpl.hp.com/techreports/2004/HPL-2004-98.pdf.
12. Selig, G. J. (2015). Implementing Effective IT Governance and IT Management. A Practical
Guide To World Class Current and Emerging Best Practices. Van Haren Publishing: 2nd
Edition.
13. Tohidi, H. (2011). Human Resources Management Main Role in Information Technology
Project Management. Procedia Computer Science, Volume 3, 2011, 925-929.
24
INVESTIGATING A QUALITY OF SERVICES IN THE PUBLIC

SECTOR: EVIDENCE FROM NORTHERN CYPRUS
Ovgu Cidar Iyikal
Eastern Mediterranean University, Department of Mathematics, Famagusta, Cyprus,
Mersin-10 Turkey
[email protected]
Aysem Celebi
Near East University, Department of Economics, Nicosia, Cyprus,
Mersin-10 Turkey
[email protected]
ABSTRACT
The current study aims is to investigate the service quality delivered by public enterprises in
Turkish Republic of Northern Cyprus (TRNC) and level of customer satisfaction as well as word
of mouth (WOM) in return. A convenient sampling method has been employed by using the
service quality (SERVQUAL) instrument which is used to gather customers excellent public
service and compared those with their perceptions of the service delivered by Public Sectors
which are operating in TRNC. Results of the study revealed that dimensions of reliability and
assurance exert positively significant effects on Customer Satisfaction in the public sector.
Moreover, the level of Customer Satisfaction from public services exerts positively significant
effect on positive word of mouth. Finally, with the light of findings, the current study will also
attempt to provide some recommendations about possible quality reforms and rearrangements
to the policy makers for the public enterprises in TRNC.
Keywords: Public Sector, Service Quality, SERVQUAL, Northern Cyprus.
1. INTRODUCTION
The primary goal of the businesses is to reach high profit rates by providing high quality
goods/services to the customers. Satisfying the expectations and needs of the customers is
important in todays dynamic business atmosphere since satisfied customer enhances customer
loyalty (Wilson et al., 2008) by performing repeated purchase intention (Agbor, 2011).
It could be indicated that quality of service has become a vital dimension of customer
satisfaction. The term of "consumer loyalty" just characterized as a man's approbation or
frustration when contrasting their conclusions of administrations got and their unique
administration desires (Kotler & Keller, 2006; Liao, 2012). Understanding customer
satisfaction is crucial for the organizations since it provides a deep insight about the values
which are important for the customers and how this might changes among different types of
people and thus where measurements should be taken and how these modifications could
improve delivery of services (Thjs, 2011). Thjs (2011) also stated that measurement of
customer satisfaction would create a better understanding for the organizations on several issues
such as the main factors behind the reasons of satisfaction or dissatisfaction with a service
experience and what an organization can control and cannot control. Moreover, Lewis (1994)
expressed that perceived service quality is a consumer judgment which occurs after comparing
the expectations of consumers from services with their perceptions of actual service
performance. According to Parsuruman et. al. (1988) service quality is one of the important
actors which has a significant impact to determine business survival and competitiveness in the
market and it could be conceptually identified as an extend to which customer perceptions of
service meet and/or exceed their expectations (Zeithaml et. al. 1990).
25
To be more precise, if expectations of the customers are greater than the performance, then
perceived quality would be less than the satisfactory thus customer dissatisfaction occurs
(afakl, 2007). It could be also indicated that quality of service is important aspect of
customers perception since it rooted from customer satisfaction (Kumasey, 2014). According
to Strydom, Tooste, Cant (2000), customer perception refers to a process of receiving
organizing and assigning meaning to information. Lewis (1989) indicated that customer
perceives services by relying their quality and level of satisfaction that they attained. Bitner
(1990) also mentioned that customer perceptions about services quality have an effect on
consumer behavior and intention (Dutta & Dutta, 2009).
Dutta & Dutta (2009) expressed that administration supplier ought to be commonplace about
how clients could see the administration as "quality administration" and convey euphoric
feeling. Zeithaml & Bitner (2003) said that administration supplier must focus on the variables
which may impact the client discernment, parts of administration quality and fulfillment
keeping in mind the end goal to rank on aggressive edge and create perceptual distinction which
may lead clients to see benefit as quality and perform positive verbal correspondence about the
conveyed administration if all these thought of it as could be shown that perception is one of
the components which influences consumer satisfaction.
The term of word of mouth is also one of the key consequences of customer satisfaction. As
indicated by Kitapci et. al. (2014) WOM could go about as a limited time device to impart
administration quality to other people. Anderson (1998) defined the term of WOM as an
informal communication among parties which might be related with the assessments made
about the product-related performances. Furthermore, Lang (2013) also expressed that service
quality is one of the most important element of both customer satisfaction and word of mouth
communication. WOM could be either positive in terms of recommendations to others or could
be negative in terms of private negative grievances. Suryani & Hendryani (2015) expressed
stated that as a result of motive of recommendations which carried by individuals as a form of
communication of mouth is one of the crucial actors that effects persons decision to buy.
It could be stated that customers degree of satisfaction or dissatisfaction rooted from
experiences of customers is one of the drivers of WOM (Anderson, 1998). Furthermore, Lang
(2011) stated that customer satisfaction is one of the most important antecedents of WOM while
other antecedents could be named as customer commitment, and trust. Studies revealed that
satisfied customers are tend to perform positive WOM (PWOM) (Ranawera & Prabhu ,2003;
Derbaix & Vanhamme, 2003) whereas, dissatisfied customers have more tendency to perform
negative WOM (NWOM) (Asugman,1998). Surprisingly, Parthasarathy (2010) also mentioned
that satisfied customers might also engage with NWOM about the products that they used. To
be more exact, studies likewise uncovered that rather than specialized nature of administrations,
utilitarian nature of administrations have an impact on forming WOM (Suryani & Hendryani,
2015) with the consumer loyalty plays an essential interceding role (Teo & Souter, 2012) which
related with steadfastness and WOM (Shao-Chang Li, 2013).
afakl (2007) and Heizer & Render (1999) described the term of service as an economic
activity that generally produces intangible products such as education, food, transportation,
insurance, trade, real estate, government and maintenance like occupations. Services have
different characteristics compared with goods particularly by being inseparable of production
from consumption, variability; heterogeneity and flimsiness are main specifications of services
which distinguish them from goods (Ghobadian et al., 1994, pp. 44-46).
Teicher et al. (2002) and Kumasey (2014) mentioned that client needs and needs may change
regarding taxpayer supported organizations and their quality prerequisites. Also, it could be
likewise communicated that when all is said in done terms, endeavors on administration quality
arrangements openly area is low and difficult to assess results and much more prominent weight
from open and weight make the case hard to oversee (Kumasey, 2014).
26
The importance of the public services should also stated for the current study. According to
Kumasey (2014) public services play an important role at shaping the formulation and
practising policies and programs for the common good of its citizents. As indicated by Kumasey
(2014) public sector is likewise vital for the administration's position and if there should arise
an occurrence of any disappointment of actualizing arrangements productively and reasonably
may offer mischief to the strength of the goverment. Barbu & Dimian (2012) communicated
the significance of government/public establishment on financial advancement by showing that
the productivity of its operations are extremely essential and presence of inordinate
organization, overregulation, defilement, deceitfulness and absence of straightforwardness
while managing open contracts and over the top political reliance on legal framework causes
significant monetary expenses to organizations and ease off the monetary advancement of the
country. Therefore, the main of the current study is to analyze the customer satisfaction about
the provided service quality by Public Enterprises in TRNC by employing SERVQUAL
Approach. Moreover, with the light of the findings it is important to give suggestions about the
possible quality reforms and re-arrangements to the policy-makers for the public enterprises in
TRNC. Isochenko (2012) stated that many Turkish Cypriots are unwilling to be employed in
private sector due to benefits provided by public sector to civil servants such as thirteenth
salary, reduced working hours, job security, 45 days of annual sick leave, 42 paid holidays,
and lastly generous pension packages. Studies also revealed that reduced working hours might
create opportunities to civil servants also to engage with supplementary economic activities
which are not documented therefore not subject for taxation issues (Isochenko, 2012). It could
be stated 31,276 employees are available in the workforce that are working for public
enterprises which constitutes %30,3 of the workforce of TRNC (SPO, 2014) .
The rest of the current study will structured as follows. Literature review will be mentioned in
Section 2. In Section 3 Methodology and Measures, Sample and Hypotheses of the current
study will be mentioned. Finally in Section 4 Findings and Conclusion will be indicated and
suggestions to policy implications will be mentioned for the policy makers.
2. LITERATURE REVIEW
Katrcolu et. al. (2005) studied service quality perceptions of Greek Cypriot bank customers
by employing SERVQUAL model. The scholars also extended a study by examining the
relationship among service quality, customer satisfaction and positive WOM. Authors found
that expectations of bank customers were not met where the largest gap occurred on
responsiveness and empathy dimensions whereas reliability items had the highest impact on
customer satisfaction which in turn had a statistically significant influence on the positive
WOM.
Parasuruman et. al. (1985) argued that service quality is a function of the difference which
occurs between customer perception and actual performance along quality dimensions.
Parasuruman and his colleagues proposed an administration quality model and named it as
SERVQUAL which fundamentally depends on crevice investigation. As indicated by the model
gap 5 is an administration quality setback which showed by clients and researchers additionally
recommended that a crevice 1-4 contributes for gap 5.
SERVQUAL model was applied to evaluate perceived service quality for several sectors by
various authors such as in banking sector by Katrcolu et. al. (2005), Yava et. al. (2005),
Brahmbhatt & Panelia (2008), hospitality sector by Nadiri & Hussain (2005), public services
by Anderson (1995), Wisnievski (2001), Baumann (2006), Donelly et. al. (2006), Ahmet et. al.
(2010), Gera (2011), Kumasey (2014), Kitap et. al. (2014), Anbori et. al. (2010), Yeilada &
Direktr (2010).
27
Anderson (1995) constructs a study which aimed to measure the quality of service provided by
a public pubic universities health clinic by employing SERVQUAL Model. She found that
patients were dissatisfied with five dimensions of SERVQUAL and highest dissatisfaction was
exhibited with the assurance.
Wisniewski (2001) performed a study to evaluate customer satisfaction within the public sector
across a range of Scottish Council Services. His findings stated that the gap scores particularly
on tangibles and reliability had negative gaps which indicate that customer expectations were
not met whereas responsiveness and assurance were positive which means that customer
expectations were actually exceeded by the service provided.
Baumann et. al. (2006) has carried out a research and his research revealed that effectiveness
of service providers attitude and empathy of staff leads to a higher degree of satisfaction and
as a result customers suggest to other customers to use this service.
Donelly et. al. (2006) performed a study to investigate the use of SERVQUAL way to deal with
access the nature of administration gave by police compels in Strathclyde police headquarters
in Scotland. The study likewise incorporates parallel SERVQUAL review to cops to look at
how well the power comprehends its client desires and how well its interior procedure
supporting the conveyed top policing administrations. The study uncovered that there is a
noteworthy deficiency in meeting client desires however cops are prone to comprehension the
desires of the clients. Also, holes happened at formulizing the administration quality
benchmarks in the power's capacity to meet set up principles and its capacity to convey the level
of administration it guarantees to clients.
Brahmbhatt & Panelia (2008) have conducted a study to evaluate service quality and customer
satisfaction among private, public and foreign banks by using SERVQUAL model. Their study
results revealed that service quality is at the root of customer satisfaction and also found banks
in public sector, and private sector have more service quality gaps when compared with foreign
banks. Moreover their findings also indicated on tangibility public sector banks have less
quality gaps.
Ahmed et. al. (2010) conducted a study to examine relationship between customer satisfactions,
service quality and repurchase intention for telecom sector in Pakistan. Findings of the study
were supporting that there is a positive relationship between service quality and satisfaction of
the customer and findings also revealed that there is a positive relationship between service
quality retention and future retention of the customers.
Anbori et. al. (2010) suggested a linkage between patient satisfaction and service quality. Study
revealed that empathy and assurance which mainly represent word of mouth communication
had a strong effect on patients desire to revisit the hospital.
Furthermore, Yeilada & Direktr (2010) conducted a study which aimed to examine the level
of customer satisfaction for the public healthcare services in TRNC. Results indicated that while
all three dimensions are somewhat have an effect on patients satisfaction in public hospitals,
have no significant effect on satisfaction.
Gera (2011) also carried out study to look at relationship among administration quality, esteem,
consumer loyalty and behavioral expectations in an open area bank in India. He found that
administration quality has an altogether impacting consumer loyalty and worth perceptions.
Kumasey (2014) performed a study which aimed to measure the quality and customer
satisfaction for Ghanian Public Bank by practicing SERVQUAL model. His findings were
supporting the statement of service quality significantly and positively related with customer
satisfaction and customer perception and expectation is also significantly and positively related
with customer satisfaction.
Kitapci et. al. (2014) has conducted a research based on Public Healthcare Industry in Turkey
and found that customer satisfaction; WOM and Repurchase Intentions (RI) are significantly
related to each other.
28
3. METHODOLOGY
3.1 Instrument
The questionnaire which is the revised instrument of Parasuraman et al. (1988) used in the
current study is consisted of three parts. Part A covers the demographic profile of the
respondents including gender, age, marital status, occupations, nationality, and education level.
Part B includes the expectations and perceptions of respondents regarding the services provided
by public enterprises in TRNC by using a seven point Likert Scale ranging from 1=Strongly
Agree to 7=Strongly Disagree . In Part C contains questions to measure the level of
customer satisfaction on public enterprises again by using a seven point Likert Scale ranging
from 1=Strongly Agree to 7= Strongly Disagree.
3.2.Sample
As a sample size number of population was determined as 350 and convenient sampling
method was used for the current study. On the whole, 100 of the respondents were not fulfilling
the criteria needed to fill out the questionnaire and proved as useless for under consideration.
The response rate was determined as 71% since 250 units were collected back as a complete
and useable form.
The required data collected during June to August 2015 from willing respondent. A willing
respondent in this research includes public sector customers who have made use of public
services including tax, immigration, deed, social security and other public offices.
3.3.Hypothesis
As previously stated the current study concentrates on the effect of customer satisfaction and
WOM regarding the quality of service provided by the public enterprises in TRNC by
employing SERVQUAL model. The following hypotheses which consistent with introduction,
literature review would provide scope and depth of the study.
H1: SERVQUAL dimensions exert positively significant effect on Customer Satisfaction in
public sector.
H2: Level of Customer Satisfaction from public services exerts positively significant effect on
word of mouth.
4. FINDINGS AND DISCUSSION
Table 1. shows that out of the 250 participants, 143 (57.2 %) of the respondents were female
and 107 (42.8 %) were male. As for the level of age of respondents, 93 (37.2 %) were between
the ages of 31-40. As for the marital status, the 149 (59.6 %) of respondents indicated as
married. A total of 109 (43.6 %) of public service customers were engaged in private sector.
On the other hand, out of the total sample size of 250 respondents, 229 (91.6 %) were TRNC
citizens. As for the monthly income level almost half of the respondents, 131 (52.4 %), salaries
were 2700 Turkish Lira and more. Furthermore, in terms of the education level, 112 (44.8 %)
were university graduates. A total of 108 (43.2 %) public service customers were living in
Nicosia.
29
Public Services Customers N=250

Frequency
%
Age:
Less than 20
21 30
31 40
41 50
50 and above
Total
Gender:
Female
Male
Total
Marital Status :
Single
Others
Married
Total
Occupation:
Civil Servant
Retired
Student
Private Sector
Self-employed
Total:
Nationality:
Others
TRNC
TR
Total
Monthly Income Level:
1500-1800 TL
1800-2100 TL
2100-2400 TL
2400-2700 TL
2700 + TL
Total
Education :
Primary School
Secondary School
High School
University Graduate
Post Graduate
Phd
Total
Area of Living:
Iskele
Kyrenia
Guzelyurt
Nicosia
Famagusta
Total
6
81
93
37
33
250
2.4
32.4
37.2
14.8
13.2
100
143
107
250
57.2
42.8
100
82
19
149
250
32.8
7.6
59.6
100.0
43
23
33
109
42
250
17.2
9.2
13.2
43.6
16.8
100.0
3
229
18
250
1.2
91.6
7.2
100.0
56
23
22
16
131
250
22.4
9.2
8.8
6.4
52.4
100.0
1
2
51
112
49
35
250
.4
0.8
20.4
44.8
19.
14.8
100.0
13
28
7
108
93
250
5.2
11.2
2.8
43.2
37.2
100
Table 1. - Demographic Distribution of the Data.
30
Table 2. shows the grand mean scores for the five SERVQUAL dimensions indicated in the
study. Grand mean scores have been given for public service customers on the basis of
expectations (E), perceptions (P) and gap scores (G).
When gap scores are evaluated, the numbers denotes that expectations of customers are
greater than a perception which exerts positive significant scores for five dimensions.
SERVQUAL Dimensions
Tangibles
Reliability
Responsiveness
Assurance
Empathy
5.6250
6.1464
5.6057
6.2681
4.9764
4.3397
4.3953
4.4231
4.5940
4.0256
1.2853
1.7511
1.1826
1.6741
0.9508
Table 2. - Grand Mean Scores of Public Service Customers for Five SERVQUAL Items.
NOTE: E represents expectations , P represents perceptions and G as gap scores.
Figure 1. illustrates the positive effects of the SERVQUAL dimensions on the public service
customers for the prediction of relationship between overall satisfaction and the strength on
positive word of mouth (PWOM). The hypothesized relationship for customers indicated that
reliability and assurance have a positive effect on overall customer satisfaction and after in
relation with this, also positive word of mouth about the public sector.
Reliability
Assurance
Tangibles
Overall
Satisfaction
Empathy
Word of
MouthWord of
Mouth
Figure 1. - SERVQUAL Dimensions, Overall Customer Satisfaction and Word of Mouth

Hypothesized Relations.
NOTE: Proved connection
, Unproved connection
Table 3. gives the regression results for Model 1 and Model 2. The Model 1 is a multiple
regression model of estimating the effects of SERVQUAL items on overall satisfaction level of
public services customers. In Model 1 of Table III it is shown that all of the service quality
items are statistically significant for overall satisfaction of public services customers. 53% of
variation in overall satisfaction is explained by Model 1. In Model 2 of Table III, it is clear there
is an effect of overall satisfaction of customers on their positive word of mouth and also it is
statically significant. 69% of variation explained by Model 2.
31
Variables
Model 1: S b0 b1 (T ) b2 ( R) b3 (Re ss) b4 ( A) b5 ( E) et
Coeff.
t-statistics
b0
0.455
1.085***
b1
0.139
1.069***
b2
0.524
-0.336
0.579
-0.056
0.528
23.678*
3.429*
-1.661
2.500*
-0.274
0.853
3.791*
0.840
18.566*
b3
b4
b5
R2
F statistics
Model 2: PWM b0 b1 (S )
b0
b1
0.687
344.712*
R
F statistics
Table 3. Overall Satisfaction and Positive Word-of-Mouth Regression Models.

Notes: *Significant at 1%, **Significant at 5%, ***Significant at 10%.
According to the factor analysis, Table 4. shows that: all service quality dimensions are
statistically significant except one factor (P20) as follows. For the reliability analysis, the alpha
coefficient for the total scale was 0.924, 0.951, 0.875, 0.937 and 0.901 respectively for the
dimensions of tangibles, reliability, responsiveness, assurance and empathy. The reliability
coefficients are above 0.85 so they are sufficient.
32
Tangibles
P1.XYZ public enterprise
has
modern
looking
equipment.
`s physical facilities are
visually appealing.
`s
reception
desk
employees
are
neat
appearing.
P4.Materials
associated
with the service are
visually appealing at XYZ
public enterprises.
Reliability
P.5 When XYZ public
enterprise promises to do
something by a certain
time, it does so.
P.6 When you have a
problem, XYZ public
enterprise shows a sincere
interest in solving it.
P.7 XYZ public enterprise
performs the service right
the first time.
provides its service at the
time it promises to do so.
insists on error free
records.
Responsiveness
P.10 Employees in XYZ
public enterprise tell you
exactly when the services
will performed.
public enterprise give you
prompt service.
public
enterprise
are
always willing to help you.
public enterprise are never
to busy to respond to your
request.
Assurance
Initial
Extraction
1.000
0.776
1.000
0.850
1.000
0.623
1.000
0.835
1.000
0.763
1.000
0.763
1.000
0.827
Cronbach Alpha
0.924
0.951
1.000
0.757
1.000
0.787
1.000
0.778
1.000
0.796
1.000
0.618
1.000
0.816
(continued below / next page)
33
0.875
P.14 The behavior of

employees in XYZ public
enterprise
instills
confidence in you.
P.15 You feel safe in your
transactions with XYZ
public enterprises.
public
sector
area
consistently our teous with
you.
public enterprise have the
knowledge to answer your
questions.
Empathy
P.18
XYZ
public
enterprise
gives
you
individual attention.
P.19
XYZ
public
enterprise has operating
hours convenient to all its
customers.
P.20
XYZ
public
enterprise has employees
who give you personal
attention.
P.21
XYZ
public
enterprise has your best
interest at heart.
P.22 The employees of
XYZ public enterprise
understand your specific
needs.
1.000
0.878
1.000
0.801
1.000
0.820
1.000
0.762
1.000
0.817
1.000
0.849
1.000
0.355
0.937
0.901
1.000
0.722
1.000
0.768
Table 4. - Factor Analyse Results of the Public Sectors Where, Overall Cronbach Alpha
Coefficient is 0.974 and the p-value=0.000.
Table 5. shows the first three components have eigen-values greater than one and the others
are less than one. Thus the model important components are P1, P2 and P3.
Component
P1
P2
P3
P4
P5
Initial Eigenvalues
% of Variance
65.773
5.688
4.726
4.023
2.821
Total
14.470
1.251
1.040
0.885
0.621
Table 5. - Principal Components Analysis for the Dimensions.
34
5. CONCLUSION
The main aim of the study is to measure the service quality provided by the public enterprises
in TRNC by employing Parasuruman et al. (1988) SERVQUAL Model and Seven- Point
Likert Scale. Results of factor analysis confirmed the suitability of the instrument in the current
research study. Results also expressed that, expectations of the respondents regarding the
quality of service (E) which provided by the public enterprises was higher than the perceived
quality of services provided (P) which indicates customers are dissatisfied with the quality of
the services provided by the public enterprises in TRNC.
Regression results suggest that only dimensions of reliability and assurance have exerted
positively significant effects on the overall customer satisfaction in public sector of TRNC.
Therefore, H1 (SERVQUAL dimensions exert positively significant effect on Customer
Satisfaction in public sector) should be rejected. Furthermore, regression results suggest that
level of customer satisfaction from public services exerts positively significant effect on word
of mouth so H2 (Level of Customer Satisfaction from public services exerts positively
significant effect on word of mouth) should be accepted.
Managerial Implications
Although there are numerous factors might influence service excellence the most important
factor could be stated as employee-customer relationship. Thus, TRNC government might
pay considerable attention to employee training programs which should be designed to improve
interpersonal communication and of shaping attitude to be more customer- oriented to create
better understanding about the nature of service culture, service excellence and satisfying the
need of customized service. Moreover, with the help of the training program employees will
have more constructive view which could enable them to be more empathic while engaging
with service provision. Therefore, providing a service with altered failures would increase
chances of removing the gap between expectations of the customers about service to be
provided and perceptions of the customer about the provided service.
Aesthetics and contemporary image are important determinants that shape the impressions of
customers towards to corporate image which could be fundamental indicator of the service
quality. To be more precise, overall impressions shape customer opinions about quality of
service. Therefore, policy-makers in TRNC could supply a financial aid to its enterprises to
renew office supplies and furniture, may organize restoration work for the building, and also
print some brochures to give some detailed information about the provided services.
Changes of the nature of providing services could also play important role at overall customer
satisfaction as most of the service providers prefer to serve their services by ICT. As previously
indicated internal consistency for serving 24 hours has the lowest internal consistency and one
reason behind of it could be the expectations of e-public services of TRNC citizens. Therefore,
TRNC government may also engage with investments to construct user friendly web sites to
the public enterprises and hire a technical staff member to each enterprise to monitor the
demands of the citizens and satisfy their needs. In other words, e-government would allow
public enterprises to be more accessible.
Limitations and Future of the Study
As previously stated that SERVQUAL model has applied for the current study to measure
service quality which provided by the public enterprises in TRNC. The planned sample size for
the present study was 350 however respondents found employed questionnaire was quite long
and researcher has also spent time to explain some of the questions in the questionnaire to
reduce the risk of misunderstanding. To be more precise employed model was quite time
consuming both for respondents and researcher. According to Zeithaml and Bitner (1996)
contact employees or front-line employees represent the enterprise therefore, might have a
35
direct effect on customer satisfaction Moreover, it could be indicated that front- line employees
in service sector might function either the advantage or disadvantage of the enterprises
(Munhurrun et. al. 2010). Munhurrun et. al. (2010) mentioned that front-line employees also
well-informed about the way in which the services are provided. Moreover, Munhurrun et al.
(2010) also stated that customers construct their impressions of the organizations level
regarding the service provision by relying their encounters with front-line employees. Thus
front-line employees in service sector might be helpful to supply information for improving the
quality of service provided. It could be expressed that public enterprises which are operating
in Northern Cyprus need to restructure their corporate image and identify new quality standards
for service excellence. Therefore, government may conduct SERVQUAL questionnaire model
to customers sector employees and a may also draw attention to Front-Line Employees(FLE)
in order to investigate how closely customer expectations of service and Front Line
Employees perceptions of customer expectations match thus contribute to restructuring image
of enterprise and determining the new quality standards for service excellent and also reduce
the gap between expectations and perceptions.
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38
NEOLIBERALISATION AT THE LOCAL SCALE: CONTENT ANALYSIS OF

THE TEXTS ABOUT NEOLIBERALISATION OF THE LOCAL
COMMUNITIES PUBLISHED IN ANTIPODE JOURNAL, 2010-2013
Petar Kurecic
University North, Koprivnica, Trg arka Dolinara 1, Croatia
[email protected]
Goran Kozina
University North, Varadin, Ulica 104. brigade 3, Croatia
[email protected]
ABSTRACT
The paper represents a study of papers published in Antipode A Radical Journal of
Geography, from 2010 to 2013, in which, as to the authors assessment, a highly critical stance
towards contemporary neoliberalism exists. After the introductory remarks describing the
nature of neoliberalism and its definitions, relevant sources regarding the definitions of
neoliberalism and its present existing forms were consulted and pointed out. The intent of this
paper is to present what kind of critical stance was present in the texts published in Antipode
in the period of four years (2010-2013). The discourse that was used to describe, characterize
and critically judge the contemporary relationship of neoliberalism towards local communities
was identified and analyzed. The basic content analysis of the selected texts from Antipode was
made. Emphasizing the importance of scale in studying the processes of globalization and
neoliberalisation (among others), the main topics that were studied in the research of
neoliberalisation at the local level were: gentrification and privatization of former public
space, privatization of local resources, the influence of neoliberalism on the immigrants in
specific communities, and the resistance to neoliberalisation through the social protests in local
communities. The focus of the analysis was on the words used to describe neoliberalisation of
the aforementioned areas of social life and the context in which those words were used, through
the analysis of full citations. The analysis has shown that neoliberalisation at the local scale
has its specific occurrences, forms, subjects, and objects. The pressure from the private capital
is transforming the local communities, and concurrently causing resistance that is taking
various forms.
Keywords: neoliberalisation, Antipode, local communities, public space, privatization, urban
resistance movements.
1. INTRODUCTION: DEFINITIONS AND THEORETICAL FRAMEWORK
There are dozens of different definitions of neoliberalism. Pointing out just a couple of them,
we can state the following:
1. Neoliberalism is a project primarily aimed at freeing capital from the constraints
imposed by these embedded liberalisms, and more directly as a process ultimately
focused on restoring the class power of economic elites. (Harvey, 2005: 11);
2. Neoliberalism names an approach to governing capitalism that emphasizes liberalizing
markets and making market competition the basis of economic coordination, social
distribution, and personal motivation. It recalls and reworks the 18th and 19th century
liberal market ideals of economists such as Adam Smith and David Ricardo. And yet it
is new hence the neo insofar as it comes after and actively repudiates the
39
3.
4.
5.
6.
7.
8.
9.
interventionist state and redistributive ideals of welfare-state liberalism in the 20th

century. (Sparke, 2013: 1);
Neoliberalism is a simple withdrawal of the state from markets and society via trade
liberalization, privatization, reduced entitlements, and government deregulation. (Hess,
2011: 1056);
Neoliberalism is an ideological hegemonic project, selectively rooted in the free market
and non-interventionist state philosophy of classical liberalism, and internationally
propagated by think tanks and intellectuals like Hayek and Friedman in their assault on
egalitarian liberalism. (Peck and Tickell, 2007);
Neoliberalism is a specific policy and programa process of creative destruction that
aims to replace the national institutional arrangements and political compromises of
Keynesian-Fordism with a new infrastructure for market-oriented economic growth
set within a globalizing and financializing economy. (Brenner and Theodore, 2002:
362);
Neoliberalism is as a form of governmentality, which follows Foucauldian ideas in
emphasizing how neoliberal governmental power operates in multiple sites and scales
from the state down to the personal level not through imposition or repression but
rather through cultivating the conditions in which non-sovereign subjects are
constituted as entrepreneurial, self-reliant, rational-economic actors (Hart, 2004: 92).
Neoliberalism defines a certain existential norm. This norm enjoins everyone to live
in a world of generalized competition; it calls upon wage-earning classes and
populations to engage in economic struggle against one another; it aligns social relations
with the model of the market; it promotes the justification of ever greater inequalities;
it even transforms the individual, now called on to conceive and conduct him- or herself
as an enterprise. For more than a third of a century, this existential norm has presided
over public policy, governed global economic relations, transformed society, and
reshaped subjectivity. (Dardot and Laval, 2013: 3);
Neoliberalism seeks to disaggregate communities into discrete units, each with an
economic value. (Narsiah, 2010: 390).
Amid widespread privatization, cuts to public expenditure, and reduced social transfer
programs, violence has become both a conduit of societal bigotry and an attempt by
beleaguered states to regain their footing (Goldberg, 2009). Violence from above comes
attendant to both roll-back neoliberalism, where regulatory transformation sees the
state narrowly concerned with expanding markets to the peril of social provisions, and
roll-out neoliberalism which concentrates on disciplining and containment of those
marginalized by earlier stages of neoliberalization (Peck and Tickell, 2002). (Springer,
2011: 549).
When discussing the possible answers to the question whether the neoliberalism has completely
taken over the world and in what ways, we always have to consider the matter of scale and the
categories that we are referring to, since a positive development in one scale/category at the
same time can mean a negative development in some other scale/category. For example, the
fact that many Asian states are experiencing high growth rates and have managed to pull
hundreds of millions of people from the extreme poverty does not mean that the workers in
these states are not exploited. Concurrently, the fact that European and North American workers
generally experience better working conditions and living standard than Asian does not mean
that their position and rights have not deteriorated in the last two or three decades. The changes
40
in the geographic distribution of the economic power, and consequently the political, and
military power that have shifted a significant portion of power from the West to Asia, have not
significantly changed for the better the position of the majority of the population in the Newly
Industrialized Countries (NICs). Therefore, we always have to keep in mind that we are
discussing two different categories/scales:
1) State, region, realm, and continent, as categories, quantified in absolute numbers measured
in absolute scales: GDP, number of political initiatives and its orientation and success, absolute
defence spending and so on. In this sense, we can also consider GDP per capita to be an absolute
measurement since it provides no information about social inequality, working conditions,
environment pollution etc. Besides the quantitative indicators, we can characterize these
categories through qualitative descriptions, for example: the regions of East, South, and
Southeast Asia have become the workshops of the world.
2) Populations of the states, regions, realms, continents as categories quantified through
relative indicators that show the relations between different portions of the population (GINI
index etc.), and the economic position of different parts of the population: GNI per capita
income, HDI, living standard, working hours and conditions, social security, health insurance,
pension schemes etc.
The main problem for the workers all around the world is that neoliberal globalization has
made, through its strategies of class decomposition, marketization, the naturalization of
individualism, the intense competitive struggle between every worker on the planet possible
(The Free Association, 2010: 1025). Consequently, the large masses of disciplined workers with
skills that are above average for a particular kind of production are the greatest benefit that can
maximize the profits of the capitalists. Since these masses of workers can only be found in the
afore-mentioned parts of Asia that comprise about a half of the worlds total population, and in
the states that mostly have stable regimes (whether democratic or autocratic), they have become
the workshops of almost the entire world. The reduction of extreme poverty is one of the
achievements of the contemporary era. However, it is mostly based on the exploitation of
hundreds of millions that have no alternative they can either try to survive on subsistence
agriculture or become industrial workers, and work in conditions and for wages that are
unimaginable for workers in the developed world. The doctrine of neoliberals (There Is No
Alternative TINA) is indeed lived by the hundreds of millions of workers in the developing
and emerging economies, but for them it means something completely different than for the
elites that are pursuing this doctrine. The cultural implications of a rapid economic development
that occurs in the large parts of Asia can be viewed as the success in gradual acceptance of the
contemporary capitalist model, which is intellectually developed in the West. However, these
states have kept the role of the state in their development very firm, through the protection of
their own markets. The West, as the arena where capitalism has developed, experiences the
crisis of that same capitalism. At the same time, capitalism seems to function better in the states
that have basically accepted capitalism, and its different neoliberal forms, which are mostly a
heritage of the West. Does that mean that capitalism in the West has passed through its zenith
and that geographic re-distributions of capitalisms successes i.e. the changes in the distribution
of the economic power also mean a difference in the temporal stages of capitalism? Is thereby
the Western capitalism older or more mature than the capitalism in Asia, and is that the
reason why it is experiencing a crisis that is much less experienced outside the developed,
mainly Western states? We can conclude that Asian economies practice two concurrent
practices: neoliberalism for the workers, and the state-managed capitalist development, with a
full support of the state for the investors and transnational corporations, concurrently protecting
their markets. The connectedness of economies makes this presumption questionable, since if
the economies are complementary, then one economys difficulties are not automatically
another economys benefits. If the economies are mutually highly competitive, then we can
41
discuss whether difficulties for one side mean benefits for the other. Nevertheless, the economic
development of the world cannot be perceived as a simple zero-sum game, so we definitely
cannot conclude that more crises for the developed economies consequently mean more
economic growth for the underdeveloped or emerging economies. The current economic crisis
has made position of the workers in most of the developed states worse the living standard of
the average family has decreased, health and social insurance are getting more and more
expensive, and labor markets have become flexible. Flexible labor markets in the
developed economies mean less workers rights, especially referring to a certainty of finding
and keeping a decent job in a reasonable time-frame. Neoliberalism has made workers from the
underdeveloped and developed states competitors, and that is the biggest achievement of the
neoliberal capitalist elite. Concurrently, it is the biggest defeat of the working class that is now
highly atomized, with no real aims, goals, and the means to achieve these goals. The worker
has become disposable, and the biggest value of product, which is comprised in the work that
is necessary for its production, has become even more underappreciated. The capitalists profits
have exploded, just like it was about a hundred or a hundred and fifty years ago, in the era of
imperialist and monopolist capitalism. Throughout the middle of the 20th century, capitalism
has made concessions, accepting a Keynesian perspective and creating a welfare state in the
already developed states, thereby limiting the possibility of a peaceful or non-peaceful socialist
revolution in these states. Since the 1970ies and especially 1980ies we are witnessing the era
of the neoliberal capitalism, which does not have considerations about the possibility, since it
was already clear that the socialist model, as it was realized in the communist bloc, was not so
attractive and sustainable, as it was perceived in the 1950ies or 1960ies. Consequently,
capitalism has made a full circle in the 20th century, from its brutal and exploitative form of
monopolistic and imperial capitalism in the late 19th and in the first four decades of the 20th
century, through Keynesianism and the creation of the welfare state, up to a neoliberal, brutal,
and more exploitative form, starting from the end of the 20th century and continuing into the
21st century. After the introductory remarks and the various definitions of neoliberalism, this
paper brings a brief study of papers published in Antipode A Radical Journal of Geography1
(further in the text: Antipode), from 2010 to 2013, in which, as to the authors assessments, the
neoliberalisation of the contemporary communities, and particularly cities, was discussed,
hence there is a well-known historically proven connection between capitalism and
urbanization2. Therefore, this topic was chosen in order to analyze how the authors that
published in Antipode from 2010 to the beginning of 2014 studied and discussed the new
developments in the contemporary, neoliberal capitalism, primarily regarding the
neoliberalisation of cities.
2 METHODOLOGY
The paper analyses the neoliberalisation of communities in the texts published in Antipode in a
2010-2013 period. In order to analyze the discourse that was used to describe and characterize
the relationship of neoliberalism towards communities, particularly cities, the basic content
analysis was used: the research focused on key words and phrases that were identified in most
of the texts, and the presence of these key words and the context in which they were used was
the criteria for selecting of the texts that were analyzed. The key words used for the analysis
1
http://antipodefoundation.org/about-the-journal-and-foundation/a-radical-journal-of-geography/.
From their very inception, cities have arisen through the geographical and social concentrations of a surplus
product. Urbanization has always been, therefore, a class phenomena of some sort, since surpluses have been
extracted from somewhere and from somebody (usually an oppressed peasantry) while the control over the
disbursement of the surplus typically lies in a few hands. This general situation persists under capitalism, of
course, but in this case there is an intimate connection with the perpetual search for surplus value (profit) that
drives the capitalist dynamic. (Harvey, 2008: 2)
2
42
were the following: neoliberalism (i.e. neo-liberalism) and/or neoliberalisation. The context of
usage of the key words was also analyzed, through the analysis of sentences and/or full citations
in which the key words were used.
3. DISCUSSION
The analyzed texts covered these main topics:
1. Gentrification and privatization of a former public space in the large cities;
2. Privatization of the local resources, such as the water supply;
3. The influence of neoliberalism on the immigrants in the specific communities,
especially on the illegals;
4. The resilience and resistance to neoliberalisation through the social protests in the local
communities.
Gentrification and privatization of a former public space in the large cities
Globalization has brought a more important role of the cities that even before. The process of
urbanization is firmly connected with a modern development3, as well as with capitalism
generally. The topic of gentrification4 was covered by the various consulted authors that have
showed, on different examples, how communities are being changed under the influence of
capital and private investment. The nature of capitalism is thereby directly produced into the
public space that becomes more and more private, concurrently becoming separated (literally
fenced from the new, shrunken public space). Springer (2011) discusses the public space as
emancipation: By employing radical notions of public space through an ordinary cities
approach, we may improve our understandings of the relational geographies of neoliberalism,
where each local contestation of public space can be read as a nodal point of interconnection
in socially produced space. (Massey, 2005) (527) Democratic struggle grounded in public
space offers a chance not only for those most oppressed by neoliberalism to demand social
justice, but for the integral totality of human society to seek a new way forward through
agonistic politics. (528)
The importance of cities has increased, as Castells and Hall (1994) and Scott (1998) argue, in the sense that
they have become crucial nodes in the formation and management of global economic networks. Additionally,
during the same period mass migration has accelerated primarily towards the cities of developed countries,
which are becoming more multi-cultural and cosmopolitan. (Labrianidis, 2011: 1801)
A citys development depends not only on its capacity for value production, but also on its ability to enhance this
value and to capture it (Liu and Dicken, 2006: 1232). Yet the endogenous characteristics of an economy are not
enough to promote development in times when competition becomes increasingly globalized (Coe et al, 2004).
Thus, in relentless competition, cities attempt to attract the largest possible share of mobile capital to their own
locale. (Labrianidis, 2011: 1803)
4
Harvey points out: A process of displacement and what I call accumulation by dispossession also lies at the
core of the urban process under capitalism. It is the mirror image of capital absorption through urban
redevelopment and is giving rise to all manner of conflicts over the capture of high value land from low income
populations that may have lived there for many years. () Also pointing out Mumbai as an example of
gentrification, Harvey states: Financial powers backed by the state push for forcible slum clearance, in some
cases violently taking possession of a terrain occupied for a whole generation by the slum dwellers. (Harvey,
2008: 10-11)
In the developed world, dispossession also takes place, slightly different: Similar examples of dispossession
(though less brutal and more legalistic) can be found in the United States through the abuse of rights of eminent
domain to displace long-term residents in reasonable housing in favor of higher order land uses (such as
condominiums and box stores). (Harvey, 2008: 11)
http://www.fastcompany.com/1673037/david-harveys-urban-manifesto-down-suburbia-down-bloombergs-newyork.
43
Springer (2011) further explains: The realization of a radical democratic ideal grounded in
public space is of primary importance to the achievement of any emancipatory goal that seeks
to transform neoliberalisms violent geographies of exclusion, inequality, and poverty, but
cautions that this process of transformation itself lamentably runs the risk of violence precisely
because the political terrain has been so sharply narrowed by neoliberal anti-politics. Thus,
while the focus is theory, the underlying concern is always with a view towards praxis. (529)
The predominance of neoliberalism means that the ordered vision of public space has become
the primary model available to ordinary cities insofar as it represents the interests of capital.
(554). Discussing the topic of open green spaces in Berlin, Rosol identifies these as outcomes
of neoliberalism as well: The emergence of open green spaces maintained by volunteers can
only be understood against the background of roll-back neoliberal urban politics and that their
rationality cannot be separated from roll-out neoliberalism.5 (240) Roll-back neoliberalism
(Peck and Tickell, 2007) with its cuts in public spending and re-orientation of the role of the
local state prepared the ground for new forms of creating and maintaining public green spaces.
(249) Open green spaces maintained by volunteers emerge against the backdrop of roll-back
neoliberal urban politics and their rationality cannot be separated from the reality of roll-out
neoliberalism.(250). Didier, Morange and Peyroux (2013) have devoted their paper to the
abilities that neoliberalism has to adapt to the local scale. They have discussed the topic of City
Improvement Districts (CIDs) in Cape Town and Johannesburg: The local tension around
CIDs has actually led over the past decade to adaptations of the original model, exemplifying
the creative capacity of neoliberalism to overcome internal contradictions and local resistance
in Johannesburg and Cape Town. (121) South African cities with their legacy of political
struggle, social, and most especially racial inequalities, and the post-apartheid expectations of
a middle income country constitute a unique terrain far from the heartland of neoliberalism to
unravel the dialectical nature of this adaptation, a structural process that fosters the resilience
of the model. (123). Not omitting the component of social awareness and action, the authors
claim: Unpacking local Third Ways rhetoric might also help to strengthen the awareness of
those combating neoliberalism, in particular social movements: this approach enables one to
see how discourses adopt new political guises while pursuing a similar agenda (see also Peyroux
2012). This awareness can prompt a better political reactivity to the local variations of
neoliberalism and contribute to connect CID criticisms and broader mass protest against
neoliberalisation in South Africa. (134). Lauermann and Davidson (2013) have discussed
development strategies across neoliberal urban governance projects: Viewing particular forms
of neoliberalism as functioning always in relation to universal capitalist logics therefore enables
an ideologically contextualized analysis of particular governance projects. Calls to focus on
capitalism within neoliberalism studies are not new. Using the example of mega events, we
have attempted to demonstrate the utility of this framework for understanding the particularities
of neoliberalism while at the same time remaining committed to a critical examination of
capitalism. () Neoliberalism is the currently hegemonic component of ideological processes
that make this assemblage possible, and any contestation of neoliberalism necessarily entails a
political engagement with fundamental antagonisms within capitalism. (1293)
Peck and Tickell introduced a helpful analytical differentiation of neoliberalisation processes, distinguishing the
roll-back of the Keynesian welfare state in the 1980s from the roll-out of neoliberal institutions in the 1990s,
which they see already as a response to neoliberalisms immanent contradictions (Peck and Tickell, 2002). This
roll-out neoliberalism involves new state forms, new modes of regulation, new regimes of governance, with the
aim of consolidating and managing both marketization and its consequences (Peck and Tickell, 2007: 33, see also
summary p 34) (240-41).
44
Privatization of the local resources

Through the discussion about the privatization of water services in Cape Town, South Africa,
Narsiah (2010), points out: Through the product of a Western imaginary, neoliberal ideas and
practices have entered into the economic and social life even of recently liberated societies,
such as South Africa. () Neoliberalism has percolated through to the local scale, leading to
the neoliberalisation of the local state. One of the ways in which this has been articulated is
through privatization strategies. (374) In South Africa, and with special reference to the city
of Cape Town, the ostensible corporatization of water services is evidence of the rollout phase
of neoliberalism. (378). Wilshusen (2010) discusses the alteration of modes of production in
local communities in Mexico, with a special focus on the role of ejidos6: Drawing on research
from nine communities in the state of Quintana Roo, I argue that local producers have
accommodated neoliberal policies and programs in creative ways by adopting hybrid logics,
property regimes, forms of organization, and modes of exchange. (768). Whereas neoliberal
policies emphasized individuals and small producer groups as their main economic subjects,
collectivism focused on the role of ejidos and ejido associations. (777) Wilshusen also points
out: As one of the primary formal institutions that define the bureaucratic field of community
forestry in Mexico, changes to national forest policy illustrate this hybridization of
neoliberalism and collectivism. (778) In this case, neoliberal reform did not produce a sudden
and complete transformation at the local level but rather represented one of many historical
waves of state-led institutional changes that evoked local responses within the context of
existing political histories and cultures. (793). In the text that covers the topic of local energy
supply, Hess (2011) suggests the benefit of an analytical distinction between the ideological
and distributional dimension of policies: For example, the deregulation of a heavily regulated
industry may allow increased competition and lower prices for consumers, thus reducing elite
profits and enhancing savings for a wide range of consumers in the short term. In this sense, a
neoliberal policy has a redistributive effect, and in fact neoliberal policies are often framed by
such promises in order to gain widespread political support. However, in the longer term the
industry may respond to the increased price competition by reducing wages or undergoing
consolidation, thus moving the distributional impact of the policy up the continuum toward elite
accumulation. (1060-61). On first glance, the gradual transition of the American electricity
industry that occurred from the 1970s, from a highly regulated public utility system to
marketplace competition, might be viewed as a transition from social liberalism to
neoliberalism. (Hess, 2011: 1063) In terms of the typology developed above, green pricing
arrangements are an example of the ethical markets of redistributive neoliberalism that have
been enabled by wholesale competition in electricity markets. In this case, environmentally
concerned customers pay a voluntary tax that, in theory, supports a marginal increase in green
power generation that is locally and publicly owned. Again, what might first appear to be a
neoliberal policy (a voluntary green tax) is associated with local public ownership. (Hess,
2011: 1071)
Ejido, in Mexico, village lands communally held in the traditional Indian system of land tenure that combines
communal ownership with individual use. The ejido consists of cultivated land, pastureland, other uncultivated
lands, and the fundo legal (town site). In most cases the cultivated land is divided into separate family holdings,
which cannot be sold although they can be handed down to heirs. The increasing fragmentation of the land
caused by the family inheritance pattern has in some cases resulted in an inefficient scale of operation. This
result, together with a lack of capital and limited educational attainment, has retarded progress in ejido
agriculture. Some cooperatively run ejidos, however, particularly in the cotton-raising areas, have shown great
success.
More in: http://www.britannica.com/topic/ejido.
45
The influence of neoliberalism on the immigrants in the specific communities, especially

on the illegals
In his text about illegality as a technique of neoliberal governmentality, Hiemstra (2010)
emphasizes how neoliberalism permeates scales, and comes to be reflected and embedded in
local-scale economic, political, and social processes involving immigrants in the USA. ()
Understanding illegality as governmentality is a powerful tool for scrutinizing the local scale,
a scale at which neoliberalisms diffuse operations become particularly visible. (75). Hiemstra
(2010) also points out the following: While neoliberalism viewed through the lens of
governance draws the scholarly gaze to macroscale, unidirectional state practices (Leitner et al
2007c), neoliberalism understood through the lens of governmentality draws attention to
neoliberalisms scattered, indirect impacts that include both state and non-state practices, as
well as combinations of the two. () He then applies this framework to Leadville, Colorado,
a place that is experiencing dramatic economic, social, and demographic changes due to
neoliberalism. (77) Illegality, through the power of the law and the accompanying discourse,
operates as an indirect yet profoundly powerful technique of governmentality in support of the
contemporary neoliberal system by enforcing and naturalizing spatial and economic distance.
Many residents are lulled into complacency with neoliberalism, not bothering to question the
blatant disparities in class and space along racial markers. (93-94). Matejskova (2013)
examines how middle-aged and older post-Soviet immigrants in eastern Berlin navigate the
neoliberalised landscape of work-based integration in face of their long-term unemployment:
I first show how these immigrants own insistence on the centrality of paid work for their
feeling integrated contributes to their experience of collective despondency and enrollment in
exploitative quasi-markets, including workfare. Focusing on this insistence, I examine how it
draws strength primarily from their continued subscription to the conceptions of self as deeply
socially embedded, and of work as a practice of such an embedding, adopted through their
Soviet-era socialization into the culture of dispersed personhood and obligation to work, rather
than from their adoption of neoliberal concepts of citizenship in Germany. (984)
Buckley (2013) discusses processes of neoliberalisation in Dubai through a case study of the
local politics surrounding migrant construction workers in the city. The author studies what
specific strategies have characterized the contemporary regulation of Dubais foreign
construction workforce and what do they reveal about processes of neoliberalisation underway
in the city? He also studies how equipped are critical theories of neoliberalism to make sense
of these strategies, and how do they shape our understandings of the constraints and possibilities
for labor justice in an autocratic, authoritarian city-state? He suggests that depictions of
autocratic neoliberalism in Dubai which view the state as territorially hegemonic tend to ignore
the informal and fragmented labor politics at work in the city, and overlook some of the
antagonisms between the states autocratic and neoliberal interests. (257)
The resilience and resistance to neoliberalisation through the social protests in the local
communities
Cumbers, Helms and Swanson (2010) studied the resilience to neoliberalisation in the old
industrial cities, mostly using the examples from the United Kingdom: Individuals drawn into
criminal activities (and other forms of coercive social relations) to supplement household
incomes clearly constitute a risk to both their communities and themselves. However, mass land
occupations by disposed rural dwellers or the illegal reconnection of electricity supplies in
South African shanty towns following privatisation clearly are significant self-valorisation
actions on behalf of oppressed groups. (59). Resilience takes diverse forms. Poor work
conditions can inspire high levels of turnover and absenteeism evident in many low-paid service
sector activities, particularly pronounced in Glasgows booming call centre industry (Helms
and Cumbers 2006). It can also take more socially destructive forms such as the high levels of
46
school dropout rates in Britains deindustrialised cities or working in drug related and other
forms of criminal activity. Although important not to glorify such activities, particularly given
that the incidence of violent (especially knife-related) crime is almost entirely felt in poorer
urban neighbourhoods and predominantly on young working class men, it is important to
understand the rationalities at work. For young people who are either uninterested or unable to
afford to stay on at school beyond 16 and go to university, the employment options in the
service-based economy are restricted. (63). White and Williams (2012) are discussing the ways
of resistance to neoliberalism, pointing out the Zapatista movement: This radical commitment
to re-reading the orthodox neoliberal approaches to the economic has led to diverse, multiple
and heterogenic modes of economic conceptualization, representation, meaning and
materialization being identified and represented. This in turn has resulted in far richer
contemporary economic landscapes emerging, within which the capitalist mode of production
in is seen to be highly uneven and incomplete. (1626) Under the bright inspiring lights of the
Zapatista struggle, I had begun to forget just how many people continue to resist neoliberalism,
the deadlock of consumer-led market fundamentalism and the patronizing dead hand of
representative democracy in a wealth of untold ways; often putting their own liberty on the line
to struggle for a better, more equal society where everyone has a say in how it is built. (1641)
Manderscheid (2012) points out the role of social movements that are promoting
intergenerational and intragenerational solidarity and inclusion in the spatial planning
strategies: By obliterating the crucial social significance of movement and relations as
constituting social participation and inclusion, the ongoing conflict between equity and
ecological goals concerning motorized transportation remains outside the picture. Overall, these
representations of socio-spatial problems foster the primacy of the economic, the strengthening
of roll-back neoliberalism, and its legitimization in seemingly emancipatory sustainability
terms as well as the ongoing subordination of the political sphere. (212). Laing (2012)
analyzed postcolonial struggle theories in Bolivia, describing the protests of the Indigenous
population: Tens of thousands of Bolivian citizens lined the streets along the route chanting in
solidarity with the marchers and demanding the cancellation of the governments planned
highway set to cut through the ancestral lands of the lowland indigenous people of the
Yuracares, Mojenos and Tsimanes. Such an outpouring against the once popular President,
Morales, reflected the anger of the Bolivian people that he had contradicted his international
discourse surrounding climate justice, anti-neoliberalism and indigenous rights. Two days later
the President announced the cancellation of the road. (1051) The post-neoliberal frame of
analysis is undoubtedly important, especially in a country that suffered hugely under radical
neoliberal restructuring. However, it is imperative that the academy does not turn a blind eye
to other modes of analysis for the Bolivian people by focusing solely on the Zeitgeist of postneoliberal enquiry. For many of the indigenous ethnic groups of Bolivia, the notion of
colonialism represents a more substantive and enduring lens in which to analyze current
political trajectories. For the indigenous marchers of the tierras bajas the Bolivian government
represents a renewed colonialist regime following a 500-year history of exploitation since
Spanish rule. (1052-53). Waquar (2012) discussed the anti-Enron movement in India: BJP
and Shiv Sena had never been sympathetic to socialist ideas in Indiathey dismissed socialism
as a western concept. They viewed neoliberalism favorably, though they preferred a nationalist,
and often jingoist, slant to it. Yet, so militant was their antagonism to Enron that a large section
of the population accepted the Shiv SenaBJP alliance as political leader of the movement. The
Shiv SenaBJP alliance, while opposing the DPC project, maintained a clear distinction
between neoliberalism, which they viewed favorably, and Enron, who they opposed. (1071)
Newman (2013) discussed citizenship and the urban movements in urban Paris: Urban
movements orientation towards collective consumption and the use value of urban space
(see Castells, 1985) are transformed under neoliberalism; one feature of neoliberal
47
governmentality is that grassroots organizations are increasingly supplanting the managerial

function of states (Ferguson 2002). (949). The same author then continues with observations
about the nature of neoliberalism at the local scale: Analyses of urban design and neoliberalism
often invoke a restrictive and repressive vision of power; Foucaults famous metaphor of
Benthams panopticon has loomed large in scholarship on surveillance in particular. However,
the approach I elaborate here by emphasizing built-in vigilance emphasizes the generative
aspects of power and is better captured through Foucaults theorization of architecture as an
instrument in the creation and molding of individual subjectivities. (952) This managerial
and productive function of neoliberal citizenship highlights the Janus-faced nature of grassroots
politics under a political orthodoxy in which municipalities are always eager to downsize,
right-size, or otherwise place the burden of providing public goods on citizens. The protest
movement demanded a green space and a voice in making sure it met the long neglected needs
of northeast Paris residents. (961). Shin (2013) discussed a neoliberal transformation of
Chinas cities, especially the policies of assembling urban land and transferring of land use
rights: Since the early 1990s, Chinas major cities have seen the intensification of urban
redevelopment. Beijing, for instance, saw the introduction of a new set of policy tools in 1990,
which heavily relied on inputs, both technical and financial, from developers who are not
necessarily private. The rapid urban transformation through inner-city redevelopment as well
as suburban expansion has been driven by urban accumulation needs that rest on mobilising
land resources (Hsing, 2010; Wu, 2009). The accumulation needs involve the conversion of
rural farmlands under villagers collective ownership into urban construction lands for urban
governments to secure more land resources. The assembly of urban land and the transfer of land
use rights have become critical to local states performance and public finance (Ding, 2005). In
this process, clearance and demolition have also become the norm of urban spatial
transformation, accompanied by a large scale of displacement. While there is a growing
emphasis on establishing the rule of law, opportunities for citizens to put forward their legal
claims are still limited. Because of this, protestors often make use of various non-legal modes
of resistance, including protests, petitions, and deadly confrontations (Cai, 2007: 94). (Shin,
1171-1172).
4. CONCLUSION
The analysis of texts that have been published in Antipode from 2010 until the end of 2013 has
shown that neoliberalism has permeated the local scale, and is rapidly changing large cities.
The authors have devoted their texts to various topics, which can be grouped in the four main
groups: the changes in public space governance (gentrification, privatization, and fencing of
the public space) in large cities; the privatization of management regarding resources at the
local level (water supply, electricity supply etc.); the treatment of foreign and migrant workers
in various communities, and especially the influence of neoliberalism on the illegal workers;
and the resistance actions i.e. movements against neoliberalism at the local level. In most of the
texts that were analyzed, there are introductory, general i.e. theoretical remarks about
neoliberalism, in which mostly Harvey, as well as Peck and Tickell, were cited.
The topics discussed have covered various aspects of neoliberalisation at the local scale:
The topic about privatization of the public space and gentrification dealt with general
notions about these afore-mentioned processes, and the processes that have been going
on regarding open green spaces in Berlin, city improvement districts (CIDs) in Cape
Town and Johannesburg, and urban governance projects in general;
Privatization of local resources was covered through the discussion about privatization
of water services in Cape Town, alteration of modes of production in local communities
48
in Mexico, with a special focus on the role of ejidos in Quintana Roo state; various
aspects of the privatization of electricity supply and production of green energy in the
U.S.A.;
The topic about immigrants and illegality has covered the examples from Leadville,
Colorado, as well as Berlin and Dubai;
The most covered topic was the resilience and resistance to neoliberalisation at the local
scale through social movements. Besides discussing general remarks, the authors have
mostly published the papers about what is referred to as anti-colonial (actually neocolonial) struggle of mainly Indigenous peoples in Mexico and Bolivia, anti-Enron
movement in India, the urban resistance movement against neglect of northeast Paris
residents in France, and the struggle against displacement in Chinese cities.
LITERATURE:
1. Brenner, N., Theodore, N. 2002. Cities and the geographies of actually existing
neoliberalism. Antipode, 34 (3) 349-379.
2. Buckley, M. 2013. Locating Neoliberalism in Dubai: Migrant Workers and Class Struggle
in the Autocratic City. Antipode, 45 (2) 256-274.
3. Cai, Y. 2007. Civil resistance and rule of law in China: The defense of homeowners rights.
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51
AN ALTERNATIVE APPROACH TO THE

TRADE DYNAMICS IN CROATIA
Daniel Tomic
Juraj Dobrila University of Pula
Faculty of Economics and Tourism Dr. Mijo Mirkovi
P. Preradovia 1, 52100 Pula, Croatia
[email protected]
ABSTRACT
The point of understanding the international finance and trade perspective is closely related to
comprehension of the terms of trade (exchange rate) trade balance nexus. How well can a
country balance its international trade engagement over international price changes and/or
applied exchange rate regime is of great importance, especially for a small, opened, indebted
and import dependent country such as Croatia. By focusing on the relationship between the
terms of trade, exchange rate, volume of trade, current account and output we are trying to
provide some new insights into trade dynamics over a business cycle in Croatia. Furthermore,
the analysis is done on aggregate level and evaluates only the market of goods, for it constitutes
the larger part of the trade balance. Empirical assessment relies on the lead and lag crosscorrelation functions between the variables comprising the period 2000 2014. Results suggest
the existence of the S-curve pattern leading us to some indicative conclusions regarding the
trade dynamics in Croatia.
Keywords: business cycle, Croatia, S-curve, trade dynamics
1. INTRODUCTION
Empirical research on the exchange rate, as one of the most important variable in the Croatian
economy, is rather extensive. Since real effective exchange rate had been steadily appreciating
after 2000 and we witnessed mild depreciation after 2009, it was necessary to find out whether
Croatian kuna was misaligned or not. Controversy over this topic split academics and
professionals, causing many mixed and opposed conclusions, nevertheless dictating different
patterns of analysis within different scientific approaches. An important stylized fact regarding
the evolution of exchange rates in transition economies like Croatia is the initial undervaluation
of the real exchange rate, misalignments and appreciation of the real exchange rate due to
transition-related structural changes, and other factors (Bahmani-Oskooee and Kutan, 2009, p.
2523). On the other hand, theoretical and empirical studies on the importance of the terms of
trade for Croatia have been rare. Theoretically, terms of trade are relevant explanatory variable
of the movements in exchange rates and output for improvements in relative terms of trade are
expected to lead to the appreciation of the exchange rate, hence the change in output produced
and traded.
Both, exports and imports solidly depend on exchange rates and/or terms of trade, as well as
their development. Average share of export to GDP in last fifteen years was around 45%, which
indicates that Croatian economy is not closed, but rather open. However, this export was
insufficient in respect to demand and preferences towards import products (average share of
import to GDP was around 55%), thereby generating constant trade deficit (average share of
trade deficit to GDP was around 10%). Surplus on the service account of the balance of
payments compensates to a large extent for the exceptionally high Croatian trade deficit. In
such situation, policy makers can apply two measures to influence its international
competitiveness: (a) internal approach that relies on supply side-policy implications and/or (b)
external approach that is directed towards devaluation/depreciation of a national currency. First
52
approach calls for serious structural changes with emphatic rather than sensible economic and
social costs. The second approach seems an easier path to competitiveness, yet applied in wrong
economic environment could cause disastrous consequences for whole economic system.
Though trying to achieve the aftermaths of the first approach, Croatian policy makers have been
constantly flirting with possible currency depreciation, never actually applying it due to
threatening effect that could rise from high international indebtedness. A country that is
experiencing a decline in its net exports may adhere to currency devaluation or allow its
currency to depreciate, but due to adjustment lags such as recognition, production, delivery and
etc. (Bahmani-Oskooee and Xi, 2015, p. 79) the trade balance may continue to deteriorate, with
improvement coming later (so-called J-curve); if it even comes! Whether depreciation actually
helps in improving trade deficits remain a key question that has drawn much scholarly attention.
This relation is concentrated around the J-curve phenomenon and Marshall-Lerner condition,
and recently a new concept based on asymmetric cross-correlations functions which may
resemble an S-curve pattern. The concept of an S-curve, introduced by Backus, Kehoe and
Kydland in 1994, suggests that the cross-correlation function between current terms of trade
(exchange rate) and future values of the trade balance is positive, but between current terms of
trade (exchange rate) and past values of the trade balance it is negative. Therefore, an S curve
is a slight extension of the J-curve in the sense that the impact of exchange rate depreciation
wears out after a while and there is no further improvement when all impacts are realized.
The aim of this paper is to look into the relationship between the terms of trade, real effective
exchange rate and current account developments (with few mediating variables) in order to
analyze the trade dynamics over a business cycle as well as to link possible fluctuations of some
variables with the fear of misalignments of the Croatian kuna. Additionally, the analysis is done
on aggregate level and evaluates merchandise market by including income terms of trade and
current account measures of only goods traded. Empirical part evaluates the lead and lag crosscorrelation functions between the variables comprising the period 2000:Q1 2014:Q4. Results
suggest the existence of the S-curve pattern leading us to some indicative conclusions regarding
the trade dynamics in Croatia. The rest of the paper is organized as follows. Section 2 surveys
theoretical and empirical literature. Section 3 gives a full perspective to the analytical part by
describing used methodology and data, and explaining the results. Section 6 provides some
concluding remarks.
2. THEORETICAL BACKGROUND AND LITERATURE REVIEW
The role of trade is crucial for economic growth as well as economic development of a country.
Trade surplus tends to bring inflows into economy giving a way for economic expansion. The
relationship between the terms of trade and trade balance has been discussed thoroughly in the
literature of international finance, and it is extended to include the exchange rate in the analysis
(Rhee, 2014, p. 5). Magee in 1973 became a pioneer in explaining such a relationship by
depicting the so-called J-curve. In their seminal paper, Backus et al. (1994) showed that terms
of trade (or alternatively exchange rate) is positively correlated to future movements of the trade
balance but is negative correlated with past movements thus resulting in an S-shaped curve.
However, Backus et al. (1994) doubted that such S-pattern existed in developing and lessdeveloped countries because of different economic structures, mainly due to the fact that the
degree of openness of the foreign sector is different in these countries (Rhee, 2014, p. 5).
The S-curve is closely related to J-curve which was used to show the relationship between the
trade balance and a real devaluation. Namely, the theory behind the J-curve states that a
country's trade deficit will worsen initially after the depreciation of its currency because higher
prices on foreign imports will be greater than the reduced volume of imports. The effects of
such change in the price of exports compared to imports will eventually induce an expansion
53
of exports and a cut in imports, which, in turn, should improve the balance of payments7.
Though there is a vast body of empirical literature dealing with the topic, still the findings are
quite negative i.e. there is little statistical evidence of a J-curve pattern in general. Most of the
studies that tried to test the J-curve existence have relied upon a reduced form trade balance
model and regression analysis with not much support. Yet in some countries and in specific
periods, J-curve phenomenon has been recognised (for an extensive review of the literature see
Akbostanci (2004), imkov (2014) or Bahmani-Oskooee and Kutan (2009)). As we already
mentioned, the S-curve is an extension of the J-curve since the impact of exchange rate
depreciation wears out after a while and there is no further improvement when all impacts are
realized, meaning that at the top of the curve, the slope is zero or negative. Though conceptually
related, these two concepts are methodologically different. Note that the S-curve, which is a
description of unconditional cross-correlations between the two variables, is not the same thing
as the J curve, which describes the conditional dynamic response of one variable following a
shock to the other. Thus it is possible to depict an S-curve in the data, even absent a detectable
J-curve (Baxter, 1995, p. 1854).
Ghosh (2012, p. 326) points that existing studies on S-curve can be classified under three
categories: (1) aggregate level, (2) disaggregate level and (3) industry level analyses. The
fundamental paper by Backus et al. (1994) in which they developed international real business
cycle model and found that the trade balance is countercyclical and the cross-correlation
function of the trade balance and the terms of trade display an S-shape, focused on aggregate
data for 11 developed OECD countries. Next important paper was written by Senhadji (1998)
who also used real business cycle model to show that, for the most of the 30 less developed
nations, productivity shocks are key factor in generating an S-curve. Parikh and Shibata (2004)
analyzed the relationship using annual data from 1970-1999 for 59 less developed nations, all
with mixed results. Nadenichek (2012) developed basic general equilibrium model and found
that both trade balance and terms of trade are driven by productivity shocks and that the
subsequent behaviour generates an S-curve pattern, reminiscent of the J-curve. He concluded
that the fact that productivity shocks would generate a pattern similar to the J-curve underscores
the importance of properly identifying the shocks generating movements in the trade balance in the
broader J-curve literature. Rather heterogeneous results suggested that there could potentially
exist the problem of aggregation bias, meaning that aggregate data will not show if a countrys
trade balance is improving against some trading partner(s) while deteriorating against others.
Hence a countrys trade balance and/or terms of trade could be deteriorating with one trading
partner while at the same time improving with another. The aggregation could smooth out the
fluctuations observed in the bilateral trade (Bahmani-Oskooee and Ratha, 2007b, p. 431). This
led to a number of papers dealing with disaggregate data re-examining in that way the
relationship between the terms and balance of trade on the bilateral basis (see BahmaniOskooee and Ratha (2007a, 2007b), Rhee (2014), Ono and Baak (2014), Akkay (2015)). Most
of the studies found a support for the S-curve relationship, however for most of the countries
analyzed this nexus was shown to be relatively weak. This again led to a further disaggregation,
papers now focusing mainly on the industry level relations (see Bahmani-Oskooee and Ratha
(2008, 2009 and 2010), Bahmani-Oskooee and Xi (2015) etc.). Since the focus of our paper is
an aggregate level type of the analysis we shall not evaluate literature on other two approaches
through roughly (for deeper literature review on this topic see Akkay (2015)). A comprehensive
review of empirical investigations into the existence of both the J-curve and the S-curve can be
also found in Bahmani-Oskooee and Hegerty (2010).
7
Exchange rate depreciations should reduce imports and increase exports thereby contracting a country's trade
deficit provided the well-known Marshall-Lerner condition (the sum of the export and import demand elasticities
are at least equal to unity) holds. Therefore, the effects of exchange rate depreciations on exports, imports, and
hence on trade balance are neither guaranteed nor instant.
54
When concentrating on (the number of) studies that included Croatia, we have to express our
concern. There is very limited number of papers dealing with the J-curve phenomenon and not
one paper which would evaluate the possibility of an S-shaped curve. First that found evidence
of the J-shaped curve for Croatia was Stuka (2004) for the period 1994-2002. He employed a
reduced form model to estimate the impact of a permanent shock on the merchandise trade
balance. It was found that one-percent depreciation in the exchange rate improves the
equilibrium trade balance between the range of 0.94%-1.3% and it took 2.5 years for
equilibrium to be established. Bahmani-Oskooee and Kutan (2009) did an extensive study on
the emerging European countries (Bulgaria, Croatia, Cyprus, Czech Republic, Hungary,
Poland, Romania, Russia, Slovakia, Turkey and Ukraine; period 1990-2005) and found
empirical support for the J-curve pattern in three countries: Bulgaria, Croatia and Russia. On
the other hand, Cota et al. (2006) examined whether bilateral real exchange rate changes in
Croatia have any significant impact on trade balance changes between Croatia and six main
trading partners (Slovenia, Austria, Germany, Italy, UK and France for the period 1995-2005)
and found no empirical support for the J-curve. Hsing (2009) likewise examined the J-curve
possibility for the bilateral trade between Croatia, Czech Republic, Hungary, Poland, Slovakia
or Slovenia and the USA. He found that the J-curve cannot be empirically confirmed for any of
these six countries. As we can see, J-curve literature for Croatia also offered some mixed results.
Interestingly, all studies were made for pre-crisis period and could be considered as obsolete.
We could say that there is a need for newer and conceptually wider studies which would
approach the delicate topics of real exchange rate misalignments, depreciation, trade dynamics,
changes in international prices, terms of trade volatility and etc. This is especially true if we
know that Croatian economy traditionally suffers from the lack of international
competitiveness and internal structural problems.
3. TRADE DYNAMICS OVER A BUSINESS CYLCE
The S-shaped relationship between lags and leads of the trade balance and the terms of
trade/exchange rate is a well established feature of international data so it is desirable for
researchers to observe and explain this empirical regularity. Therefore, the aim of this analysis
is to investigate the trade dynamics based on the S-curve concept for Croatia.
3.1. Methodology and data
In order to investigate the dynamic relationship between terms of trade and trade balance based
on the S-curve phenomenon at aggregate level we applied (adapted) methodology used by
Backus et al. (1994) and analytical approach presented by Nadenichek (2012). Accordingly, Scurve depicts negative cross-correlations between past values of the trade balance (TB) and the
terms of trade (TOT) or current real exchange rates (REX), but positive cross-correlations
between future values of the trade balance and the terms of trade or current real exchange rate.
If the contemporaneous correlation is negative, then there is also evidence of a HarbergerLarsen-Metzler (HLM) effect8. In order to test the validity of possible S-curve pattern for
Croatian economy we will calculate cross-correlations for both, terms of trade as well as real
exchange rate. Cross-correlation coefficients (k-TOT, k-REX) are defined as:
When deterioration in the terms of trade causes a drop in income, consumption drops. However, if the marginal
propensity to consume is less than one, the drop in consumption will be less than proportionate, causing both
savings and net exports to decline. Since the terms of trade is defined such that an increase amounts to a
deterioration of the same, a negative contemporaneous correlation between terms of trade and trade balance would
be indicative of the HLM effect (see Bahmani-Oskooee and Ratha, 2009).
55
where marked values of the variables present the mean of all observations over a study period.
By placing cross-correlation coefficients on the vertical axis and the different lags and leads (k)
on the horizontal axis, we can graphically interpret and confirm the existence of the S-curve
pattern. We will display the cross-correlation function for the terms of trade/real exchange rate
and the trade balance (t+k) for k ranging from -8 to 8 quarters, i.e. leads and lags up to two
years.
Quarterly data for the terms of trade, real exchange rate and trade balance (as well as other
mediating variables) are collected from the Croatian National Bank and Croatian Bureau of
Statistics for the period 2000:Q1 2014:Q4. By applying methodology similar to Backus et al.
(1994) we did not find evidence of the S-curve pattern for Croatia. However this is not strange
if we remember relatively mixed results for J-curve testing. This led us to consider an alternative
approach to S-curve testing, having in mind the characteristics of the Croatian economy. First,
all variables were seasonally adjusted using Census X12 seasonal adjustment procedure and
then transformed in their logarithmic form. Second, since the J-curve phenomenon (as well as
terms of trade) is mainly focused on the dynamics of merchandise trade we opted to evaluate
the S-curve relationship only for goods. Though service sector plays an important role in
Croatian economy, we did not find support for the relation when services are included in the
analysis. Similar logic was used for trade balance variable, however here we also opted for
alternative approach using a broader measure of current account balance (depicts visible exports
and imports plus invisible exports/imports) instead of trade balance (depicts only visible and
really traded exports and imports). Third, instead of barter terms of trade we used income terms
of trade measure for kare et al. (2012, p. 913) and Tomi (2014, p. 289) found that this variable
is more relevant in macroeconomic modelling9. Therefore, our analysis is based on these
variables: ITOTg income terms of trade for goods (based on national accounts data on
nominal and real exports and imports of goods in HRK) is calculated by multiplying the basic
terms of trade measure (export prices/import prices) with the exports of good volume; REER
real effective exchange rate deflated with the consumer price index; CAg current account
measure only for goods in HRK. Other mediating variables are: Y real gross domestic product
(HRK), QEXg real quantities of exported goods and QIMg real quantities of imported
goods. To calculate adequate cross-correlation coefficients we detrended the data (using
Hodrick-Prescott filter with common smoothing parameter of 1600 for quarterly data) and
tested the presence of a unit root. For this purpose we used Augmented Dickey Fuller test,
Phillips-Perron test and Kwiatkowski-Phillips-Schmidt-Shin test (available upon request).
Generally, all tests confirmed the absence of unit root for all the variables (graphical displays
Whereas, the basic barter terms of trade just measures variations in prices, the income terms of trade includes
the effect of the changes in volume of quantities exported. This means that basic terms of trade could decline
even though income terms of trade improve since the quantities of export could grow at the larger scale. Income
terms of trade measure reveals whether the country would end up with net gain or net loss as a result of changes
in terms of trade and export volume, which de facto depends on the elasticity of demand for its export or in broader
terms on Marshall-Lerner condition (see kare et al., 2012, p. 913).
9
56
of the variables also suggest that they are stationary in levels). In conclusion, variables reveal a
stationary behaviour after the trend has been removed. There are two shortcomings of this kind
of approach. First, aggregate level analysis can sometimes lead to aggregation bias problem
and second, conclusions based on adapted data should not be embraced as finite reasoning on
this topic. Further research pattern should therefore include analyses on disaggregate level,
especially industry level that could suggest which industries could reap the benefits of possible
currency devaluation. Altogether, there is a vast empirical emptiness on this topic in Croatia
suggesting a need for broader trade dynamics, J-curve and S-curve literature.
3.2. The existence of the S-curve
The main focus of this paper is to test the validity of an S-curve phenomenon in Croatia.
Therefore, two S-curves will be presented according to two different approaches of the analysis.
First S-curve relation reflects the terms of trade (presented as ITOTg) and trade balance
(presented trough CAg) nexus (see Figure 1), whereas the second S-shaped curve displays the
real exchange rate (as REER) to trade balance (as CAg) relationship (see Figure 2), all at
aggregate level respectively. Both relations demonstrated that while the cross-correlation
between the current values of ITOTg or REER and the future values of CAg is positive, the
same cross-correlation between the current values of the ITOTg or REER and past values of the
CAg is negative. When we plot cross-correlations functions against the lags and leads, relations
resemble the letter S, meaning that we have found the evidence of an asymmetric S-curve
phenomenon in both cases. Furthermore, the HLM effect is not revealed in any case since
contemporaneous correlations in both cases are not negative.
To scrutinize the subject we could also analyze the strength and the significance of crosscorrelation coefficients. Namely, the highest statistically significant correlation coefficient of
0,35 in the first case (coefficients under the Figure 1) reveals in bottom line a positive
correlation between the ITOTg and CAg (pro-cyclical behaviour of CAg); meaning in general
that an improvement (appreciation) in ITOTg should lead to an improvement in CAg. Similarly,
highest statistically significant correlation coefficient of 0,59 in the second case (coefficients
under the Figure 2) reveals a negative correlation between the REER and CAg (counter-cyclical
behaviour of CAg). However, in our case a decrease in REER reflects a real depreciation of the
kuna, which implies that the contemporaneous correlation coefficient between the two variables
is expected to be positive, meaning that an appreciation (depreciation) of kuna in general should
lead to an improvement (deterioration) in CAg. This probably reflects the behaviour of REER.
Furthermore, historical data suggest that expansion of Croatian economy was always followed
by the exchange rate appreciation, and vice versa during recessions. Thus, the past depreciation
of exchange rate of kuna was de facto aftermath and not a monetary instrument, as some would
conclude. Reason for that could be found in the fact that capital inflow produced appreciation
pressure on exchange rate of kuna, which also resulted in private consumption biased growth
of the Croatian economy (Benazi and Tomi, 2014, p. 90). Though few of the conclusions here
cast some doubt on the existence of S-curve pattern, we think that they are very important facts
that illustrate the complexity of the Croatian economic situation.
57
Figure 1: Cross-correlation ITOTg to CAg with lags and leads up to 8 periods
t-8
-0.26
t-7
t-6
t-5
t-4
t-3
t-2
t-1
t-0
t+1
t+2
t+3
-0.19 -0.23 -0.33 -0.35 -0.34 -0.23 -0.07 0.18 0.00 0.10 0.24
*3quarter moving average was employed to smooth graphical presentation
**bold number denotes 1%, 5% or 10% significance levels respectively
t+4
0.30
t+5
0.36
t+6
0.17
t+7
-0.01
t+8
-0.19
Source: Authors calculation.
Table 2: Cross-correlation REER to CAg with lags and leads up to 8 periods
t-8
-0,46
t-7
t-6
t-5
t-4
t-3
t-2
t-1
t-0
t+1
t+2
-0,57 -0,59 -0,52 -0,40 -0,35 -0,28 -0,23 -0,11 0,06 0,21
*bold number denotes 1%, 5% or 10% significance levels respectively
t+3
0,28
t+4
0,32
t+5
0,34
t+6
0,34
t+7
0,28
Source: Authors calculation.
Concentrating on the S-curve phenomenon, results are consistent with the existing literature.
Croatia is a small and opened economy that belongs to developing nations meaning that it can
also exhibit an S-curve pattern largely due to limited access to international financial markets
for capital formation and for smoothing effects of international terms of trade and other
exogenous shocks. Hence, these results require interpretations with extra cautions. S-curve
pattern does not necessarily suggest the existence of J-curve in the data, thus it is possible to
depict an S-curve in the analysis without finding any evidence of the J-curve. In such manner
we cannot recommend any real exchange changes to be used as a policy tool to manipulate
trade flows based on the proof of the S-curve existence.
58
t+8
0,18
An S-curve describes only unconditional cross-correlations, whereas J-curve describes spots

the conditional dynamic response of trade balance following a shock in the exchange rate. The
inability of the S-curve to depict the strength and/or the speed of the adjustment process before
and after the exchange rate/terms of trade depreciation explains its limitation within policy
recommendations. Non-the-less, complemented with other types of research (correlations
between other trade variables, exchange rate dynamics - Marshall-Lerner conditions - J-curve
pattern, terms of trade developments and its causal relation to trade balance or output, analysis
on disaggregated level and etc.), the S-curve confirmation could be of great help in achieving
long-run policy goals suggesting that there indeed exists a nexus of some kind between the
terms of trade/exchange rate and the trade balance. Will this allow exchange rate manipulation?
Maybe! Considering the main objective of Croatian National Bank (exchange rate in Croatia
has been given a role of economic stabilizer rather than a position of an active instrument within
a monetary policy), we may conclude that reliance on exchange rate as a factor inducing
positive movements in business cycles is a highly unrealistic assumption mainly due to a great
external indebtedness (Benazi and Tomi, 2014, p. 89).
3.3. Other results
Additional goal of this paper was to examine cross-correlation functions between various trade
variables at different lags and leads in order to clarify some questions revolving trade dynamics
in Croatia (see Appendix). These too reveal some puzzling results. The cross-correlations
between the CAg and Y are generally negative, reaching its minimum at contemporaneous
values of both output and trade. It means that over a business cycle, an increase in output is
related to a worsening of the current account. Nothing strange considering that Croatia is highly
import dependent country. On the other side, cross-correlations between the ITOTg and Y are
positive, indicating that an increase in output is associated with an appreciation of income terms
of trade (consistent with conclusion made by kare et al. (2012), Kovaevi and Tomi (2012)
and Tomi (2014)). This is also consistent with some of our previous conclusions but opposite
to an S-curve logic. Next, cross-correlations between QEXg and Y, QIMg and Y, QEXg and
ITOTg, and QIMg and ITOTg are positive in general, hump shaped, reaching in that manner a
maximum at contemporaneous values. It suggests that a rise in output and income terms of trade
can be associated with both an increased outflow and inflow of goods. In deduction, though
Croatia is considerably opened economy, it still lacks the results on the export side. However,
when we observe graphical display of the relationship between QEXg and ITOTg, there is an
allusion of the S-curve pattern in the data which is in conformity with our previous conclusion10.
Croatia should therefore consider it strategic position and place it towards an improvement in
export performance in order to perform well within established macroeconomic conditions.
Ditto it calls for structural adjustments and an increase in competitiveness while maintaining
fiscal discipline, all with questionable reach of a monetary policy.
10
Interestingly, kare et al. (2012, p. 914) found that depreciation of the kuna would lead to an improvement of
the income terms of trade by 1.83%. Though it should be in reverse within the terms of trade scope (appreciation
increase in terms of trade; depreciation decrease in terms of trade), since income terms of trade also include
the volume of export it is logical that depreciation makes domestic products on world markets more cheaper,
increasing in that way the volume of export, hence the income terms of trade. This conclusion is however doubtful
considering possible exogeneity of Croatian income terms of trade, a low competitiveness of export products and
the controversy over the J-curve effect Croatia.
59
4. CONCLUSION
The impact of currency depreciation on trade balance is still an empirically open question in
international and financial economics. Our paper was pointed towards (at least partial)
clarification of that question by analyzing trade dynamics in Croatia through the concept of Scurve. We employed two variables to test the S-curve hypothesis in order to answer the
robustness requirements and came to conclusion that there indeed exists S-curve pattern in the
Croatian data. Both relations demonstrated that while the cross-correlation between the current
values of income terms of trade or real effective exchange rate and the future values of current
account is positive, the same cross-correlation between the current values of the income terms
of trade or real effective exchange rate and past values of the current account is negative. When
we plotted cross-correlations against the lags and leads, relations resembled the letter S,
meaning that we have found the evidence of the S-curve phenomenon in both cases. On the
other hand, similar analysis between various trade variables reveals opposite conclusion,
casting some doubt on the existence of the S-curve relation. This is even more so true when we
evaluate in dept the sources of economic problems in Croatia, as well as empirical studies that
suggest that exchange rate changes would not ultimately improve trade balance and
international competitiveness but would lead to a debt chaos and economic havoc. However,
the finding of an S-curve pattern does not necessarily mean we confirmed the J-curve pattern,
meaning that conclusion should be affiliated in that manner. Hence, the inability of an S-curve
to depict the strength and/or the speed of the adjustment process before and after the exchange
rate/terms of trade depreciation explains its limitation within policy recommendations.
Due to several reasons, the results of this paper should be interpreted with due cautions. First,
aggregate level analysis based on some adapted variables enables an alternative approach to the
topic yet leaves room for analytical questions. Second, the revealed S-curve pattern should not
be used as a pillar for economic policy actions due to its limited reasoning. And third, this
ubiquitous S-curve often describes a natural design of flow systems in a business cycle manner,
therefore it could only reveal natural behaviour of the terms of trade/exchange rate and trade
balance. Non-the-less, complemented with other types of research (Markov switching model
that would reveal two regimes, J-curve estimation etc.), the S-curve confirmation could be of
great help in achieving long-run policy goals suggesting that there indeed exists a nexus of
some kind between the observed variables giving as some new insight into Croatian trade
dynamics and its international financial position.
ACKNOWLEDGEMENT: This work has been fully supported by the Croatian Science
Foundation under the project number 9481 Modelling Economic Growth - Advanced
Sequencing and Forecasting Algorithm. Any opinions, findings, and conclusions or
recommendations expressed in this material are those of the author(s) and do not necessarily
reflect the views of Croatian Science Foundation.
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IMF Working Paper 04/65, International Monetary Fund.
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European Financial and Accounting Journal, Vol. 9, No. 3, pp. 50-66.
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Croatia, Economic Research, Vol. 25, No. 4, pp. 905-924.
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interfakultetska znanstvena konferencija, Konkurentnost, ekonomski rast i blagostanje,
Ekonomski fakultet u Osijeku.
61
Appendix
Cross-correlation functions:
Correlations of CAg and lagged Y
Correlations of ITOTg and lagged Y

+- 1,96/T^0,5
+- 1,96/T^0,5
0,5
0,5
-0,5
-0,5
-1
-1
-8
-6
-4
-2
-8
-6
-4
-2
lag
lag
Correlations of QEXg and lagged Y
Correlations of QIMg and lagged Y

+- 1,96/T^0,5
+- 1,96/T^0,5
0,5
0,5
-0,5
-0,5
-1
-1
-8
-6
-4
-2
-8
-6
-4
-2
lag
lag
Correlations of ITOTg and lagged QEXg
Correlations of ITOTgand lagged QIMg

+- 1,96/T^0,5
+- 1,96/T^0,5
0,5
0,5
-0,5
-0,5
-1
-1
-8
-6
-4
-2
-8
lag
-6
-4
-2
0
lag
62
STUDYING OF URBAN MOVEMENTS THROUGH THE PARADIGMS

OF POPULAR GEOPOLITICS AND ANTI-GEOPOLITICS
Petar Kurecic
University North, Koprivnica, Trg arka Dolinara 1, Croatia
[email protected]
ABSTRACT
The paper studies urban movements, as a type of social movements. These phenomena are
studied through the perspectives of critical geopolitics two sub disciplines: popular geopolitics
and anti-geopolitics. Urban movements represent a type of social movements devoted mostly to
the resistance of urban population towards changing of the cities under the influence of
neoliberalism i.e. capital and private interests. Urban movements that were studied were mostly
the ones resisting the privatization of public space as an expression of neoliberalisation of the
cities, which has been going on for the last three decades in the West, and for about two decades
in the former socialist countries and various emerging economies, such as P. R. China. Studying
of urban movements has a tradition of a little more than quarter of a century, since critical
geopolitics as a geopolitical perspective exists. It is mostly tied with the geopolitics of resistance
i.e. anti-geopolitics that is an expression of challenges to the cultural, political, moral and
economic dominance of the elites in various societies. Social movements represent the ties that
bind the individuals involved in resistance, hence they articulate individual actions into
comprehensive, socially visible and tangible actions that attract and keep the attention of the
society as well as the authorities. In the era of social media, social movements have much more
diverse ways of transmitting messages and coordinating actions. The main conclusion is that
we live in the era of social movements (and therefore urban movements as well), in which social
media have become a very important means of the social movements actions.
Keywords: social movements, urban movements, social media, popular geopolitics, antigeopolitics, the Internet age.
1. INTRODUCTION
The paper studies some of the current developments connected with social movements from a
critical stance, such as urban movements that are struggling against neoliberal capitalism and
globalization11 as an agent of mainly neoliberal capitalism, as well as the studying of these
phenomena in critical geopolitics two sub disciplines, popular geopolitics and anti-geopolitics.
11
Globalization is leading to the formation of a transnational global capitalism. The world may not be fully
transnational, but is heading in that direction as transnational production networks, a transnational capitalist
class, and transnational state co-exist, and are increasingly taking over a previously more national world
(Robinson, 2004).
Globalisation creates new forms of transnational class relations across borders and new forms of class cleavages
globally and within countries, regions, cities and local communities, in ways quite distinct from the old national
class structures and international class conflicts and alliances. (Robinson, 2005: 6)
The concept of transnational capitalist class originated was discussed by neo-Marxist scholars like Kees van der
Pijl, Leslie Sklair, Robert Cox, Barry Gill, David Harvey, William Robinson and Jerry Harris.
The process of globalization is to an important degree commanded by transnational capitalist class (Robinson,
Harris, 2000)
Harvey (2005) points out: What we are left with is a transnational capitalist class, and a thoroughly liberal, antipolitical, and state-centric version of civil society where politics in this realm is reduced to economic
competition among competing elites, both internal and external.
Robinson, discussing the concept of hegemony, points out to transnational social forces not necessarily tied to
any one nation-state behind contests over hegemony and other global political dynamics. (Robinson, 2005: 3).
63
Urban movements represent a type of social movements devoted mostly to the resistance of
urban population towards changing of the cities under the influence of neoliberalism i.e. capital
and private interests. Studying of urban movements has a tradition in little more than quarter of
a century, since critical geopolitics as a geopolitical perspective exists. It is mostly tied with the
geopolitics of resistance i.e. anti-geopolitics that is an expression of challenges to the cultural,
political, moral and economic dominance of the elites in the societies12. In the era of social
media, social movements have much more diverse ways of transmitting messages and
coordinating actions. Social media have been studied as a social phenomenon almost as long as
they exist and not only in geopolitics. In the current era of new media and especially social
media, social movements have much more diverse ways of transmitting their messages and
coordinating their actions. Nevertheless, studying of the influence of social media on urban
movements is a relatively new trend in popular geopolitics. This relative newness and not so
widespread research (still) of the social medias influence on social movements was the main
driver behind research that is briefly presented in this paper.
2. THE OVERIEW OF MAIN TERMS AND CONCEPTS
Critical geopolitics13 is a subfield of human geography, claims Kuus, emphasizing that a
critical inquiry into the spatiality of world affairs must be central to the study of politics. All
analyses of international affairs make geographical assumptions, whether acknowledged or not.
Critical geopolitics seeks to make these assumptions visible so as to submit them to analytical
scrutiny (Kuus, 2010: 683). Critical geopolitics therefore studies the geographical
determinants and factors that influence global and international politics. It has been mostly
focused on the documents, speeches and papers commonly referred to as texts, studying their
narrative and linguistic features, thereby analyzing discourses. Critical geopolitics studies and
explains the actions through which the intellectuals of statecraft give geographical and spatial
features to international politics, representing the world marked by the certain types of places
(locations), which are tied to a certain identity. Critical geopolitics is therefore connected
with the studying of new spatial relations and the processes of capitalist accumulation, which it
criticizes with its scientific apparatus. It is also highly critical of geopolitics of neoliberalism14.
Popular geopolitics is a part of critical geopolitics, which studies popular, circulating
representations of geopolitical problematics. It studies various cultural products as well as their
producers and audiences, it offers insights into a range of locations and agents of geopolitics
outside the realm of the state: popular magazines, newspaper reporters, cartoonists, film
12
Despite the changes in the world connected with globalization, information and the Internet age, this thesis is
still valid: Geopolitics is here to stay anyway, as illustrated both by its constant circulation in media and politics,
and by the booming academic industry in appending new qualifiers to geopolitics, which has seen the emergence
of, among others, subaltern, feminist, actor-network, everyday, emotional, embodied, and bio-geopolitics.
(Ingram, A. in Ciuta, 2011: 224)
13
The term critical geopolitics was first coined by Simon Dalby (1990) in his analysis of the representational
strategies of the Committee on Present Danger (a conservative foreign policy interest group) in the 1970s and
1980s. By the late 1990s, after numerous articles and several further books, critical geopolitics was a clearly
discernible and rapidly growing strand within political geography (Kuus, 2010: 686).
14
Local strategies-aimed particularly at securing mobile (public and private) investment-have become more
prominent and more pervasive not because they provide the 'answer ', but because they represent a common
tactical response to political-economic disorder at the global scale. They are in fact about selling the local to the
global. This commodification of place must be understood in terms not of ' the local ' itself, but of relations
between places. These relations are increasingly being constituted on a neoliberal basis. In order to explain this
new spatial disorder, then, it is necessary to consider the geopolitics of neo-liberalism, an ideology which we
characterize here as a creature of the crisis. As the leverage of nation states has waned, and as new global-local
relations have been constituted, there does indeed seem to have been something of a geopolitical realignment.
For some, this implies a spatial reconstitution of state power. (Peck et al, 1994: 318)
64
directors, and social activists of various kinds (Kuus, 2010: 693). One part of this inquiry into
popular culture and everyday life is the work on resistance geopolitics or anti-geopolitics.
Popular geopolitics is a form of geopolitical discourse. It has recognized that geopolitics is
something that occurs every day outside of the academic and policymaking discourse (and not
just in them!). This recognition has been central to the development of critical geopolitics.
Popular geopolitics has generally been focused on media and popular culture artifacts. This has
led to a popular geopolitics that has been focused on the elite visions of media moguls, movie
directors, and lower-level yet still relatively empowered media functionaries like writers and
reporters (Dalby, 2008; Dittmer, 2005; Mc Farlane and Hay, 2003) (in: Dittmer, Gray, 2010:
1664)15.
Anti-geopolitics can be defined as: an ambiguous political and cultural force within civil
society that articulates forms of counter-hegemonic struggle. (Routledge, 2006: 234). By civil
society, Routledge means those institutions that are not part of either material production in the
economy or the formal sphere of the state. By counter-hegemonic, he means: resistances that
challenge the material and cultural power of dominant geopolitical interests or states and their
elites (2006: 234; in: Kuus, 2010: 694). The challenges to the military, political, economic and
cultural dominance of the elites in societies from below (the subaltern groups) are not new
developments. These challenges are various forms of resistance that are articulated, and can be
termed as anti-geopolitics. Anti-geopolitics can take myriad forms, from the oppositional
discourses of dissident intellectuals to the strategies and tactics of social movements (although
the former may frequently be speaking on behalf of the latter). While anti-geopolitical practices
are usually located within the political boundaries of the state, with the state frequently being
the principal opponent, this is not to suggest that anti-geopolitics in necessarily localized. For
example, with the intensity of the processes of globalization, social movements are increasingly
operating across regional, national, and international scales, integrating resistance into global
strategies, as they challenge elite international institutions and global structures of domination
(Routledge, 2003: 236-237). From Routledges mentioning of the forms that anti-geopolitics
can take, we can see that he mentions social movements16 here twice. The intellectuals with a
developed sense of awareness about the inevitability of resistance are important since they
provide intellectual perspectives and help people to see things in a different way that is not
formed by the common prejudices and mainstream media sponsored by the state or private
capital, the importance of social movements for the development of anti-geopolitics is even
greater.
Studying of the social movements from the perspectives of Marxist geopolitics is not viable
hence attempts to suffix geopolitics to Marxism, are not so successful, mainly because of two
15
While space was carved out under the term popular geopolitics to note the ways in which geopolitical
discourse suffused everyday life, early writings in critical geopolitics focused on the formal and practical forms of
geopolitical discourse, with popular geopolitics seen as the legitimating form of discourse that brought popular
acquiescence to policies of militarism in democratic states. Popular geopolitics has continued in this mold for the
past decade; tracing the ways in which popular media reinforce elite discourses (Dittmer, Gray, 2010: 1665).
16
Social movements articulate anti-geopolitics on a number of interrelated realms within society, including the
economic, cultural, political and environmental. In the economic realm, social movements articulate conflicts over
access to productive natural resources such as forest and water that are under threat of exploitation by states and
transnational corporations. In the cultural realm, social movements identities and solidarities are formed, around
issues of class, kinship, neighborhood, and the social networks of everyday life. In the political realm, social
movements challenge the state-centered character of the political process, articulating critiques of neoliberal
development ideology and of the role of the state. In the environmental realm, social movements are involved in
struggles to protect local ecological niches e.g. forests, rivers, and ocean shorelines from the threats to their
environmental integrity through such processes as deforestation and pollution. Many of these social movements
are also multidimensional, simultaneously addressing, for example, issues of poverty, ecology, gender, and culture
(Routledge, 2003: 240-241).
65
reasons: one explicit, the other much less so, both essential, yet fundamentally incompatible.
The first reason, Cols and Pozo argue, is applied analysis. With a Marxist geopolitics we can
understand better the capitalist valorization of territory and . . . its international repercussions.
Naturally, such an argument rests on the claim that Marxist geopolitics is a new thing. In turn,
this claim requires not only carving out a niche within the empirical domain covered by Marxist
theory, but also specifying the distinct parameters of geopolitics which make this new-found
compatibility possible and desirable. Clandestine, although it dazzles at the very top of the
manifesto, the second reason for the coming of Marxist geopolitics is that geopolitics in general
is no longer a theoretical pariah, having been sanitized, deodorized and purified from the dirt
and messiness of the corridors of power or popular commentary (Ciuta, 2011: 221-222).
The recognition of social movements importance is not a recent development. It has been
present in social sciences for decades. However, as Harvey (1996) pointed out: In face of the
neoliberal challenge, social movements can either remain place-based and ignore the potential
contradictions inherent in transnational coalitions; or treat the contradictions as a nexus for
creating a more transcendent and universal politics, combining social and environmental
justice, that transcends the narrow solidarities and particular affinities shaped in particular
places.
The neoliberal (counter) revolution of the ReaganThatcher era had strong repercussions at the
urban scale, opening the way for an unprecedented deregulation of housing markets and
generally for an irreversible shift to the entrepreneurialization of local government and the
privatization and commodification of urban public space (Smith, 1996; Mitchell, 1997;
MacLeod, 2002). Urban neoliberalism more specifically is to be viewed as the translation of
the logic of free market capitalism into the urban domain of socio-spatial relations (Rossi,
Vanolo, 2015: 847).
The counter offensive by capital and state actors, including the emasculation of progressive
local and city governments and assault on trade union power (especially in the USA and UK),
allied to the flight of capital away from the industrial cities of the north to low wage locations
elsewhere, represented a response to an upsurge in class politics. Neoliberalism then represents
a new round of attempts to control labour in and beyond the workplace, fusing with aspects of
social conservatism to attack the gains made by women, gay and minority ethnic groups in the
1960s and 1970s (Harvey, 2005).
Neoliberalisms power to press upon stems from its institutional arrangement and hegemonic
discourses backed by the United States military might (Harvey 2003; Peet 2007). But the
presence of power that presses upon does not negate the possibility of subaltern counterpolitics. In fact, the presence of power that presses upon also gives rise to productive power, or
the power to resist and transform (Foucault 1979). The power of those adversely affected by
neoliberalism is dependent on their alliances, relations, networks and counterhegemonic
discourses (Waquar, 2012: 1063).
Nilsen suggests that a new theory of social movements17 are necessary, since established social
movement theories have limitations on the one hand, the various ways in which these theories
operate with a deeply reductive conceptualization of social movements as a particular
institutional level of an essentially fixed political order, separate and different from everyday
17
Social movements from above are defined, above all, by the ability of dominant groups to draw on a set of
specific power resources in their attempts to shape the social world in specific ways a directive role in
economic organization, a privileged ability to act in and through the institutions of the state, and a capacity to
mold everyday routines and common sense. ()
Social movements from below grow out of peoples experience of a concrete lifeworld that is somehow
problematic in relation to their needs and capacities and from their attempts to combine, organize and mobilize
in order to do something about this. In other words, social movements from below are dynamic entities that
contain a contingent potential for expansive development from circumscribed to more encompassing forms of
activism (Nilsen, 2015: 5-6).
66
resistance, political parties, trade unions, and revolutionary transformations; and on the other
hand such theories have limited capacity to say anything of strategic substance about the
struggles of the day (2015: 2). Social movements can be seen as being simultaneously
constituted by and constitutive of praxis, and thus as being situated at the very heart of the
making and unmaking of the structures and processes that underpin both social order and social
change. Social movements should be understood according to the way how they play a role in
shaping and reshaping the current form of given institutional fields and political economies,
and taking seriously the basic intention that animates social movements, that is, the intention of
moving, of becoming more than what they currently are (2015: 4-5). Social movements
represent the ties that bind individuals involved in the resistance hence they articulate individual
actions into comprehensive, socially visible and tangible actions that tie and keep the attention
of the society as well as authorities. In the current era of new media and especially social media,
social movements have much more diverse ways of transmitting their messages and
coordinating their actions, exactly through the widespread use of social media. The resistance
to accumulation by dispossession (Harvey, 2003)18 has been picked up by new social
movements concerned with issues such as land and minority rights (Hickey and Bracking 2005).
In this period, socially ameliorative interventions were aimed at providing a certain degree of
collective consumption and at upgrading the living spaces of the disadvantaged. Meanwhile,
the terrain of profitable activities was expanded with the help of policies and plans. Citizens
and interest groups have become stakeholders in this increasingly fragmented and participatory
governance system. Concomitantly, social mobilizations became part of an organized and
formalized negotiation process (Eraydin, Tok-Kasan, 2014: 114). The racial issue in capital
accumulation should not be overlooked at any time19. Even today, it is quite clear, hence in
multiracial societies, the population of European origin (whites) always have much better
social status and more wealth than the population of Asian or especially African origin. Latino
population in the North America, as well as Amerindian and Mestizo population in the Latin
America share the similar fate. The roots of urban movements primarily can be found in high
discrepancies of wealth distribution, besides the more obvious reasons, such as: gentrification
and privatization of former public space; privatization of natural resources and natural
monopolies (for example: water supply).
3. DISCUSSION
It is a striking historical fact that at the various apices of US global ambition over the last
century, powerful discourses emerged to the effect that the world is devoid of geographical
hierarchies and that it should be seen instead as a plain of equal opportunity for all. () All in
the world were supposedly equal in this beautiful vision, perpetrated by powerful ruling class
18
In the late 1980s, David Harvey was the first social scientist to clearly identify the rise of a neoliberal art of
governing cities, through his conceptualization of the entrepreneurialization of urban governance in US cities
over the 1980s, even though at that time he did not explicitly use the term neoliberalism (Rossi, Vanolo, 2015:
846).
As Harvey had explained, politico-economic elites across the world were urged to connect cities and regional
spaces to economic, political, and cultural relations of global reach. () The new urban politics becomes
thereby a crucial terrain of investigation with reference primarily to Anglo-American cities and metropolitan
areas but also to cities in other contexts of advanced and emerging capitalism (Rossi, Vanolo, 2015: 847).
19
The racial wealth gap is one of myriad economic realities that reflect these disparities. In the USA, the median
wealth of white households is 20 times that of black households and 18 times that of Latino households
(Kochhar, Fry and Taylor 2011). These economic geographies are produced through state violences that support
enslavement, colonization, and incarceration, and the racism enshrined in agendas like homesteading, housing
policy, urban renewal, and suburbanization that have devoured communities of color while facilitating capital
accumulation for privileged white Americans. (Inwood, Bonds, 2013: 517)
Additionally, the mobilization of neoliberal projects rests on racialized and sexualized discourses (eg. welfare
mothers, criminalization of race). (Ibid, 517-518)
67
men who sat at the top of a global hierarchy and who clearly had an interest in seeing no
privilege. Today the language of a US-led neo-liberal globalization revisits this fantasy; its
favourite slogan tells us that globalization provides a level playing field. But it is precisely the
self-serving trick of neo-liberalism to assume that such a flat world is already here, hierarchy is
gone, equality rules20 (Smith, 2005: 893).
The neoliberal dogma about equality among people and the flat world21 represents a fantasy, a
composition of realities based on the false premises. Therefore, the conclusions cannot be
anything but false. The only thing that is becoming more equal is the range of social inequality
i.e. social stratification in the societies of the majority of the worlds countries, both developed
and underdeveloped. At the same time, the differences in the level of economic development
between the developed and the least developed countries (LDCs) are increasing, leaving the
emerging economies as the only examples of shrinking differences between the developed
countries and the non-developed countries. However, this faster, sometimes in purely economic
terms, incredible economic development of the emerging economies comes at a very high price:
rising social inequality, rising crime rates, increased resource extraction, increased dependence
on resource imports (especially oil, in most of the emerging economies P.R. of China and
India are the best examples) and a rapid pollution and destruction of the environment (P.R.
China probably stands out as the perfect example).
Recognition of neoliberalisms geographies of poverty, inequality, and violence as intertwined
across a multiplicity of sites (Hart 2008; Springer 2008) impels us to view its geographies of
protest, resistance, and contestation in the same light (Springer, 2011: 553).
Because the changes associated with neoliberal policies often had negative distributional
impacts on the working class, the poor, the small-business sector, and the environment, diverse
forms of resistance and contestation have emerged. Leitner et al (2007) suggest that
contestations of neoliberalism fall under four basic types: engagement, opposition, alternative
knowledge production, and disengagement (Hess, 2011: 1058).
There are ample evidence from around the world that the state aims to pacify opponents,
concurrently performing authoritarian and entrepreneurial state interventions, connected with
neoliberal urban management22.
Social movements of the present day world are definitely thriving because of the two main
processes. The first is the neo-liberally inspired internationalization (which the ideologists of
globalization refer to as globalization) that increases social inequality in both rich and poor
states, concurrently increasing inequalities between the developed and non-developed states,
increasing the number of least-developed states, and therefore turning whole regions into the
zones of compression (Cohen, 2008) i.e. social and environmental destruction (Central Africa
is the worst example). The second process is the revolution in information technologies that has
invented new media and then made them available to significant parts of the world population
(in developed states, the percentage of Internet users well surpasses 50%). Internet and its tools
have become ubiquitous. Social media (especially Facebook and Twitter, as well as YouTube)
have changed the possibilities of social movements.
From Latours actor network theory to Paul Virilios death of geography, from Castells network society to
Jean Beaudrillards end of geography, leftists and ex-leftists have variously refracted visions of a flat playing
field (Smith, 2005: 895).
21
Probably one of the best examples of this dogma is a book by T. Friedman, The World is Flat.
22
Any sense of collective agency has disappeared with the collapse of trade union membership, the failure of
attempts to prevent plant closure and in some cases, decisive moments of defeat for the working class. In the
case of the UK, Thatchers defeat of the 19841985 miners strike or the failed attempts by British city
governments to develop municipal socialism in the 1980s in the face of the neoliberal onslaught at the national
level. In the USA, the bankruptcy of New York City (Harvey, 2005) and the subsequent collapse of a progressive
urban politics of redistribution alongside the job losses, plant relocation and emasculation of the autoworkers are
similar symbolic moments. (Cumbers, Helms, Swanson, 2010: 61).
20
68
Social movements typically grow from cramped spaces, situations that are constricted by the
impossibilities of the existing world with a way out barely imaginable. But precisely because
they are cramped, these spaces act as incubators or greenhouses for creativity and innovation.
Social movements that grow from these spaces might form around antagonistic demands (more
money, better housing, and withdrawal of the police) but they also produce their own
problematics. By this we mean they throw up concepts, ideas, desires that dont make sense
within existing society and so call forth new worlds (The Free Association, 2007)23.
Castells is one of the authors who has recognized the new possibilities of social movements
actions through the use of social media. In his book, titled Networks of Outrage and Hope:
Social Movements in the Internet Age (2012) he recognizes the importance of Internet and social
media for the development of social movements. Castells has identified over a 100 different
social movements that have thrived in 2009-2012 period, in various parts of the world, in
democracies and developed states (various movements in European states, Occupy Wall Street
Movement etc.), as well as in the autocratic regimes of the developing world (for instance, the
Arabian Spring movements, protests in Russia against Putin). All these movements used social
media as a means of coordinating their actions and announcing their messages to their
supporters and to the outside world. Some of these movements were motivated by a desire for
more political freedom and some were motivated by the increasing social inequalities and
injustice, as well as the economic crisis itself. Third kind of movements were the ones that had
both political and economic motives that initiated them. It also has to be noted that this
differentiation is sometimes very vague, since changes in the political arena are usually
preconditions for changes in the economic arena.
Urban movements
Neoliberalisation of the cities is referred to by Smith (1996) as revanchism: A ruthless, rightwing reaction against the supposed theft of the city by, among others, the working class, the
unemployed, immigrants and minorities.
The response to the elimination of collective bargaining rights for public employees in
Wisconsin, the growth of the Occupy Movements, and the emergence of student protests to the
oppressive cost of education remind us that radical activism is still possible. However, certain
instances within these moments of possibility brought with them the baggage of privilege and
essentialism that should serve as reminders of the importance of anti-racism to anti-capitalist
activism (Inwood, Bonds, 2013: 518).
The people who were evicted formed the wellspring of urban movements in cities around the
world (Sugranyes, Mathivet, 2011). At this stage, interventionist urban agendas and state
entrepreneurialism are likely to be found not only in developing countries but also in advanced
economies (Swyngedouw, 1996).
The response of the Turkish state to urban movements in the last decade illustrates that
economic neoliberalism does not have to coincide with the dismantling of the state. ()
Neoliberal urban policies and practice are used to legitimize the enhancement of authoritarian
governance24.
23
But just as social movements take root and slow down, so these problematics stop moving. What was once
new becomes codified. Its a vicious circle: as problematics slow down, they acquire baggage; as they acquire
baggage, they slow down. Rather than being innovative and productive, the problematic loses its purchase and
becomes cliche. It becomes saturated in meaning (The Free Association, 2010: 1023).
24 Second, it shows that governments use urban areas not only as a growth machine but also as grounds for a sociopolitical transformation project. This approach, which necessitated a strong role for the state, has engendered
different forms of intervention in urban areas combining economic neoliberalism with increasing social control,
restrictions, penalization, and exclusion of certain social groups. Third, the response of the Turkish state to urban
movements depicts changing partnerships between the state, the market, and the citizens. (Eraydin, Tasan-Kok,
2014: 111).
69
Urban movements and urban poor are not only typical for the underdeveloped countries and
emerging economies that are under harsh pressure of neoliberalism. It is also typical for the
most of the developed countries and their cities: The resurgence of an urban poor is the starkest
manifestation of the growing economic polarization evident in advanced industrial societies
(Brenner and Theodore, 2002; Dorling and Thomas, 2004; The Guardian, 2004). For example,
in the UK since 1978 there has not only been a growth in the number of households living in
relative poverty, but also a growing divide in absolute levels of income between upper and
lower quartile of earners (Hocking, 2003; Nickell, 2004). The greatest gaps in wealth are to be
found in the major cities, particularly in the disjuncture between the relative few with the right
professional qualifications who have benefited from the small number of knowledge economy
jobs available (Thompson, 2004) and a working class which has seen its livelihoods and
economic identity disappear as the result of a shift from manufacturing to service-based work
(Helms and Cumbers, 2006). It is in those old industrial cities and regions that experienced the
most dramatic economic decline and subsequent restructuring that these concerns are most
urgent25 (Cumbers, Helms, Swanson, 2010: 49).
Through the strong theoretical lens of neoliberalism, the PFI26 is in many respects an ideal-type
capitalist technology that tries to mystify an enormous transfer of public revenues and assets to
finance capital under the ruse of so-called risk transfer. At the national scale, the PFI has
played a small but nevertheless significant role in the New Labour governments 20002010
Decent Homes programme, which, beneath the rhetoric of modernisation, has been designed to
facilitate the long-term privatisation of council housing27 (Hodkinson, 2011: 378).
As far as the resistance to PFI is concerned, from the perspective of urban movements, there
are some positive developments: Nationally, the Defend Council Housing campaign has
successfully fought off dozens of stock transfers, while internationally, momentum is gathering
behind Lefebvres slogan of The Right to the City as myriad local urban movements seek to
connect up working class struggles against gentrification and displacement to other local and
In view of the common features of the states response to urban movements, three different types of state response
can be identified since the 1960s: collective consumption, urban social movements, and clientalism (ie the urban
politics of the post-war period for many places); the new entrepreneurialism (a first strand of revision of post-war
urban politics); and the new authoritarianism (a second strand of revision of post-war urban politics, connected to
the first strand). (Ibid. 112)
25 Dorling and Thomass (2004) study found that, outside London, the city with the highest proportion of
households living in poverty, with over 40%, was Glasgow. In as far as the absence of paid work is responsible
for poverty levels, the decline of traditional industries such as heavy engineering and shipbuilding has severely
affected old industrial cities such as Glasgow. Although unemployment levels are relatively low (in comparison
to say 25 years ago), economic activity rates remain well below the national average. Recent evidence available
from the UK Office of National Statistics suggests that almost a third of the working population in the UKs major
old industrial cities continues to be economically inactive, not in paid formal employment nor classified as
unemployed according to the ILO. (49-50)
26
PFI - private finance initiative, developed in England. The PFI is here described as the Labour governments
flagship publicprivate partnership (PPP) approach to public infrastructure modernisation.
27
The Little London regeneration scheme also suggests, however, that the PFIs neoliberal straitjacket has three
intended urban effects (or at the very least presents local actors with the following openings): the imposition of
the governments proactive gentrification approach to regenerating inner city working class estates; the
geographical rationalisation of public services and assets to free up land and other resources in order to feed the
complex and costly financial model; and the further embedding of what Crouch (2004) calls postdemocracy by
simultaneously locking in private sector interests into the governance of the area, while locking out grassroots
stakeholders such as tenants, community activists and housing workers. So far, so disempowering. Yet we have
also seen that the intended consequences of the PFIs neoliberal urban straitjacket confront other realities that
shape and even threaten to derail them. Structurally, the PFI is a highly precarious technology because it rests on
creating long-term contracts in which risk and uncertainty are massively increased, thus making the actual signing
of schemes vulnerable to delays and any changes in future economic forecasting. This makes time the Achilles
heel of the PFI, and, just as in the myth, this weakness can be exploited through the arrow of resistance (Hodkinson,
2011: 378-379).
70
international struggles for human rights, land, and democracy (Right to the City Alliance,
www.righttothecity.org; also Harvey 2008) (Hodkinson, 2011: 379).
4. CONCLUSION
Unless the state is limiting the access to the Internet, social media decrease or almost completely
annul the monopoly on circulation of the information, and that can mean the end of any
dictatorship. However, the dictatorship of neoliberal capitalism and the ubiquitous TINA
(There Is No Alternative)28 doctrine, continues, despite the actions of social movements and
social media. Social media are the means that help make the struggle against the
neoliberalisation of the cities of the social and therefore of the urban movements as well,
different and probably more successful.
As Smith (2005: 898), bluntly pointed out: So what is the alternative to a flat-earth pluralism
and neo-critical geography? How do we both keep a multiplicity of voices alive and at the same
time create a robust body of political thought and debate that helps guide and build political
struggles. Major social transformations can spring from any number of sources: police abuse in
Brixton, struggles over natural resources in Bolivia, religious strife in Bombay, imperialist
occupation in Baghdad. The vital point for a critical geography is not an uncritical celebration
of all revolts, but nor is it a tidy, detached desquamation of what counts as the only core struggle.
Having said this, I also believe that as long as the class, race, gender and many other hierarchies
of capitalism remain intact, we will get nowhere. Both forms of intervention (authoritarian and
entrepreneurial) in urban practices and projects have become commonplace in cities that are
undergoing neoliberal transformation increasingly.
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73
ACHIEVING LOCAL CONTENT IN EXTRACTIVE INDUSTRIES OF

AFRICAN COUNTRIES
Richard A Owusu
School of Business and Economics, Linnaeus University, SE39182 Kalmar, Sweden;
[email protected]
Terje I Vaaland
Uis Business School, University of Stavanger, N-4036, Stavanger, Norway,
[email protected]
ABSTRACT
Local content defines the extent of participation of local industry in extractive industries like
mining, oil and gas. These industries are major destinations of foreign direct investments. They
are very important revenue streams for governments of developing and emerging economies.
In many countries, however, local industry is not participating enough. Recently researchers
are bringing new perspectives into research and policy on the subject. We discuss the issue
based on a review of relevant literature including a study in Nigeria in the wake of the passage
of the new local content laws. Our study finds that the achievement of local content depends on
the collaboration of a range of actors. Local political and legal institutions, local businesses,
MNCs, universities and research organizations, international development partners and donors
have to contribute their political and economic resources to achieve local content.
Keywords: Africa emerging markets, local content, local participation in extractive industries;
local participation in oil and gas industries
1. INTRODUCTION
One of the factors that determine the extent of positive impact of natural resource extraction is
the level of local content (LC) in the industry. The World Trade Organization (WTO, 2011)
defines local content requirements, synonymously referred to as domestic content requirements
as a requirement that the investor purchase a certain amount of local materials for
incorporation in the investors product. The fundamental task is to involve and enhance the
domestic knowledge base through arrangements that allow for a dynamic industrial and
technological development, that gradually expand domestic competence and capabilities to
competitive levels (Heum, 2008:4).
The research on LC is still in its infancy. Issues related to technology transfer and vertical
integration have been studied by e.g. Kwon & Chun (2009); backward linkages between foreign
multinationals controlling natural resource extraction and local companies by e.g. Ivarsson and
Alvstam (2009), as well as Giroud (2007); effects of enhanced LC on welfare by e.g. Veloso
(2006), as well as Takechi & Kiyono (2003); LC experiences in industrialized countries by e.g.
Pursell (2001); LC in Brazil by Silvestre & Dalcol (2009); and a comparison of LC in West
Africa and Central Asia by Klueh, Pastor and Segura (2009). In line with the studies mentioned
above, LC has been mainly studied from industrial policy and industrial organization
perspectives. We find that a stronger management and behavioural perspective is needed to
understand the interrelatedness between institutions, governance, local and foreign companies,
their capabilities and how they impact the achievement of LC. A recent study of the LC
experience within Nigerias oil industry showed the lack of collaboration between various local
actors as well as between them and the foreign oil producers to be a major problem.
Management and behavioural factors explained a lot of the problems impeding the achievement
of LC over a period of over 30 years (Vaaland, Soneye & Owusu, 2012).
74
As more African countries find new deposits of oil and other minerals, researchers, policy
makers, and managers need better understanding of the environment and interrelationships that
should be developed to ensure the achievement of LC. The importance of LC is dawning on all
players. In the endeavor to achieve successful LC, we need to better understand the enabling
factors and challenges. In this paper, we discuss the enablers and challenges of achieving local
content in extractive industries of developing countries based on a literature review and a study
of local content in the Nigerian oil and gas industry (Vaaland et al, 2012). We are trying to
answer the questions: how can increased LC be achieved in the extractive industries of
developing countries? What are the enablers and challenges?
2.1. Enablers and Challenges of Local Content
There are two major actors in the LC regime in developing countries: institutions (local and
foreign), and companies (local companies, and foreign MNCs who control the exploration and
production of natural resources). Each of these actors contributes to the enabling environment
and challenges. Local institutions include the decision makers; regulators; political authorities
at both local and national levels; local universities and knowledge institutions providing
research and policy guidance; NGOs and local pressure groups; as well as the laws and
regulations the institutional actors create. Foreign institutions are powerful multi-lateral
financiers and policy-makers like the World Bank and IMF, foreign donors and home countries
of multinational oil companies like the EU, United States and China. Local companies are the
indigenous business partners and beneficiaries of LC. Foreign MNCs are the foreign
multinationals who undertake exploration and production of oil, gas and other minerals. In the
subsequent sections, we describe the enablers and challenges provided by the various actors
and end with a discussion of our policy, management, and research implications.
Institutional enablers
Local institutional enablers are governmental institutions or parastatals with direct or indirect
influence on how the actors of the extractive industry operate. They include ministries
responsible for national policy development, implementation, and monitoring of industrial and
extractive activities in the country. National oil companies (NOCs) mediate between the central
Government and oil producing MNCs. They are given implementation and policy development
functions (Boscheck, 2007). The NOCs negotiate directly with the oil producing MNCs and
supervise them. They also manage the national investments in the industry. They advise the
Governments on the level of ownership, royalties and taxes to demand. As they work directly
with the producers, their capabilities are very important in ensuring trust and fairness from the
point of view of both parties. Various governmental and parastatal providers of critical
infrastructure to the extraction industry like the Nigerian Electric Power Authority (NEPA)
provide important capabilities. Legal institutions are also crucial for the work of the extraction
companies. These include the lawmakers, the law enforcing police and prosecuting forces, and
the court system necessary for providing protection, stability and a law abiding society. Other
local institutions are universities and knowledge centers that develop and disseminate
knowledge and technologies to political institutions, parastatals and companies. Additionally,
NGOs and local pressure groups are critical in ensuring an enabling environment in the mining
location and they impact the policy of Governments through their support or protests.
Foreign financiers and home countries of the oil companies like the United States, the European
Union, Japan and China are potentially important enablers of LC in developing countries. By
supporting the LC aspirations of developing countries they provide an important negotiating
strength against the powerful MNC producers. Powerful multi-lateral agencies like the World
Bank and IMF are increasingly playing a neutral role and supporting the LC aspirations of
75
developing countries. Historically, foreign companies involvement in developing countries has

been motivated by a desire to exploit natural resources and abundant labor pools (Hansen,
Pedersen & Petersen, 2009). Finding the right mix between incentives and regulation is one
important task for the industrial regulator in order to foster local participation through foreign
companies (Kasuga, 1999). Based on experiences from the development of Brazilian oil
industry, specific government imposed strategies are necessary to facilitate technology transfer
from the MNC and to attract R&D activities into the industry (Hernandez-Perez, 2011).
In order to meet reluctance from MNCs to actively promote indigenous companies, Moser
(2001) emphasizes the importance of external institutional pressures (i.e. institutional
capabilities) principally in the form of legislation for MNCs contribution to sustainable
development of developing countries. Recently, the Government of the Federal Republic of
Nigeria has passed a LC law to ensure expanded LC (Federal Government of Nigeria, 2010:
Atsegbua, 2012). Initially, the multi-national oil producers opposed the effort but later
supported it with promises of training, funding and technological transfer to local suppliers.
Institutional Challenges
Ability of institutions to carry out their tasks can be related to their powers and accountability,
political stability, government effectiveness, regulatory quality, rule of law and control of
corruption (Klueh et Al., 2009). Fattouh & Darbouche (2010) identify significant variations in
performances and capabilities among NOCs in developing countries. For example, Boscheck
(2007) claims that the Nigerian National Oil Company (NNPC) has exemplified poor
governance, high levels of corruption, and inefficiencies in important tasks such as record
keeping and collection of equity oil since its establishment in the early seventies. In some
countries, (e.g. Nigeria and Ghana) the economic conditions for local industry such as; tariffs
and exchange policies do not support local industrial development (Ilori et al., 2002). One
example is when duty free industrial zones favor imported finished goods, while raw materials
for local industrial production are heavily taxed (Ilori et al., 2002). In many developing
countries, the legal system and their institutions suffer from a variety of challenges. The legal
system in Nigeria, for example, is claimed to have lacked accountability and suffered from
corruption, which in turn inhibited investments (Nwosu et al., 2006). In Frynas (2001) study
of the Nigerian court system, he argues that access to courts is a key test of the quality of a legal
system, and identifies obstacles like the potential plaintiffs lack of financial resources, long
delays in the disposal of cases, and intimidation by public bodies. Deficient public infrastructure
can always discourage investment and lead to low LC (Nwosu et al., 2006). In Nigeria, unstable
electricity supply has forced virtually all large industrial companies to invest in backup
generators with a view to avoid temporary shutdowns (Ilori et al., 2002). The situation is similar
in many emerging countries like Uganda, Ghana, India and Pakistan. Many observers have
criticized foreign Governments, particularly China, for pushing the economic interests of their
companies to the detriment of the host economy. China has negotiated many oil and mineral
contracts in African countries that are accused of not benefitting the local economy (Ramburuth,
Buatsi and Owusu, 2010). In Angola and Zambia, for example, Chinese companies have used
large numbers of Chinese workers and suppliers for their projects. This reduces the roles of
local contractors to low technology land clearing and transportation tasks.
Inter-firm enablers and challenges
Inter-firm enablers involve the indigenous company or contractor/supplier, defined as (i)
registered in the host country with a 60-100% local shareholding, (ii) possesses appropriate
expertise, and financial viability, and (iii) has proven to be a contributor to the economic growth
in its area of operation (Nwosu et al., 2006). In this definition, we exclude deliberate joint
ventures between a foreign company and local interests that are established for the purpose of
76
matching local content requirements without real value creation for the local economy. The
host country firms in our context include all commercial suppliers that are directly or indirectly
involved in the various levels of value creation and position in the supply chain within the
extraction industry. Indigenous companies in developing countries appear to be breaking into a
wide range of activities but in low technology and labor intensive areas primarily (Vaaland et
al, 2012). Local content aims at improving local contribution in more advanced areas of
technology transfer, development and adoption. The development of indigenous suppliers
particularly in technology intensive areas is hampered by the fact that they are SMEs; and are
poorly linked to natural resource-based industries (Torres-Fuchslocher, 2010) and R&D /
university sector (Ojewale et al., 2001). Local content can be enhanced not just by foreign
MNCs willingness to transfer competence and effective industrial regulation but also by
proactive indigenous companies willing to improve their competitiveness within products and
delivery processes. One is to improve the competence and resource bases by mergers or
acquisitions with a view to form larger and more powerful companies and also to develop
various types of inter-firm linkages as a means to overcome most of the inhibitions preventing
increased local content (Hansen et al, 2009). Another option is to increase the business-tobusiness interaction through forms of agglomerations in similar geographical areas (Silvestre
& Dalcol, 2009), and where stable platform for inter-firm cooperation and relation-based
governance can be established (Biggs & Shah, 2006).
Foreign multinational company enablers and challenges
Foreign multinational companies (MNCs) control mining and oil drilling in most African
countries. Chinese companies are new entrants. For example, 95% of the oil produced in
Africas largest petro-state Nigeria, is generated by five multinationals; Shell, Exxon, Chevron,
Total and Agip (Frynas & Paulo, 2006). Smaller MNCs like Tullow Oil and Kosmos Energy
are dominating new exploration and production in, for example, Ghana and Uganda. The oil
and gas related MNCs possess superior technical and economic capabilities, and represent an
important potential source of competence and resources transfer to host countries. These are
done through both physical investments, implementation of more effective managerial practices
and transfer of best practice technologies (Silvestre & Dalcol, 2009). Transfer of knowledge is
not only restricted to transfer of technologies, but all types of specific support relevant for
removing bottlenecks for a potential supplier in order to achieve the required performance level.
The MNCs are therefore potentially important channels through which world-class knowledge
can flow into natural resource industries and stimulate innovation in other local businesses
(ibid). The extent of technological and managerial spillover from MNCs to indigenous
companies and knowledge sector can be questioned. Some studies claim that the relationship
between the MNCs and host developing countries suffer from low technological spillovers,
especially the failure to develop dynamic local entrepreneurship in knowledge intensive areas
(Ivarsson & Alvstam, 2009). Others claim that attitudes among major foreign oil companies
are impediments leading to low local participation (Nwosu et al., 2006; and Almeida &
Fernandes (2008), whereas others (e.g. Jordaan, 2011) scrutinize the formation of the
supporting linkages from the MNEs to the local SMEs.
Research and educational enablers and challenges
In this group, we find many types of state and private knowledge institutions established with
the purpose of creating and diffusing scientific, managerial and technological knowledge. The
institutions include research institutions, universities, polytechnics, and vocational schools.
R&D institutions have an important role in both creating and transforming foreign accessed
knowledge into industrial applications. Development of technology intensive suppliers is
assumed to have positive impacts on the industrialization process and economic development
77
of natural resource-based industries (Torres-Fuchslocher, 2010). They are key energizers to

industrialization and economic expansion in developing countries, mostly in fast growing oil
producing countries (Mohamed et al., 2010). A main challenge is the incapacity of educational
and research institutions. However, inadequate public funding and ineffective support for
research and dissemination of knowledge from the private sector reduce their capability as a
vehicle for upgrading indigenous companies. According to Britz et al., (2006), an oil producing
country like Nigeria has only capacity to accommodate 12% of qualified candidates for higher
education. Many R&D institutions are inadequately staffed and poorly funded (Ilori et al.,
2002), The low capacity leads to lack of high-quality entrepreneurial skills and relevant
technical expertise (Nwosu et al., 2006).
Financial enablers and Challenges
Financial institutions include banks and all types of capital providers in the host country. Other
providers of financial capabilities include public funding institutions such as the Local Content
Developing Fund in Nigeria. Their tasks include providing capital to indigenous companies for
funding investments and providing operating credit lines for projects based on sound risk
assessments. As suppliers have to pre-fund their work, emerging companies in developing
countries are heavily dependent on funding. Many indigenous companies claim absence of
adequate and appropriate financing (Nwosu et al., 2006). According to Ilori et al. (2002), the
usually high cost of production in Nigeria is traceable to high exchange rates and lending rates,
inadequate working capital and lack of investment funds to replace/refurbish worn-out
machineries.
Discussion
An important enabler of local content is the capabilities provided by public institutions because
they have the power to impose local content laws, financial and operational regulations, and
requirements to foreign operators as well as providing incentives for the local industry. As
Table 1 shows, the effect of institutional enablers is, however, dependent on other enablers.
These include other local and international institutions, MNCs, local firms, financial
institutions, research and educational institutions. For example, the current indigenous mining
and oil & gas related supplier industry often lack capabilities to provide high technology
deliveries within recognized quality standards. One way to mitigate this problem is said to be
to combine foreign participation in resource exploitation with technology transfer to the host
country. The public institutions and regulators could therefore apply their powers in forcing
and/or motivating foreign operators to sustain technology and competence transfer with the aim
of developing the indigenous companies. Principals and suppliers need a dependable legal
system. Without well-functioning legal systems, opposing parties would be forced to apply
personal trust as the only governance mechanism, which in the final analysis is unrealistic in
any business society. Two issues that arise from this in the African context are (i), how can the
laws relating to business be aligned with international law and at the same time meet the
national interests; and (ii) how can corruption be reduced effectively from the courts and
through the law enforcement agencies? Another enabler focuses on the financial capabilities,
where access to capital at competitive interest rates is assumed to be the major issue to be
solved. The indigenous companies require operational credit lines and project funding, which
may be difficult in many African countries. One factor is that of low lending power of the
financial institutions. The other is the smallness of the institutions of both the lenders and
borrowers alike. Also business professionalism has further implications on the ability of
companies to develop products and services and make managerial decision making and delivery
processes that are necessary for local content to prosper. Nonetheless, the funding issue also
raises two pertinent questions for the country. The first is whether the lenders and borrowers
78
alike would wish to restructure with a view to enhance their business powers and capabilities
in the face of the need for larger business units. The other is the ability to achieve a legal system
capable of providing efficient protection from fraud and defaulting business practices. The level
of education and training, technology development and diffusion are among the main
constraints to building a competitive local industry. Some of these relate to how the institutions
are managed, funded and organized. Some others focus on how competence is accessed and
applied in the companies. The local R&D institutions and universities (and indeed, other
technical and poly-technical schools of relevance) face the challenge to develop relationships
with the MNCs and local industry in order to improve curriculum and industrial relevance and
also to build up training facilities that are based on modern technological equipment and tools.
Beyond low value catering, transportation and safety services, tight relationships between
foreign companies, indigenous companies and the knowledge sector are very crucial for
building capabilities that are necessary for making local content a reality.). The concerns around
these are (i) how the universities and R&D institutions can be sufficiently prepared financially
and capacity wise to be able to adopt and distribute technology transferred from MNEs to local
industry; and (ii) whether the schools and universities are organized and managed sufficiently
to meet industry requirements for their primary and further education.
Actors
Institutional
(Local
political,
parastatal and
international
institutions)
Required capabilities /
Enabling aspects
Dependable authorities,
functional infrastructure, a sound
legal system; industrial policy
fostering local content; foreign
institutional support
Foreign
Multinational
corporation
(MNC)
Transfer of technology and

know-how. Building backward
linkages to indigenous companies
Inter-firm
More inter-firm collaboration;

larger business units; improved
competence base.
Transfer of know-how to
indigenous companies; high R&D
and educational output.
Research &
educational
Financial
Credit access and competitive

interest rates.
Challenges / Constraints related to other actors

Corruption hampering institutional governance (all
enablers); weak contribution to institutional building
(external institutional enablers); weak generation and
diffusion of know-how (research & educational
enablers); weak industrial links between MNE and
indigenous companies (weak intra-firm enablers);
weak capacities and negative positions of NGOs and
local institutions
Weak local industrial base and small scale businesses
(inter-firm enablers); weak legal protection and
infrastructure (institutional. enablers); weak local
institutions (institutional enablers); weak foreign
institutions (institutional enablers)
Lack of trust in legal system (institutional enablers);
weak financial system (financial enablers), weak
access to R&D (educational & research enablers)
Low ability to assimilate technological developments
in companies (inter-firm enablers); weak relationships
between relevant actors (inter-firm and institutional
enablers); low involvement from MNEs (external
development enablers); Lack of funding (institutional
enablers)
Weak economy hampering banking and financial
system (institutional enablers); weak legal system
hampering financial relationships (institutional
enablers.); weak payback attitudes and low business
professionalism (inter-firm enablers).
Table 1: Enablers and of local content and their inter-related challenges

Another enabler is summarized in the external development capabilities in which the
willingness and ability of foreign multinationals to provide managerial and technological
competence to indigenous companies are essential. The consequences of weak vertical
(backward) links represent a major constraint to local content. While transfer of competence
from foreign operators can improve the capabilities of the local supplier industry, it does not
79
necessarily imply that contracts can be awarded. The important questions that arise from these
are (i) Whether the foreign companies (often powerful MNCs) are actually willing to develop
small local suppliers with limited competence and capacities with a view to enter global supply
chains without strong incentives from governmental bodies; and (ii) whether the MNCs are
prepared to help develop local companies in a way which will reduce their (MNCs) power.
The final group of enablers focuses on inter-firm capabilities. It relates to how indigenous
companies can develop their resource base and apply this to the production and delivery
processes. Taking into consideration the small and informal nature of most businesses in
African countries compared to the large multinationals and foreign suppliers, weaknesses in
horizontal intra-industry collaboration among local suppliers might prevent active participation
of the local industry in the countrys extractive industries. Table 1 above summarizes the
discussion and emphasizes that local content should never be an isolated question about how
individual public and private actors approach the issue. Rather, it should be approached with
the understanding of the interdependencies, challenges and opportunities in combining the
capabilities of the five groups of actors.
The challenges / constraints in Table 1 show how the challenges of achieving LC are
interrelated. Just as the capability of each enabler is important, the cooperation of each enabler
in overcoming their own constraints and helping to overcome inter-related constraints is critical
for the process. Whereas the main constraints have previously been blamed by different
researchers on specific actors e.g. corruption and lack of capabilities in emerging countries
like Nigeria, or capitalist greed and refusal to support local development by MNCs like Shell
Oil, the framework in Table 1 confirms that failure is likely to emanate from several actors. In
other words, each single actor can easily sabotage the achievement of LC by not dealing with
its constraints. Thus far, LC has been poorly achieved in African countries. To improve on that
we suggest the concept of mutual constraint mitigation which requires that the actors all commit
to removing constraints in their organizations as well as those that are embedded in the links
between them. This suggests the actors will actively strategize to work towards achieving LC
from the point of view of their organizations as well as the necessary mutual activities.
3. CONCLUSION
This paper discussed an important international business issue that is only sparsely addressed
in research. We answered the questions: how can increased LC be achieved in the extractive
industries of developing countries? What are the enablers and challenges? We approached our
aims by a literature review which we contextualized in a developing country perspective by
illustrating it with primary and secondary data.
We propose a managerial and behavioural perspective and an integrative approach in order to
understand inter-relationships, interactions, roles, and coordination among the actors which our
research shows to be the critical issues for achieving LC. According to the model in Table 1,
five groups of enablers and challenges exist for achieving LC in developing and emerging
countries. Their capabilities should be used to establish the required enabling environment as
well as mitigate constraints.
A new study should investigate the relative importance of the five capabilities in different
natural resource-based industries in different developing countries. Many new oil and mineral
producers in Africa and other developing countries provide a live laboratory for studying the
progress of LCs. Researchers should design longitudinal studies to follow the progress of LC
and also use quantitative methods for cross-sectional studies.
80
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82
ORGANISATION OF THE SUGAR INDUSTRY IN POLAND AND

EFFICIENCY OF OPERATING SUGAR FACTORIES
Franciszek Kapusta
University of Environmental and Life Sciences
Street Norwida 25, 50-375 Wroclaw, Poland
[email protected]
Rafal Parvi
School of Banking in Wroclaw
Street Fabryczna 29-31, 53-609 Wroclaw, Poland
[email protected]
ABSTRACT
This paper examines share price of the companies listed on the WIG-SPOYWCZY and their
fair value between 2006-2015. Data from 2006 to 2015 were collected from the Stooq.pl (Polish
portal of shares). Two hypotheses are tested: (1) value of the shares based on the market price;
(2) value of the shares as the fair value of shares. Moreover, the financial condition of several
companies with respect to the sector was examined with the selected financial ratios. In
addition, the author expressed his view on the opportunities of the property companies market's
WIG-SPOYWCZY (sugar industry) in 2015-2018.
Keywords: food sector, financial condition, profitability, fair value, sugar
1. INTRODUCTION
Humans have used sweeteners for different purposes for a very long time. The most common
sweetener sucrose was originally obtained from sugar cane, while crystallised sugar was
obtained from sugar beet by Sigismond Marggraf, the German chemist, only in 1747. He
concluded that its content in a beet root is 1.6%. In 1786, Fryderyk Achard, S. Marggraf's
student, took actions aimed at the sugar beet cultivation, selection, chemistry and processing.
He also undertook the construction of sugar factories in Pomerania and Silesia. The sugar
factory that he built in Knern (Konary), near Wow in Lower Silesia, was recognised as the
first factory in the world, where in 1802, sugar was made of sugar beet on an industrial scale.
Until then, sugar cane was the only raw material from which sugar was obtained on such a
scale. In 1806, another sugar factory was established in Passy (near Paris), and then a sugar
factory was built in Alabiew (near Tula) in Russia, and a bit later in the Czech Republic. The
rapid development of the European sugar beet industry was a result of the Britain's continental
blockade ordered by Napoleon I, which suspended the delivery of colonial cane sugar to
Europe. Since 1811, the intensive work on cultivation and selection of sugar beet as well as
sugar chemistry began. The second half of the 19th century is a period of intensive work on
breeding, agricultural engineering and improvement of obtaining sugar from beet, mainly in
France and Germany, but also in the Polish territory.
In the areas of present-day Poland, the sugar industry firstly developed in Silesia, and in other
areas, with the first sugar factories established in 1820-1826. Until the mid-19th century, 130
sugar factories were built. In 1913, within the current Polish borders, there were about 140
sugar factories operating that produced about 1 million tonnes of sugar (35 years earlier 108
thousand tonnes), including about 400 thousand tonnes in the Prussian Partition, about 300
thousand tonnes in Silesia and about 215 thousand tonnes in the Kingdom of Poland. In 1924,
75 sugar factories operated in Poland (in 1913, there were 86 sugar factories in this area), and
in 1937, there were only 61 of them.
83
After the Second World War, many sugar factories in the territory of Poland were destroyed,
and those which survived were very irregularly distributed within the territory of the country.
In addition, the capacity of sugar factories was insufficient in relation to the needs (raw material
processing and sugar production). Therefore, a decision was made to rebuild the damaged sugar
factories as well as to build five new ones in Eastern Poland. 78 active sugar factories were a
result of these actions. At the turn of the 20th and 21st century, the Polish sugar industry was
restructured, and as a result of it, five sugar companies, including 4 with foreign capital, were
founded. Progress within the production technology of sugar and the implemented
modernisation of sugar factories resulted in the increase of their capacity of more than the actual
needs. The working period of sugar factories in the sugar production campaign was reduced,
and it was necessary to exclude the growing number of them from the production activity.
Therefore, in the campaign of 2001/02, 76 sugar factories operated (two sugar factories went
bankrupt earlier); 2002/03 65; 2003/04 57; 2004/05 43; 2005/06 40; 2006/07 31;
2007/08 29; 2008/09 19; 2009/10 18 (until today). Firstly, sugar factories with outdated
production technology and low capacity are excluded from the production activity. The
presented state of active sugar factories is not final, and a further decrease in the number of
sugar factories, which process sugar beet, should be expected. Sugar production in the European
Union is regulated (Kapusta 2012, pp. 128-129; Mucha 2010, pp. 65-67). Although Poland is
one of the largest sugar producers in the EU, in terms of its production from 1 ha of sugar beet,
it is below the EU average (the 10th position). The sugar production quota (1405.6 tonnes)
assigned to Poland, is less than the current consumption (global one and per one inhabitant),
and the implementation of this limit results in the necessity to reduce its consumption for food
purposes and import.
2. PURPOSE, SCOPE AND METHODOLOGY OF THIS PAPER
The aim of this paper is to show dependence of the sugar industry development on the European
Union's policy in this regard as well as to present adjustment processes of the Polish sugar
industry to changing operational conditions, and particularly to demonstrate the following
changes:
- number of operating sugar factories, the amount of sugar quota, duration of the sugar beet
processing campaign,
- raw material base within the scope of: changing the number of growers and the sugar beet
cultivation area as well as the average area of plantation in case of one producer of sugar beet,
- efficiency of operating sugar factories.
This paper used the following sources: consistent and constant scientific publications, statistical
materials from the Central Statistical Office yearbooks, market analyses of the Institute of
Agricultural and Food Economics of the National Research Institute (IERiG PIB). The
collected material was developed and interpreted by using a comparative method (comparison)
in the vertical and horizontal form (Kapusta 1976, pp. 11-12; Stachak 2003, pp. 213-216) as
well as a statistical method (Stachak 1997, pp. 132-133).
The obtained results were presented with the use of tabular and graphic techniques in
connection with verbal description. The paper also includes the methods of financial (financial
ratios) and economic analyses related to the examination of joint-stock companies. These
companies were analysed and limited only to the food sector companies (grain production)
quoted on the Warsaw Stock Exchange in Poland. The obtained results were presented in a
tabular form in connection with the language description.
84
3. SUGAR FACTORIES AND THEIR PRODUCTION PROFILE

Sugar factories generally have a uniform production profile (they produce white sugar, liquid
sugar, refined sugar, molasses as well as fresh, pressed and dried beet pulp, and defecation
lime); they primarily differ in the production capacity which is adapted to specific local
operational conditions of the raw material base. Sugar factories also perform the services of
drying grains and seeds, and they produce animal feed based on the use of beet pulp and
molasses. The sugar factories, which were excluded from processing of sugar beet into sugar,
undertake refining cane sugar or preparing for bioethanol production.
The sugar industry plays an important role in relation to the entire agricultural production: by
stimulating the development of sugar beet production, it intensifies agricultural production, and
by returning the pulp, it provides feed for livestock production, and finally by the supply of
defection lime and agrotechnical support, it improves the agricultural condition.
Table 1: Changes in the number of sugar factories, the amount of sugar production and
processing of sugar beet per day. a Grouping of sugar factories in accordance to the state in May 2008. b
This group included one sugar factory which operates as a separate sugar company. c In 2009, British Sugar
Overseas Limited with its registered office in London sold to the Pfeifer & Langen company 100% of shares, and
the company took on a name of Pfeifer & Langen Glinojeck SA. The companies reduce the number of employees
in sugar factories and increase the capacity, and thus they strive for obtaining the optimum duration of the sugar
campaign; Krajowa Spka Cukrowa has the shortest duration, and Pfeifer&Langen-Polska has the longest one.
(Source: Rynek Cukru 2008 No. 34, p. 16; 2009 No. 36, p. 15; 2011 No. 38, p. 15; 2014 No.
41, p. 19).
13
10
4
2
2
11
10
4
2
2
7
6
3
1
2
7
5
3
1
2
7
5
4
2
Amounts of
white sugar
production
(thousands of
tonnes) in
2013/14
549.6
351.9
371.7
132.5
31
29
19
18
18
1405.6
Number of sugar factories

Specificationa
Krajowa Spka Cukrowab

Sdzucker-Polska
Pfeifer&Langen-Polska
British
Sugar
OverseasPolskac
Nordzucker-Polska
In total
2006 2007 2008 2009 2013

/07 /08 /09 /10 /14
Processing days
2010/
11
2012/
13
2013/
14
94
108
116
82
95
125
126
114
91
101
107
99
102
111
98
In the early twenty-first century, the Polish sugar factories were organised in five sugar
companies; however, one of them has already transferred the ownership of its sugar factory to
another sugar company, so four companies remain. The sugar factories are concentrated in three
of them, with foreign companies holding the majority stake. Krajowa Spka Cukrowa
(National Sugar Company) "Polski Cukier" operates there as well (Act 2001). The
organisational state of sugar companies in 2006/07-2013/14 is summarised in Table 1.
4. RAW MATERIAL BASE OF THE POLISH SUGAR INDUSTRY
The raw material base in the sugar industry can be defined as a cultivation area of sugar beet
together with the resources of production factors and infrastructure, from which the raw
material (sugar beet) is obtained in order to produce sugar. The proper use of processing
capacity in sugar factories is determined by organising the raw material base.
85
Table 2: Area, harvest and yields of sugar beet in Poland. a Annual averages. b Within the current
Polish borders. According to sugar factories: 1 236.8 thousand ha, 2 230 thousand ha, 3 191 thousand ha. The
difference between the area shown by sugar factories (Table 3 and 6) and CSO results from the fact that CSO
demonstrates sugar beet cultivation also for other purposes than sugar, e.g. dried beet used in the production of
coffee substitutes. (Source: Rocznik statystyczny rolnictwa i obszarw wiejskich 2006 [Statistical
Yearbook of Agriculture and Rural Areas 2006], CSO, Warsaw 2006, p. 269,275,277; 2007,
s. 255, 261; Rocznik statystyczny rolnictwa 2009 [Statistical Yearbook of Agriculture 2009];
CSO, Warsaw 2009, p. 149,155,158; 2011, p. 147, 153, 155; 2013, p. 159, 165, 167; Rynek
Cukru 2008, No. 33, p. 15; 2010 No. 37, p. 9; 2014 No. 41, p. 14. Own calculations).
Harvest
Cultivation
Yields
Cultivation Harvest (in
(in
Years
area (in
(in
Years
area (in
thousands of
thousands
thousand ha)
dt/ha)
thousand ha)
tonnes)
of tonnes)
1934-1938a/b
225
5959
265
2001
318
11,364
1947-1949a
232
4170
180
2002
303
13,434
1950
287
6377
222
2003
286
11,740
1951-1955a
348
6503
187
2004
297
12,730
1956-1960a
367
7743
211
2005
286
11,912
1961-1965a
428
11,436
267 2006-2010a
216
10735
1966-1970a
420
13,601
324
2006
2621
11,475
1971-1975a
448
13848
309
2007
2472
12,700
1976-1980a
505
14,149
280
2008
187
8715
1981-1985a
472
15,606
331
2009
1993
10,849
1986-1990a
424
14,674
346
2010
206
9,973
1991-1995a
384
12,614
328
2011
204
11674
1996-2000a
395
14601
377
2012
212
12350
2001-2005a
296
12236
410
2013
185
11235
Yields
(in
dt/ha)
358
443
410
428
416
494
438
514
465
543
483
574
582
608
The connections of a spatial, organisational, production (technological) and economic nature

occur between the raw material base and the sugar factory (Kapusta 2012. pp. 186-187).
The raw material base varies greatly in terms of the cultivation area of sugar beet, yields and
harvest. In the following years of the campaign, the adjustment changes in the requirements of
the sugar market organisation (Table 2) also take place reducing the cultivation area and
harvest of beet.
86
Table 3: Number of growers and the area of sugar beet plantations in Poland in 1981-2013.
Note: b The number of growers of one sugar factory was estimated. Table data apply to all sugar factories and
one dryer. In 1996, the dryer included 1.7 thousand growers and obtained beet from the area of 6.1 thousand ha,
however, in 1999, there were only 0.2 thousand growers and 0.6 thousand ha of plantations. For subsequent
years, data on the dryer do not have a greater impact on the presented amounts. (Source: F. Kapusta,
Wybrane problemy cukrownictwa polskiego, Prace Naukowe No. 880, Technologia 7, Eds.
AE, Wrocaw 2000, p. 65; Rynek Cukru 2007 No. 31, p. 15; 2008 No. 33, p. 11; 2010 No. 37,
p. 9; 2014 No. 41, p. 13).
Number of growers (plantations) and the
average area of plantation (ha)
Years
1981
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
per one sugar

in total
factory
(thousand) (thousands of
plantations)
468.6
6.0
383.7
4.9
288.6
3.7
291.1b
3.7b
295.6
3.8
272.7
3.5
258.9
3.4
259.6
3.4
209.9b
2.8b
166.6
2.2
137b
1.8b
111.9
1.5
99.4
1.4
Number of growers (plantations) and the

average area of plantation (ha)
Years
per one
grower (ha)
1.00
1.15
1.25
1.29
1.25
1.47
1.48
1.74
2.00
2.40
2.71
2.98
3.19
in total
(thousand)
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
91.5
85.9
77.9
70.7
63.2
60.7
40.9
40.0
38.2
37.0
35.8
35.7
per one sugar

factory
(thousands of
plantations)
1.4
1.5
1.8
1.8
2.0
2.1
2.2
2.2
2.1
2.1
2.0
2.0
per one
grower (ha)
3.1
3.33
3.81
4.05
4.15
4.07
4.57
4.75
5.03
5.14
5.39
5.20
Due to fluctuations in the observed characteristics in individual years, the averages of five-year
periods best reflect trends of changes. According to them, there was an increase of the
cultivation area and harvest of sugar beet to the period of 1976-1980. After this period, the
cultivation area is systematically reduced; and yields fluctuate at the downward trend with
growing yields. Furthermore, there is a decrease in the number of growers and sugar factories,
which determines changes in the number of growers per one sugar factory and an average
cultivation area of beet (Table 3).
Therefore, in Poland, in 1980-2013, the total number of growers decreased from 468.6 thousand
to 35.7 thousand, i.e. by 92.4%, the number of growers supplying sugar beet to one sugar factory
decreased from 6 thousand to 2.0 thousand, i.e. 66.7%, and the average area of one plantation
increased from 1 to 5.20 ha, i.e. by 420%.
The sugar beet cultivation has come full circle. In the interwar period, landowners were the
main growers who were shareholders in sugar factories and who knew the technology of sugar
beet cultivation.
87
Table 4: Selected information about the raw material base of sugar companies in Poland in
2002-2013. a Grouping of sugar factories in accordance to the state in May 2008 b This group included one
sugar factory which operates as a separate sugar company. c In 2009, British Sugar Overseas Limited with its
registered office in London sold to the Pfeifer & Langen company 100% of shares, and the company took on a
name of Pfeifer & Langen Glinojeck SA. (Source: Rynek Cukru 2004 No. 26, p. 13; 2007 No. 31, p.
15; 2010 No. 37, p. 10; 2011 No. 38, p. 11; 2014 No. 41, p. 14).
Cultivation area of sugar beet
in a year
Name of the company or
group of sugar factoriesa
Krajowa Spka Cukrowab
Sdzucker - Polska
British Sugar Overseasc
Nordzucker - Polska
Pfeifer & Langen
In total / On average
2002
2006
(thousands of
ha)
128.9 92.4
74.6
59.6
34.3
25.9
24.7
18.9
47.8
49.0
310.3 236.8
2013
%
76.0
38.7
x
18.5
51.4
184.6
Number of growers in a
year
2002 2006
(thous.)
41.2
21.0
x
10.0
27.8
100.0
44.6
19.9
9.9
6.0
11.1
91.5
31.7
12.1
6.3
4.1
9.0
63.2
Average area of the

plantation (ha) in a
year
2002 2006 2013
2013
%
16.2
6.8
x
3.1
9.6
35.7
45.4
19.0
x
8.7
26.9
100.0
2.89
3.75
3.46
4.14
4.29
3.39
2.92
4.93
4.12
4.61
4.43
3.75
4.7
5.7
x
6.0
5.3
5.2
Small-scale farmers had difficulties in concluding the contract for the delivery of sugar beet
(Sondel 1929). In the post-war period, the sugar beet cultivation, mainly in small (in terms of
the area) farms, due to labour resources, production profitability and dissemination of the
agricultural condition, was extended (Kapusta 2012, p. 79). Since the 1990s, the situation has
changed radically; sugar factories are interested in cooperation with a small number of sugar
beet producers distributed near sugar factories and susceptible to biological and technological
progress. As a result, the number of growers is systematically decreasing, however, the area of
sugar beet cultivation in case of one grower is increasing, the crop, and consequently the
harvest, are increasing. Individual sugar companies and groups have the differently advanced
concentration processes of the raw material base, which is shown in Table 4. The largest
concentration of sugar beet cultivation was reached by the sugar factories owned by foreign
capital, while Krajowa Spka Cukrowa showed the greatest progress in concentration of the
raw material base; the increase in plantations in 2002-2013 from 2.89 ha to 4.7 ha, i.e. about
62.6%. Nevertheless, in KSC, the average area of plantation is the smallest one.
5. EFFICIENCY OF OPERATING SUGAR FACTORIES
The sugar industry in both economic and financial terms is favourably ranked in comparison
with the entire food industry (Table 5).
Table 5: Economic and financial ratios of the sugar sector in Poland in 2008-2013. a Total
revenues decreased by taxes and charges. b Sum of the net profit/loss and depreciation. c Relation of current
assets to current liabilities. d Relation of investment expenses to depreciation. (Source: Rynek Cukru 2011
No. 38, p. 16; 2014 No 41, p. 21).

Specification
Meters expressed in % of net revenuesa
- gross profit/loss
- net profit/loss
- accumulation of fixed assetsb
- financial costs
Financial relations:
- financial liquidity (current ratio)c
- investment rate (simplified)d
Year
2008
2009
2010
2011
2012
2013
-7.0
-7.5
-2.6
6.2
9.1
8.2
11.9
0.9
18.5
14.3
19.3
1.9
24.0
19.4
23.0
3.0
27.3
21.9
25.1
1.9
21.8
19.5
23.6
0.9
2.6
1.5
1.3
1.4
3.3
1.3
3.0
1.2
3.4
1.2
3.6
0.8
88
The sugar sector achieved good financial results in 2009-2013. It resulted from high prices of
sugar in the country and the world, a significant improvement of the efficiency of processing,
low prices of the raw material, which constitutes about 40% of the cost of sugar production.
The European Union's restructuring aid, which was paid in 2009, also plays a crucial role. The
net profitability indices, which are the relation of profit to net revenues, were very high and
increasing until 2012, and they decreased in 2013. The sugar sector in 2010 - 2012 was
characterised by very high financial liquidity 3 and more per cent.
Until 2012, the sugar industry had conducted an extensive investment activity facilitated by a
very good financial situation. In 2013, the situation in this regard deteriorated and the
investment rate was lower than the depreciation rate. The investments include the
modernisation of production lines, energy systems and storage management systems (including
silos for sugar). The investments contribute to improve the technical and economic efficiency
of the sector, which is reflected in increased productivity and reduced costs. Therefore,
technical labour productivity increased by 97.0%, while the economic one by 176.4% in 20072013. Reducing the number of active sugar factories and modernisation of the remaining ones
resulted in a significant increase in the quantity of sugar production per one sugar factory.
6. ANALYSIS AND VALUATION OF THE SUGAR SECTOR COMPANIES QUOTED
ON THE WARSAW STOCK EXCHANGE (WSE) IN POLAND.
The WIG-SPOYW index, presented in Figure 1, shows that from 2007 to December of 2008,
the food sector's companies in Poland showed a downward trend in their values.
Figure 1. WIG-SPOZYW in the period from 01.2006 to 10.2015 (data of the stooq.pl).
However, since the first quarter of 2009, it has been possible to notice a significant upward
trend, in which the augmentation and consolidation at the level of 3,669 points on the index
take place. The values reported on November 05, 2015 reflect the upward trend and confirm it.
However, the market values do not reflect their fair value (Borowski, 2014, pp. 1-5, Jajuga,
1996, pp. 34-57).
89
In the food sector, we can see one company, which reported its maximum on 05 November
2015, and that is AGROWILL. While the other companies did not show its maximum value,
and even fair value, though they can show the net profit and the good financial condition. Some
companies were overvalued by over 50%-70%. These companies are ASTARTA and
OTMUCHOW. Only AGROWILL is trying to remain to be a flagship company, and recover
its value of the previous years (Table 6).
Table 6: The food sectors companies quoted on the Warsaw Stock Exchange in Poland as of
05.11.2015 (own development based on the data of the Warsaw Stock Exchange, data of the
Bankier.pl)
Maximum price PLN
Average
Current price
Name
rating
from the beginning of the
rating
PLN
stock exchange quotation
AGROWILL
5.0/5.0
AAA
0.86
1.16
ASTARTA
4.0/5.0
AAA
37.03
95.00
OTMUCHW
3.5/5.0
BB
6.60
15.98
In table 7, the most important ratios presenting the financial condition of the food sector's
companies were presented. In 3 surveyed companies, the generated profit per share was
reported in 2 companies. It shows that the food companies prosper properly on the financial
market and are able to record higher or lower profits (Parvi, 2014, pp. 262-267).
The price to the operating earnings shows the profits of the company, and this state of affairs
was reported in 3 examined stock exchange quoted companies (Damodaran, 2012, pp. 45-46,
Pastusiak, 2010, pp. 34-46, Jdrzejczak, 2011, pp. 133-138).
In contrast, analysing P/BV and P/P, it should be noticed that both the price to the book value
and the price to profit demonstrate that three companies operate excellently on the market and
have a value of c. 1.0 and above, and the best of them is AGROWILL. Other companies do not
differ significantly from average values (Parvi, 2014, pp. 179-185, Veale, 2001, pp. 88-125).
Table 7: Technical evaluation of the construction sectors companies quoted on the Warsaw
Stock Exchange in Poland as of 30.06.2015 (own development based on the financial data of
the companies quoted on the Warsaw Stock Exchange in Poland)
Name
P/OE (price/
P/BV
P/P
Profit per
operating
(price/ book
(price/ profit)
share
earnings)
value)
AGROWILL
12.46
666.02
0.87
No data
ASTARTA
3.29
1.06
0.70
(EUR) 2.065
OTMUCHW
11.11
0.56
0.32
0.030
In table 8, the studies concerning, among others, the net profit, depreciation, EBITDA and
assets of the construction sectors companies and the book value per share are presented.
According to the obtained values, it is clear that AGROWILL, ASTARTA and OTMUCHOW
showed a profit, which was confirmed by the previous ratios included in the table 6.
90
Table 8: The technical evaluation of the construction sectors companies quoted on the
Warsaw Stock Exchange in Poland as of 30.06.2015 (own development based on the financial
data of the companies quoted on the Warsaw Stock Exchange in Poland)
Name
Net profit (net Depreciatio EBITDA in
Assets in
Book value
loss) in
n in
thousands
thousands
per share
thousands
thousands
PLN
PLN
in PLN
PLN
PLN
AGROWILL
2280
0
2718
128427
No data
ASTARTA
(EUR) 54647
(EUR) 5445 (EUR) 46734
(EUR)
(EUR)
452809
8.335
OTMUCHW
257
2689
3384
248936
16.419
The book value per share shows that companies are overvalued, but we have no data
(AGROWILL), and in case of one companies. However, it is important not to follow this
opinion because the values are only the book values value (Froehlich, 2013, pp. 67-75), and the
calculation of them is purely mathematical and financial. In case of using the economic attitude
and interpretation, it would occur that the companies do not have the fair value (table 5) (Parvi,
2014, pp. 168-177, Thompson, 2008, pp. 52-54, Pierce, 2004, pp. 110-115).
The profitability of the equity as well as the profitability of assets is not shown by AGROWILL.
Therefore, according to the presented study, it is possible to observe that the flagship food
concerns have the profitability and they are not threatened by any disturbance of the financial
liquidity (it is not full year) (Table 9).
05.11.2015 (own development based on the financial data of the companies quoted on the
Warsaw Stock Exchange in Poland)
Name
ROE
ROA
AGROWILL
-10.22
-4.49
ASTARTA
0.22
0.13
OTMUCHW
5.95
3.85
Currently, the value of companies significantly deviates from the maximum value achieved a
few years ago. The only exception is AGROWILL, which achieved the maximum value in its
history. Other companies have the value less than 50%-70% of the maximum one (table 10).
05.11.2015 (own development based on the financial data of the companies quoted on the
Warsaw Stock Exchange in Poland)
Name
Current value
Maximum
Fair value
Deviation from the
value
fair value in PLN
AGROWILL
0.86
1.16
1.16
0.30
ASTARTA
37.03
95.00
58.00
20.97
OTMUCHW
6.60
15.98
12.00
5.40
However, the fair value which should be reflected by the share prices of the examined
companies significantly differs from the calculated value, which was presented in the table 9.
In some cases, it is even 70% of the current value. However, the fair value is significantly higher
than the current value of the examined companies, and in one company, AGROWILL, it is only
similar.
91
7. CONCLUSION
The sugar beet industry originated in the Polish territory and fundamentally changed; both in
terms of the number of sugar factories and the area of sugar beet cultivation and the organisation
of cooperation between processing plants and raw material producers.
The number of processing plants (sugar factories) changed; we have to deal with fluctuations
in the number of sugar factories increase and decrease in their number. And then, at the end
of the twentieth century, a process of systematic although with varying intensity over time
reduction of the number of plants and increase of their processing capacity, was started.
Changes of the raw material base proceeded in a similar fluctuating way.
The sugar market in the European Union is regulated; the amount of sugar production is also
regulated. Reducing the amount of sugar for Poland results in a lower demand for the raw
material sugar beet, which creates the possibility of earmarking them in large quantities for
the production of dried beet (for food and feed purposes), and production of bioethanol.
The fair value of the WIG-SPOYW sector's companies quoted on the Warsaw Stock Exchange
in Poland should be reached within three years, that is up to 2018 because it is the right
estimation of further fast development of the Polish WIG-SPOYW (grain production) sector.
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93
PRODUCT PLACEMENT IN MUSIC VIDEOS

THE LADY GAGA PHENOMENON
Arpad Papp-Vary
Budapest Metropolitan University, Faculty of Tourism and Business, Budapest, Hungary
[email protected]
ABSTRACT
One does not even have to watch todays music videos very attentively in order to recognize
that brands appear in them from time to time. However, this was not always the case. The
changing policies of Music Television, the introduction of VEVO (a music video channel
launched on Youtube), and the widening use of product placement in general have all played a
significant role in the changes of the landscape, the increasing number of product placements
in music videos. The paper examines the spread of brand/product placement in music videos,
also known as the Lady Gaga effect. The study focuses on two aspects of product placement:
on the one hand, which music genres it is the most widely used in, and on the other hand, what
its most common (classical and special) types are. The author describes the notion of product
placement drawing on different definitions, then discusses several typical and unique examples
of brands and artists involved in product placement in pop, electronic, rock, and more than
anything else, hip-hop music videos. Through a discussion of various historical and
contemporary examples (most of them visual or auditive), and their relation to business, the
study proves that product placement in music videos has become an increasingly popular tool
in the world of marketing.
Keywords: Branded Entertainment, Branded Content, Product Placement, Music Videos,
Marketing Communications
1. INTRODUCTION
How can we define product placement? Although it is a new marketing communication genre,
there are several definitions already:
A product or a brand in one or more scenes of a film, in one form or another, in return for
payment. (Snyder 1992)
When a product is placed in a movie or television show in exchange for payment of money
or other promotional consideration by the marketer (Gupta Gould 1997).
Paid product message which is aimed at influencing movie or television viewers through
planned and discreet entry of a branded product into a movie or television program.
(Balasubramanian 1994)
A marketing tool where a product is put into a movie scene, or its brand name is heard.
(Lehu 2008)
As the definitions suggest, product placement is usually mentioned in connection with brand
placements in movies. Some definitions also add television programmes, but product placement
has actually interwoven the entire entertainment industry. It is present in reality shows, talent
shows, talk shows, sports coverages, and cartoons. We can find brands in console and computer
games, books, and even in works of fine arts (Papp-Vry 2014). And, of course, it also appears
in music videos, which forms the basis for this study. The article examines the topic focusing
on two aspects:
Which music genres have more brand appearances, and which have less?
What are some of the examples of typical brand placements (visual, auditive, brands in song
titles)?
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2. PRODUCT PLACEMENT IN VARIOUS MUSIC GENRES

If we consider product placement in various music genres, the following stand out: pop (Lady
Gaga also belongs here officially, although she might be offended by this label), electronic
music, rock, and hip-hop (Csords 2013, Bnfi Csillag Major 2012). Let us look at these in
more detail.
2.1. Brands in pop music videos
We can find several video montages on Youtube collecting brands that appear in Lady Gaga
music videos: Bwin.com (online gambling website), Campari (vermouth), Chanel (shoes),
Coca-Cola Light (soft drink), Dior (ring), LG (phone), Mercedes (car), Neuro Sonic (water),
Nemiroff (vodka), Nike (shoes), Parrot (music storage kit), Plenty of Fish (online dating site),
Vespa (scooter), Virgin (mobile sevice provider), Wonder Bread (sliced bread), Polaroid
(camera). In addition, Lady Gaga is also the creative director of the latter brand, Polaroid.
Several songs by the artist could be mentioned as examples, and one of these is We love
designers featuring a lineup of designer brands such as Armani, Fendi, Valentino, Jimmy Choo,
Dolce&Gabbana and Manolo.
Therefore product placement in music videos is also called the Lady Gaga effect, suggesting
that the eccentric singer introduced it in the world of music. Nevertheless, the expression
revolutionize would be more appropriate: there had been product placements before Lady
Gaga, maybe just less often.
Illustration 1 Brands in Lady Gaga music videos

Source: http://www.x17online.com/media/images/2010/03/gagaadvert2.jpg
On the other hand, Lady Gagas competitors also use brand placement. Britney Spears even
draws attention to this in one of her music videos: the Nokias 5800 Xpress Music model
appeared for 7 seconds in her 3 minute 46 seconds long song Womanizer. 4 seconds of this is
full-screen placement, when the male main character takes a phone in his hand, and checks his
calendar items. Ironically, one of these items happens to be a product placement meeting
Maybe she wanted to draw the attention of other brands to her welcoming them with open arms
as she managed to get support worth 500 000 US dollars for her song Hold it Against Me.
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Britney uses long brand placements quite well, which is a rare case, because music videos
usually operate with quick cuts. However, in the first 14 (!) seconds of the 3-minute video for
Me Against the Music, we see a Mazda approaching and stopping, and the driver getting out is
Britney Spears. In order to get the brand imprinted on the mind of all viewers, the camera zooms
in on the logo of the car at the end of the video (Kreativ.hu 2013). As Eric Spear told Advertising
Age (a marketing and media magazine), the professionals of the car manufacturer had seen the
screenplay of the music video before the start of the shooting, and they thought that the
placement could increase brand awareness significantly, with no particular risk of featuring a
Mazda RX-8. It is also interesting that Mazda executives raised no objections to lesbian scenes
(Madonna appears with Britney in the music video), because the companys regulations of
product placement do not prohibit such appearances. However though, they could not feature
alcohol or car crashes in the music video as it would have been contrary to Mazdas support
policies. News reports said that another unnamed brand was in competition with Mazda. As
a marketing manager for the company said, the decision was made by Britney herself, being a
great fan of RX-8. At the same time, Mazda refused to provide information regarding the
amount that the company paid for this adoration. Rather enigmatically, the executive only said
that we have received a remarkably high offer, and paid significantly less (Mfor.hu 2003).
Jennifer Lopez also often uses product placement; for example, she features a Fiat 500 in her
music video Papi. Moreover, the car is the main character of the video as the singer is fleeing
in it, being chased by an army of men. Later they also produced a 30-second Fiat commercial
out of the scenes of the video.
Illustration 2 Fiat 500 in the music video for Papi by Jennifer Lopez
Source: http://brandsandfilms.com/2011/12/the-best-of-2011/
Avril Lavigne is also open to product placement. The most interesting aspect of her video titled
What the hell is that product placements seem to be more important than the plot of the video
itself. Right in the beginning we see an armada of Adidas and Nike shoes. This is followed by
a Sony Vaio laptop, and a gigantic Sony Bravia TV set. There is a heap of baseball caps below
the TV, still carrying their labels. Then a small bottle of Avril Lavigne perfume appears,
alongside with her fashion brand, Abbey Dawn. We can even see a Sony Ericsson Vivaz Light
Pink towards the end of the video. At the same time, they removed the Ford brand name digitally
from the NYC cab that she steals in the story (Webragacs.hu 2011).
Many people had enough of the commercialization of music videos after a quick succession of
Avril Lavigne and Britney videos, and it seemed that Katy Perry was one of them. The singer
explained her views on the issue via Twitter: You have to get creative with it. Some artists
don't care tho, and you can tell, she wrote. In another tweet some time later, Perry elaborated
on her artistic vision of product placement: Most, if not ALL popsters welcome deals with
products to offset costs of big budget vids in these recessional music industry times. I'VE used
them in MY vids before & am happy to able to make a better vid because of. (Inkai 2011).
Yes, she did use them: her most famous song, I Kissed a Girl, featured the ChapStick lip care
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product that really suited the video. Every now and then product placement is also mentioned
because the record label has direct shares of a product or service. For example, the Plenty of
Fish dating site appears in Lady Gaga, Natasha Bedingfield, Jennifer Lopez and Britney Spears
videos as well, which is no wonder considering that the site is owned by Interscope Records,
where the performers listed above also belong.
2.2. Brands in electronic music videos
Some of the celebrities of todays music scene are not singers or musicians, but DJs. They have
a great number of fans, and some of the fans do not even know the origin of the abbreviation,
disc jockey. One of these contemporary celebrities is David Guetta. The Ice Watch brand issued
a special collection inspired by the musician. The name of the series became F*** Me Im
Famous, which is also the title of a song by the star. In addition, they also invited his wife,
Cathy, to be a model for the brand in the framework of a family enterprise. Therefore it is no
wonder that the watch appears in the video Where Them Girls At by David Guetta. A Sony
Erisson Xperia Ray and a Xperia X10 Mini mobile phone also appear in the same video.
Moreover, the video for the song features the new, electronic Renault Twizy, which became the
main character of another music video, The Alphabeat. Guetta likes and prefers to use Monster
Beats Solo HD, which appears in several of his videos, and the music video that he recorded
together with American singer Usher features an HP TouchPad, too (Bnfi Csillag Major
2012).
Illustration 3 Renault Twizy electric car in the music video for Alphabeat by David Guetta
Source: http://fr.ubergizmo.com/2012/04/16/twizy-dans-le-dernier-clip-de-david-guetta.html
2.3. Brands in rock music videos
It is interesting that we see less brands and product categories in this genre, or at least we see
other kinds of them. In rock videos we do not see luxury cars, mobile phones or perfumes.
At the same time, instruments are very often highlighted. For example, Airbourne advertises
Marshall amplifiers in their music video Runnin Wild. The Red Hot Chili Peppers Cant Stop
features the Pearl drum brand, and it appears clearly several times.
We could also mention another interesting case involving H-Blockx the band had a European
tour sponsored, and they also produced a music video on it. In Countdown to Insanity, the band
hits the road by bus, and their destination is Air Race in Istanbul. It is perhaps not surprising
that Red Bull was their sponsor.
2.4. Brands in hip-hop music videos
Regarding brand placement, hip-hop is the other leading music genre besides pop, and in some
respects it even overtakes pop (Tuza 2013, Nagy Spiegel Buzs 2012).
Experts usually say that the first rap song was Rappers Delight by Sugar Hill Gang, released
in 1979 and rap is the same as hip-hop in a certain sense, although some people consider rap
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as a part of hip-hop (Papp-Vry 2006). This is also the first brand placement, as the lyrics say
everybody go, hotel motel Holiday Inn.
Then, in 1986, Run DMC wrote their hit song My Adidas. We travel on gravel, drit road or
street, I wear my Adidas when I rock the beat, on stage front page every show I go, its Adidas
on my feet high top or low, the lyrics said.
After a while Russel Simmons, the president of Def Jam Records (Run DMCs label at the time)
realized that the guys should be getting paid for this advertisement. Therefore he contacted the
German company to request financial support for their 1987 Together Forever tour. According
to the story, the management of Adidas was not very enthusiastic about the idea of establishing
relations with rap music, because at that time they considered it a fad serving as a call to riot.
In order to convince Adidas bigwigs, Simmons took some of them to a Run DMC show. While
the band was performing the song, one of the members yelled Okay, everybody in the house,
rock your Adidas! and several thousand sneakers kicked in the air. The Adidas executives
could not reach for their checkbooks fast enough (Klein 2004). It is also interesting that Adidas
issued limited series Superstar 80s shoes in 2011, celebrating the 25th anniversary of the
concert on 11 November 1986. As a reference to the band, the number 1986 is stitched on the
heel, and a small gold-plated chain is placed on the front. In addition, Me and my Adidas is
appears on the tongue, and the name Run DMC is also used on the shoe.
Illustration 4 In 1986, Run DMC wrote their hit song My Adidas

Source: http://lifestylesdefined.com/adidas-aka-the-old-school-favorite-for-the-new-school/
Some time later brand placements in hip-hop songs became a synonym of cool (Kerner
Pressman 2007). Brands that could follow this trend (most of the time free of charge) were able
to reach a new and aspiring young target group. There was a time when special lists were
compiled with the brands appearing in hip-hop lyrics. For example, the 2004 rankings of the
so-called American Brandstand showed that the most popular product categories were cars,
fashion products, and beverages. In 2004, the artist with the most brands in his songs was Kanye
West, followed by Twista, Lil Jon, Chingy, and Ludacris. If we examine brands, we can see
that Cadillac appeared 70 times and Hennessy cognac appeared 69 times in the lyrics of hiphop hit songs. They were followed by Mercedes (63 mentions), Rolls-Royce (62), Gucci (49),
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Jaguar (32). Chevrolet (28), and Cristal champagne (28). Two card brands took the 9th and 10th
places: Bentley had 26 mentions and Maybach got 25. (Brandchannel.com 2004, BBC Money
Programme 2006). Of course, not all luxury brands were happy about this. When a journalist
of the Economist asked Frederic Rouzaud, the managing director of the company producing
Cristal, a champagne brand that had been originally popular among more conservative, older
white people: Do you think your brand is hurt by its association with the bling lifestyle?
Rouzeau said, Thats a good question, but what can we do? We cant forbid people from
buying it.
As Jay-Z says in his book Decoded, That was like a slap in the face. You can argue all you
want about Rouzauds statements and try to justify them or whatever, but the tone is clear.
When asked about an influential segment of his market, his response was, essentially, well, we
cant stop them from drinking it. That was it for me. I released a statement saying that I would
never drink Cristal or promote it in any way or serve it at my clubs ever again. I felt like this
was the bullshit Id been dealing with forever, this kind of offhanded, patronizing disrespect for
the culture of hip-hop.
Why not just say thank you and keep it moving? You would think the person who runs the
company would be most interested in selling his product, not in criticizingor accepting
criticismsof the people buying it. () What a lot of peopleincluding, obviously, The
Economist, Cristal, and Icebergthink is that rappers define themselves by dropping the names
of luxury brands. They cant believe that it might actually work the other way around.
Cristal, before hip-hop, had a nice story attached to it: It was a quality, premium, luxury brand
known to connoisseurs. But hip-hop gave it a deeper meaning. Suddenly, Cristal didnt just
signify the good life, but the good life laced with hip-hops values: subversive, self-made,
audacious, even a little dangerous. The word itselfCristaltook on a new dimension. It
wasnt just a premium champagne anymoreit was a prop in an exciting story, a portal into a
whole world. Just by drinking it, we infused their product with our story, an ingredient that they
could never bottle on their own. When people all over started drinking Cristal at clubswhen
Cristal became a household name among young consumersit wasnt because of anything
Cristal had done. It was because of what wed done. (Jay-Z 2011)
In order to avoid the above, and, of course, earn significantly more, most of todays hip-hop
stars present their own product collection, which they also display in their music videos.
Let us consider, for example, the abovementioned Jay-Z, that is, Shawn Carter. We get up in
the morning, we can hear his latest hit in the radio, spray some of his perfume on ourselves after
having a shower, put on a piece of his RocaWear fashion brand, wear his S. Carter training
shoes distributed in cooperation with Reebok, go to a game of his NBA team, Brooklyn Nets,
have a dinner in his restaurant called Spotted Pig, and we may get to Broadway just in time to
watch the play Fela!, produced by him. Then we can spend the night in the 40/40 Club, also
co-owned by him. He has been listed on the Forbes Top 100 celebrity list several times. But he
just says, I am not a businessman. I am a business, man (Papp-Vry Tuza 2014)
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Illustration 5 Jay-Z has been listed on the Forbes Top 100 celebrity list several times
Source: https://media.licdn.com/mpr/mpr/p/8/005/09a/204/08af1c3.png
We can also mention 50 Cent, another celebrity featured on the same list by Forbes. An example
from the lyrics of his song PIMP proves that he also often uses brand placement: She in the
club, She dancing for dollars, She got a thing for that Gucci, that Fendi, that Prada, that BCBG,
Burberry, Dolce and Gabbana
Or we can consider P. Diddy (original name: Sean John Combs), who also entered into a
cooperation with a lot of brands. Just an example: Diageo, an alcoholic drink producer and
distributor giant placed him into the chief marketing officer/brand manager position of the Ciroc
vodka brand, and all this with a 50-50 percent allocation of the profit.
Diddy described the concept and the insight in an interview by Advertising Age: There's no
vodka out there that spoke my language. It was the same with my records and with Sean John.
Nobody was speaking to the fashion community like I was. I didn't think there was a vodka
whose marketing spoke to my lifestyle, that made me feel like I want to feel. I've branded myself
as the king of celebration, and that's what this alliance is about. (AdAge.com 2007). And he
did it just the same way he did earlier in the case of the Courvoisier, Patron and Cristal brands
through his music videos, songs and parties just this time it was on purpose. It was planned.
For money. Intertwining them with music, placing products in videos, organizing VIP events,
entering celebrity endorsement agreements.
First of all, he changed the basic brand strategy in order to differentiate it. Before him, Ciroc
said that it was the only vodka made of grapes. But consumers did not care too much about this.
Diddy provided a story and content for the brand. He made it a lifestyle.
Im a rapstar, not a rock star but dont get it twisted Im a Ciroc star Jadakiss raps in his song
Ciroc star. Yes, in addition to appearances in the lyrics of numerous musicians contracted or
not contracted to the brand such as Diddy, Meek Mill, French Montana or even the song Ciroc
& Roll by Lets Get It they also produced an official club anthem for the product. I dont
know about any drink brands having their own anthems, Diddy said. This is the way we
insinuate ourselves into night life.
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Illustration 6 P. Diddy is the chief marketing officer of the Ciroc vodka brand
Source: http://media1.mfilomeno.com/image/archive/528835/129214/1200/800/2
In 2010, Diageo, the worlds biggest alchohol distributor announced that Ciroc Ultra Premium
Vodka was awarded the Spirits Brand of the Year prize by the prestigious Market Watch
magazine. Each year, the award is voted by the executives of the greatest wholesaler companies.
As for the sales figures: on the whole, Ciroc sales increased by 552% between 2007 and 2010,
and the brand knocked Belvedere from the second position in the market of ultra-premium
vodkas (Blackenterprise.com 2010).
However, P. Diddy is not the only one person with such an agreement: Voli Vodka appears in
five music videos by Pitbull, a popular rapper also active in the genres of hip-hop, electronic
and pop. The placement is no surprise as Pitbull is a spokesperson for the Voli brand, in which
he also holds a majority equity stake.
3. TYPES OF BRAND PLACEMENT: CLASSICAL AND SPECIAL SOLUTIONS
Product placements in music videos can also be grouped by another aspect: just as in movies,
there are some merely visual placements, and we can also see auditive ones, especially in the
genre of hip-hop. In fact, there are also cases where the brand is included in the title of the song.
3.1. Visual brand placement in videos
This is the most common case. The abovementioned Lady Gaga videos are excellent examples:
we see the brands in the videos, but their name is not mentioned in the lyrics. For example, in
Bad Romance, the following brands appear: iPod Classic music player, Parrot music storage
device, Heartbeat earphones, Lex Nemiroff vodka, Wii controller, Dr. Dre speakers, HP Envy
laptop, Carrera sunglasses. Research has also found that 56% of viewers were able to recall at
least one brand spontaneously (Quirks 2011).
3.2. Auditive brand placement in videos
To put it simply, this means that the brand name is stated in the video. As it was mentioned
above, Music Television used to refuse to air videos including product placement for a long
time. In this light it especially interesting that the most played song of the channel is Money for
Nothing by Dire Straits (Lehu 2009), as the first four lines of the lyrics say I want my MTV. I
want my MTV. Now look at them yo-yos thats the way you do it, You play the guitar on the
MTV. We have got so much used to this kind of placement that it is not at all surprising that
Sean Kingston sings Its like my iPod stuck on a replay to describe the situation that he can
not get a woman out of his mind. Ke$ha sings Before I leave, I brush my teeth with a bottle of
Jack, referring to Jack Daniels whiskey. Research by Gaylord Fields found that there are 13
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well-known songs with lyrics mentioning Coca-Cola the list includes country, rock, and swing
songs (Fields 2012).
However, the mentioning of brand names is mostly popular in hip-hop. It is interesting that
these performers originally wanted to improve their image mentioning brands in their songs
(for free), but nowadays many brands pay great amounts of money to get included in lyrics.
Of course the best examples include lyrics that also communicate the characteristics of the
brand for example, in the song Hey Yo by Outcast they rap Shake it Suga shake it like a
Polaroid Picture, referring to the way these cameras are used: we shoot with the camera, it
prints the picture immediately, then we have to shake the picture to make the paint dry faster.
3.3. Brands in song titles
This is not a new thing either. Let us start our list of examples with a recording by Janis Joplin
that has been reworked several times. The title of the song is the brand itself: Mercedes Benz,
and the first four lines say Oh lord wont you buy me a Mercedes Benz. My friends all drive
Porsches, I must make amends. Worked hard all my lifetime, no help from my friends. So oh
lord wont you buy me a Mercedes Benz.
Illustration 7 In some cases, the brand name appears in the title (and refrain) of the song
Source: http://ecx.images-amazon.com/images/I/41VVm4nKeVL.jpg
Then there is the title of a Paul Simon album, Kodachrome. Moreover, the lyrics do not only
mention the film to be loaded in the camera, but the advantages of the product, too:
Kodachrome, You give us those nice bright colors, You give us the greens of summers, Makes
you think all the worlds a sunny day, oh yeah!, I got a Nikon camera, I love to take a
photograph, So Mama, dont take my Kodachrome away.
The title of a song by Chicago singer Ron Caroll is Walking down with my Nikes on. What is
more, the sentence appears several times in the lyrics as it is also the refrain of the song.
And we have not even mentioned the world of hip-hop, where the phenomenon is probably the
most common. Busta Rhymes Pass the Courvoisier has become one of the anthems of the
genre: We gon tell that brotha, pass the Courvoisier; We gon tell that brotha, pass the
Courvoisier; Everybody sings it now, pass the Courvoisier; Everybody sings it now, pass the
Courvoisier. (Kerner Pressman 2007, Wipperfrth 2005)
It may come as a surprise, but there is a Hungarian brand that is featured in the title of an
international hit moreover, the whole song and its music video are focused around it. The
song is Hey Jasmin by Flo Rida, referring to the live erotic videochat service LiveJasmin, and
the video makes no secret of this fact, so the LiveJasmin caption appears, too. In addition, a
handsome man wearing glasses and a suit appears in the video, greeting Flo Rida he is none
other than the owner of the company, Gyrgy Gattyn.
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3.4. Famous performers in branded advertisements

Is advertisement different from product placement? Yes, it is. However, such cases belong to
branded entertainment in several respects. We see a performer singing, drawing attention to a
brand. Although this is an advertisement, it may well be that we link the two the next time we
see the original video.
An excellent example is the case of Pepsi and Michael Jackson. As Phil Dusenberry, former
Chairman of the BBDO advertising agency wrote in his book Then We Set His Hair on Fire
(Dusenberry 2005), they approached the pop star to ask him to provide them with a song for
one of their advertisements, with lyrics custom written for Pepsi. Much to their surprise,
Jackson offered them his coolest hit at the time, Billie Jean. The original lyrics said, Billie
Jean is not my lover. Shes just a girl who claims that I am the one. But the kid is not my son.
In the Pepsi spot, however, Michael Jackson was already singing, Youre the Pepsi Generation.
Guzzle down and Taste the thrill of the day. And feel the Pepsi way. It is especially interesting
that the hair of Michael Jackson accidentally caught fire during the shoot (and the book title
Then We Set His Hair on Fire refers to this), which was a hot topic for the press, and of course
Pepsi was also mentioned as part of the story.
Illustration 8 In a Pepsi spot, Michael Jackson was singing Youre the Pepsi Generation.
Guzzle down and Taste the thrill of the day. And feel the Pepsi way.
Source: https://media.licdn.com/mpr/mpr/p/6/005/086/1dc/1e2ea67.jpg
Similar solutions (not someones hair catching fire, but singers appearing in advertisements)
are also popular today: the Levis jeans brand usually chooses famous songs for his
commercials, then sells these songs in compilations titled Levis Hits.
Lenny Kravitz concluded an agreement with Absolut Vodka in order to publish Absolut
Kravitz posters as part of the famous advertising campaign series of the brand. The songs could
be downloaded from the absoluttracks.com website.
Eminem appeared in a spot for the Chrysler car brand, also promoting the city of Detroit. The
spot was one of the advertisements aired during Super Bowl in 2011 the final of the National
Football League (NFL) is not only important because of the game itself, but also it is the biggest
orgy of advertising.
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4. CONCLUSION
Although product placement in music videos is often mentioned as the Lady Gaga effect,
suggesting that the singer created this tool, it is more appropriate to use the word revolutionize
as there had been product placements before Lady Gaga, although those were forbidden by the
regulations of MTV. However, almost all contemporary genres of popular music feature brands,
especially pop music and electronica, and more than anything else, hip-hop. Besides visual
placement, that is, brands appearing in some part of the music video, auditive placement, that
is, brand names being mentioned is also quite common. A special case of the latter is when
brands appear right in the title of songs. In any case, it can be stated that the number of product
placements in music videos has been increasing in recent years, and the trend will continue in
the future. Brands and artists alike will increasingly need this as traditional record sales and
royalty revenues have dwindled, therefore they have to find new sources of income. However,
product placements can be helpful in many other ways: they can make music videos more
realistic, and raise the image of artists.
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published:
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November 2003.
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105
STUDY OF PATTERNS IN SURFACE WATER FLOW IN URBAN

AREAS IN THE CONTEXT OF PHYSICAL PLANNING IN THE CITY
OF BHOPAL, INDIA
Sheetal Sharma
Asst. Professor, Dept. of Architecture and Planning, Maulana Azad National Institute of
technology, Bhopal-462007, India
[email protected]
Krishne Gowda
Director & Professor, The University School of Design, University of Mysore, Manasagangotri,
Mysore 570 006, India
[email protected]
ABSTRACT
Land use planning deals with land transformation from natural areas into developed ones which
lead to changes in natural environment. Therefore basic knowledge of relationship between the
existing patterns of land use and the natural surroundings is necessary. In dynamic urban and
climate scenarios, the parameters of incompatibility between urban functions and the functions of
the natural environment are becoming various. Changes in land patterns due to built up,
pavements, roads and similar land cover affects surface water flow seriously. It also changes
permeability and absorption characteristics of the soil. Urban planners need to know natural
processes along with modern means and best technologies as there is a huge gap between basic
knowledge of natural processes and its requirement for balanced development having minimum
impact on water recharge.
Keywords: Runoff, built up, bye laws, recharge, roughness
1. INTRODUCTION
As per present day knowledge from various summits, conferences, researches and programs, it has
been observed that there is large scale change in urbanization as well as in natural systems all over
the world. Increasing urbanization and variations in natural systems are identified by different
organizations, scientists and various departments like Intergovernmental Panel on Climate Change
(IPCC), (IPCC 2007) United Nations Environmental Program (UNEP), United States Geological
Survey (USGS), Rio Summit, Millennium Development Goals (MDG) etc. The panelists at World
Water Day 2011 (Worldwater 2007) identified rapid urbanization, poor planning, inadequate
investments and overdependence on external resources as the main challenges facing water
management in cities. Surface runoff occurs relatively rapidly in the urban areas, since storage and
absorption capacity has been reduced to almost zero. Much of the surface consists of impervious
materials such as concrete or asphalt. Urbanization is a major issue in the present scenario and
water scarcity and floods too are directly linked to increasing built up areas and resulting runoff
leading to declining ground water levels. Contemporary physical planning is equipped with modern
means as well as best technologies, but the basic knowledge of natural processes is still eluding
urban planners. Development of schemes, projects, a city etc. are only supported by plans and
statistics of natural resources but using this knowledge in planning and in implementation is much
less than required. The main aim of this paper is to detect the changes and correlate the parameters
like built up and runoff areas with geological endowments and use this correlation for urban
planning and management, in accordance with bye-laws and guidelines. The study is to develop an
understanding of relationship between surface water runoff and ground water replenishment with
respect to changes in land characteristics resulting from urbanization in the city of Bhopal.
106
2. THE STUDY AREA

Bhopal is located in the central part of India, and is just north of the upper limit of
the Vindhya mountain ranges. Located on the Malwa plateau, it is higher than the north Indian
plains and the land rises towards the Vindhya Range to the south. Bhopal has an average
elevation of 500 metres. The city has uneven elevation and has small hills within its boundaries.
The prominent hills in Bhopal are Idgah hills and Shyamala hills in the northern region, Katara
hills in southern region. City's geography has in it two lakes namely upper lake and lower lake.
Bhopal has a humid subtropical climate, with cool, dry winters, a hot summer and a humid
monsoon season. The monsoon starts in late June and ends in late September. These months
see about 40 inches (1020 mm) of precipitation, frequent thunderstorms and flooding. The
average temperature is around 25 C (77 F) and the humidity is quite high. Winters in Bhopal
are cool, sunny and comfortable, with average daily temperatures around 16 C (61 F) and
little or no rain. Bhopal was selected to study and record the response of ground regime to the
natural and anthropogenic stresses of recharge and discharge parameters with reference to local
geology, climate, physiography, land use pattern and hydrologic characteristics. The natural
conditions affecting the regime involve climate parameters like rainfall, evapotranspiration etc.,
whereas anthropogenic influences include land surface changes, declining recharge due to
urbanization etc were studied for the study area. Since the aim of the study is to analyse the
runoff due to urbanization it need to concentrate on the overland flow relating to small
watersheds. Hence the study area was identified with urban areas within small watersheds. The
catchment map shows total 19 catchments having 6 lakes and 13 catchments manifesting
various types of development. The area in yellow colour hatching in figure 1 shows the
demarcated area for critical zone as per Central Ground Water Board (CGWB) report. After
obtaining catchments with rapid development (catchments experiencing development more
than 30 to 50 percent in a decade and catchments with planned and unplanned development
were identified. The geological map obtained from the geological survey of India was used for
focus on the geology of these catchments and the different soil layers under these catchments.
The hydro-geological characteristics of the area were determined (Figure 2 A).
3. WATERSHED AREA OF BHOPAL
The watershed map of Bhopal (1990) in which different catchment were identified for analysis
of water prospect map and hydrogeology wells (Figure 2) of the city for maximum recharge
potential and areas experiencing sudden decline in water table (Figure 3). Some areas which had
been showing satisfactory reactions to urbanization processes were also selected to observe the
basic factor underlying their performance in natural as well as urban cycle. Also the ward map
(localities demarcated as wards by Bhopal Municipal corporation at local level plan) for the same
area was obtained to ascertain the areas already developed and areas still developing.
107
Figure 1: Catchment area for Bhopal District, Source: CGWB Bhopal.
Along with this CGWB report for critical water tables in city were identified. As per the
secondary data it was found after analysis that some areas have been critical for water table
fluctuation and some had shown improvement. The areas were marked as per the hydrogeology
wells location. Water prospects of the study areas which were sensitive to water development
and the areas which have great natural potential or carrying capacity were highlighted such as
catchments named BSHC, BOBC, BOCC (catchment names as per nomenclature use by
CGWB) and catchments with poor water prospects such as BSHC (upper part), BOBC-lower
part and BLPC.
108
Figure 2: Hydrogeology wells Bhopal, Source: Hydrogeology map, CGWB 2008 (map
Attached in Annexure)
As per the Peizometric and POW data (State Ground Water Board, M. P. India) (SGWB) 1984
to 2008 the following wells had variation: Figure 3
- Satisfactory recharge: Well no. 2,3,4,8,9,12,15,16, 24
- Not satisfactory recharge: Well no.5,6, 7,9,10,11,13,14,15,20,23
After obtaining catchments with varied development (catchments experiencing development
more than 30 to 50 percent in a decade and catchments with uniform development were
identified. The geological map obtained from the geological survey of India was observed for
geology of these catchments and the different soil layers under these catchments. The hydrogeological characteristics of the area were determined.
109
Figure 3: Ground water prospects of Bhopal. Source: Draft Master Plan, Bhopal 2020.
The areas which were sensitive to water development and the areas which have great natural
potential or carrying capacity were observed such as catchments named BSHC, BOBC, BOCC
and catchments with poor water prospects such as BSHC ( upper part), BOBC-lower part and
BLPC. Then the wards and population and water withdrawal was calculated for the same. Areas
with fast pace development and with slow and steady development were identified
Thus a study area of about 22 sq. km was marked out having 5 different catchments and urban
development with different geological characteristics and hydrological behaviours.
4. CASE STUDY
The wards coming within these natural boundaries have been taken for observation and analysis.
It consists of Arera colony, Shahpura, Chuna Bhatti and Manit. The study area comprises of
natural drainage of Kaliasot River along with Kaliasot dam, Bhadbhada area (Soil way of Upper
Lake) and southern portion of upper lake (Fig. 4) It refers to Survey of India Topographical
sheet No. 55 E/8 and bounded by latitudes 230 10 to 23015 N and longitudes 7702330 to 77027
E.
110
Figure 4: Wards in study area
Figure 5: Geology, Sub-catchment. Source: CGWB Bhopal, GSI India.
111
Figure 6: Geology, Sub catchment and Catchment Map for Bhopal District, Source: CGWB
Bhopal, GSI India
4.1. Model Scale and Temporal scale
Model Scale: Plot, Colony, Neighbourhood and Zonal Level.
Temporal Scale: 40 years period from 1971 to 2011.
The scale of modelling and observations extend from plot level to the zonal level as shown in figure
3 including various wards and water sheds of the study area to get clear picture of effects of natural
and urbanized areas on water cycle.
Figure 7: Model scale

4.2. Stage 1: Calculation of Built up area for temporal years (Map 1 and 2 Annexure A).
The sub-catchments were categorized as per their geology as in table 1
112
Table 1: Division of catchments as per geology (Nomenclature as per Catchment Map, SGWB)
Deccan basalt
BOBC-S3
BSHC-S5
BSHC-S7
BSHC-S8
BSHC-S9
BSHC-S10
BOCC-S1
BOCC-S2
BOCC-S3
BLPC-S1
BPLC-S2
Sandstone
BSHC-S1
BSHC-S2
BSHC-S3
BSHC-S4
BCIC-S1
Alluvium
BOBC-S1
BSHC-S6
4.3. Inter-location sub-catchment analysis

The percentage of built up area was calculated for each decade as in Table No 3 and Maps 1 and 2
(Annexure A)
Table 2: Built up percentage in study area from 1971 to 2013(Refer Maps 1and 2)
Sl.
No
1
Sub catchment
BSHC-S1
Total area
(Sq. mt)
70351.56
Percent
1974
41.07
Percent
1981
69.58
Percent
1991
77.85
Percent
2001
83.71
Percent
2011
83.92
Percent
2013
83.92
BSHC-S2
796863
9.44
12.59
55.83
55.06
91.42
99.97
BSHC-S3
667820.6
46.78
48.61
87.01
99.98
100
100
BSHC-S4
467654.2
1.91
66.09
75.35
92.44
92.44
92.44
BSHC-S5
847028.4
7.11
56.47
64.53
67.14
81.42
82.71
BSHC-S6
3455035
2.36
17.18
42.37
46.93
77.89
87.18
BSHC-S7
292338.3
66.79
90.25
92.75
92.75
BSHC-S8
336526.1
2.54
18.88
34.14
51.86
59.08
59.08
BSHC-S9
1077419
0.48
12.81
18.66
38.82
43.72
46.26
10
BSHC-S10
253820.2
16.67
24.46
36.78
51.12
51.12
11
BOBC-S1
1446194
4.85
5.20
10.92
46.85
54.09
55.30
12
BOBC-S2
3267546
5.07
30.26
32.50
51.42
51.87
13
BOBC-S3
443747
12.37
31.15
45.20
45.20
47.62
14
BCIC-S1
241845.1
9.45
9.45
15
BOCC-S1
926885.2
2.00
65.16
90.92
93.15
94.48
94.48
16
BOCC-S2
1342964
23.83
33.04
42.66
42.66
45.50
17
BOCCS3
2056776
19.20
68.17
79.92
80.68
80.68
18
BLPC-S1
1850300
0.71
58.51
75.50
84.28
85.22
86.91
19
BLPC-S2
425139.3
11.88
11.88
49.91
51.60
51.2
4.4. Stage 2
4.4.1. Hydrological modeling: Snap Shot 1 and 2 Annexure A
Urbanization affects the roughness and perviousness of the land surfaces, which increases the
runoff volumes. As surface roughness is decreased, the stream exhibits a faster response time and
peak flows to precipitation. Since the objective of the study is to determine the impact of
urbanization on the hydrologic systems, a spatially distributed precipitation-runoff method is
desirable for a more accurate observation of the changes in built up and runoff, hence Storm Water
113
Management Model (SWMM) was used to analyse the hydrological behaviour. SWMM was
chosen as the best method for Hydrological Modelling.
4.4.2. Process
The output of the Arc GIS Model is shape files, image files and word files. These files were used
as reference files in SWMM model as back drop image and geo-referencing with the help of word
files. The sub-catchments were drafted manually in the SWMM model with the help of backdrop
image and characteristics were entered as input parameters in the properties table, based upon the
district hydrogeology report and the geological map by GSI, 1980 (India). Land Covers or features
were identified and observed by remote sensing, analyzing historical images of Google earth,
Topographical sheets, and master plans (for 1991, 2005, and 2013) and photographs along with
physical primary survey. The Soil Conservation Service (SCS) curve numbers and the curve
number (CN) were based on USGS Data. Standard formats used by EPA, SWMM were used as
default inputs.
The digitization was carried out in three stages:
a.
GIS Maps for watershed imageries.
b.
GIS and Geology map, ward map, road, built up and land use map for sub-catchments.
c.
Colony maps by town & country planning, Bhopal.
d.
Contour Map, Digital Elevation Model. DEM
The land cover analysis was minutely divided on the basis of imageries and colony maps in the
study area for:
1.
Impervious areas ( Roads, Buildings, Pavements, parkings etc)
2.
Natural land with grass covers more than 20 percent, less than 20 percent.
3.
Land with bushes and trees.
4.
Water Bodies.
5.
Natural barren land.
After classification of the land covers they were again separated into two categories i.e. impervious
and pervious. After dividing them under two heads each land cover was assigned by a Manning N
for the type and category as mentioned above by USGS.
Accordingly a basic model of the study area in Bhopal city was built using the Arc GIS with
integration of different layers for different time periods. The precipitation data obtained from the
Meteorological Department and the report of Central Water Commission (CWC 1988) WRD 2008
the normal rainfall series and the critical rainfall series were decided. The rainfall data was
available on an hourly basis as well as monthly basis for monsoon period. Auto CAD civil 3D
software was used to categorize sub-catchments on the basis of water drop flows and contours of
Google surface to facilitate analysis of surface flows. Then the natural drainage paths and the man
made conduits along with the junctions and nodes were formed in the SWMM model. The sub
catchments were identified with the related properties and detailing for length, width, slope,
impervious percentage, flow routing, inflows, dry weather inflows, etc were addressed. The outlets
and conduits were assigned properties such as circular pipe, trapezoidal, natural etc. Manning N
for the concrete pipes and the natural rains were assigned. The storage units and the aquifers were
assigned data as per Hydrogeology reports.
Thus a whole set of parameters were formed to set a model where simulation for various runoff,
peak runoff etc can be observed. The two methods for simulation used were by keeping
precipitation and slope, width constant for respective years, and by changing precipitation on
hourly and daily basis to observe long term Runoff changes and short term peak flow changes.
The runoff changes for constant precipitation with decadal data were analyzed first. The
combinations of inter location runoff and the intra location runoff were used to form the correlation
equation and the constants (y=ax2+bx+c) where y is runoff and x is built up. The correlation
114
observations for each catchment for each decade was plotted to see the trend line and the resulting
equation. To calibrate the hydrologic model the LULC data was prepared in an 8m grid. The time
series data was made for hourly rainfall event.
Finally the simulation was run for different years as per conditions prevailing for that specified
period and the continuity errors as well as flow routing errors were minimized to get accurate
results. The obtained report of the rainfall runoff was then observed and compared with varying
precipitation and built up observations for viewing results and changes in the parameters. The
correlation analysis was performed to obtain a correlation and best fit method was used to minimize
errors. The correlation thus formed was observed for various catchments individually i.e. inter
location and then with others with same characteristics over all the study area i.e. intra location.
5. MODELING PROCEDURE
To correlate and analyse these two cycles closely the modelling was done with different
combinations of land covers and precipitations so as to achieve the best results for relation between
two. Modelling procedure and observations are indicated in table 4.
Table 4- Modeling procedure
Scenario
Varying parameter Constant
Observation
Result
Remark
Actual
scenario
Increasing built up.
Constant
precipitation
Individual
catchment
Runoff
2.
Policy
guidelines
Constant
precipitation
Individual
catchment
Runoff
Climate
Built up as
per Municipal
bye laws
Precipitation
Built up
Land cover Roughness-land

and Geology cover
Individual
Run off
catchment
Group
of
Run off
catchment as per
geology
Precipitation
5.1 Observations: Remark 1

Charts 1 to 6 show the variation in runoff to built-up in different catchments.
Built up and runoff-1971
Built up %
Runoff %
Chart 1-Built up and runoff in catchments for 1971
115
Built and runoff % - 1981
Built up %
Runoff %

Built up %-Runoff %-1991
Built up %
Runoff %
Chart-3 Built up and runoff in catchments for 1991

Built up%-Runoff %-2001
Built up %
Runoff %
116
Chart 6- Built up and runoff in catchments for 2013

Above charts 1-6 show that runoff increases with built up in almost all catchments except
catchments having more natural vegetation and water bodies as BSHC-S9, BSHC-S10, BSHC-S8.
Apart from this, runoff observations for alluvial soil group also favor infiltration up to some extent
but for less intensity rainfall and vegetated land cover like BSHC-S6, BSHC-S7, BOBC-S1,
BOBC-S2, and BLPC-S1. The sandstone areas with barren land, less vegetation and built up to 5060 percent have supported infiltration satisfactorily with connected impervious layers as well as
combination of unconnected pervious surfaces such as BOBC-S3, BOBC-S2, BOCC-S2 acting as
recharge pits.
117
5.2. Verification of results for calibration and validation for individual catchments
Table 5 Statistics for validated and calibrated events for individual catchments
Event (catchment wise)
Calibration
Validation
Confidence
Trend line and runoff pattern for built up
level(0-1)
Upward trend > runoff increased rapidly
0.9
after 1990
BSHC-S1
R = 0.874
R = 0.824
BSHC-S2
R = 0.970
R = 0.988
0.9
BSHC-S3
R = 0.912
R = 0.938
0.92
BSHC-S4
R = 0.874
R = 0.915
0.89
BSHC-S5
R = 0.817
R = 0.960
0.91
BSHC-S6
R = 0.906
R = 0.887
0.85
Upwards trend>upward trend> runoff

increased more than 40percent after 2001
Upward trend >runoff increased after 2001.
Downward trend> runoff increasing similar to
built up
Upward trend< runoff increased after 1990
BSHC-S7
R = 0.860
R = 0.987
0.88
BSHC-S8
R = 0.843
R = 0.978
0.87
linear trend< runoff increased after 2009
BSHC-S9
R = 0.830
R = 0.751
0.86
linear trend< least value runoff
BSHC-S10
BOBC S1
R = 0.917
R = 0.868
R = 0.909
R = 0.933
0.9
0.89
BOBC-S2
R = 0.883
R = 0.877
0.95
BOBC-S3
R = 0.867
R = 0.941
0.91
BOCC-S1
R = 0.936
R = 0.999
0.93
BOCC-S2
R = 0.886
R = 0.883
0.92
BOCC-S3
R = 0.961
R = 0.989
0.94
BLPC-S1
R = 0.960
R = 0.998
0.91
BLPC-S2
BCIC-S1
R = 0.953
R = 0.906
R = 0.958
R = 0.906
0.99
0.99
linear trend< least value runoff

linear trend< maximum value runoff
Upward trend< runoff increased by
fluctuation after 2001
built up
built up
built up
built up
Downward trend> runoff fluctuating.
Upward trend> runoff increased after 1991.
Linear trend>runoff increased gradually
Note: The coefficient of determination and correlation coefficient were than compared to the
calibrated one for validation using more number of observations as shown in table 5 and the trend
line was observed for variation in behaviour.
The built up runoff correlation could have been demonstrated by a single chart, but the main aim
of these has been to correlate the pattern of runoff variations with built up and with other
characteristics like land cover and roughness and Geology so that the individual pattern of
variations in runoff for same built up can be analyzed further for finding the responsible
components for these difference in variations in runoff. Thus each catchment was observed
independently not only for variations in runoff for these correlations but also further for different
correlations of roughness and geology making a clear picture for interpretations. The observations
of trend lines and coefficient in determination also correlated the confidence level for runoff
observations along time period and scale of impervious and pervious areas.
118
5.3. Observations for varying precipitation: Remark 2

Similar comparison for catchments with varying precipitation and runoff pattern
Chart-7 Built up and runoff in catchments for precipitation at 20,40,60,80 and 100 mm
The results for varying precipitation on constant built up shows almost similar increase in runoff
along with the precipitation in some catchments. Some interesting facts are that catchments which
showed increasing runoff with increasing built up like in BOBC-S3, BOCC-S1, BOCC S3 have
not shown such increase with constant precipitation. Catchments like BSHC-S6, BLPC-S1, BOBCS2 and BSHC-S2 have experienced highest runoff percent for increasing precipitation with
constant built up. Highest runoff percentage is read as 56.38 percent as compared to 75.86 of same
year with increasing built up. BSHC-S9 and BSHC-S10 have relatively less run off as it contains
water body and natural vegetated land around in it with less built up. Reason behind such variations
are rapid increase inbuilt up sealing the surfaces, no planning for direction of flow of water,
increased volumes due to continuous impervious areas and decrease in peak runoff due to presence
of vegetation in the path of flowing water or depression storage available nearby.
6. OBSERVATIONS FOR BYE LAWS AND GUIDELINES
The survey clearly showed that every plot and colony had far more area as impervious as pervious
or water absorbing which is important as a parameter to be considered in planning and
implementation of local plans and master plans. Also it was observed that smaller plots covered
more impervious surface than large plots which comparatively had more open spaces maintained
in them. This survey also revealed that roads and parking spaces were made of compact impervious
layers and roads and parkings contributed to about 20 to 25 percent of space in a colony along
with other land uses.
Now it is necessary to know the increase in runoff from these extra impervious areas in the study
area so that difference in actual runoff and the runoff which would have been obtained if the open
spaces were maintained, could be calculated. This difference being in large quantity is definitely
affecting the natural areas along with the other effects of urbanization in the catchments.
For this, colonies in study area were inspected; their approved maps were obtained from the Bhopal
Municipal Corporation and the Town and Country Planning Department. The permissible limits
were tabulated for them. Then actual measurement and observations for the open spaces left at plot
level, colony level and ward level were also tabulated to have a comparative assessment of both
values. From table No.5 Annexure B, it is clearly shows that a variation in open spaces and ground
coverage for study area was about 63 percent more than permissible limit. Means buildings had
violated the bye laws and covered more space of 60 percent more than prescribed.
119
Considering this value as an effective value for behaviour of runoff and recharge based on land
cover, the runoff results for this difference were calculated by running simulation in study area,
keeping all other things common. Only permissible built up limit was considered in calculating
runoff. Then following analysis was carried out for the maps.
Data was collected on basis of following points (Figure 4)
1.
Colony details different sizes and numbers of plots in the colony.
2.
Open, built up and land use pattern as per municipal norms.
3.
Impervious area as per rule.
4.
Runoff routing analysis for colony level and resulting changes in runoff.
Simulation was carried out for the runoff being produced from two different scenarios- (chart 7)
Area with open areas as per rules.
Area with actual open and impervious areas.
BSHC-S1
%Built up -actual
% Runoff -actual
%evap-actual
Chart 8
BSHC-S1
%Built up -actual
% Runoff -actual
%Built up -as per rule
Chart 9
BSHC-S2
%Built up -actual
%infil-actual
% Runoff -actual
Chart 10
120
%evap-actual
%Runoff as per rule
BSHC-S2
%Built up -actual
% Runoff -actual
%Runoff as per rule
Chart -11 Correlation charts of Built up, runoff, Infiltration, recharge

Observations for variations: The results for catchments for runoff, infiltration and built up along
with geological characteristics are as follows table 6: Remark 3.
Table 6: Combined observations for variations in built up, runoff and infiltration as per rule and
actual scenario.
Catchment
BSHC-S1
BSHC-S2
BSHC-S3
BSHC-S4
BSHC-S5
BSHC-S6
BSHC-S7
BSHC-S8
BSHC-S9
BSHC-S10
BOBC-S1
BOBC-S2
BOBC-S3
BOCC-S1
BOCC-S2
BOCC-S3
BLPC-S1
BLPC-S2
BCIC-S1
Variation in
land cover
(built up) rule
actual(+)
60.02
88.72
62.39
42.68
36.31
17.82
20.04
16.00
9.51
15.15
20.00
11.10
10.65
47.82
14.25
31.33
40.58
140.59
14.92
Variation in
runoff (+) rule
&
and actual
variation
infiltration(-)
Rule and actual
22.91
35.86
38.66
27.35
45.77
19.24
31.87
22.84
0.30
0.80
11.32
12.57
16.42
50.07
17.82
27.46
53.29
85.67
5.91
-84.86
-68.38
-88.09
-68.28
-82.13
-31.15
-51.33
-39.52
-31.98
-19.83
-12.98
-32.68
-30.49
-100.17
-38.11
-76.96
-86.12
-122.47
-9.56
inGeology
Group
Sandstone
Sandstone
Sandstone
Sandstone
Deccan Basalt
Alluvial
Deccan Basalt
Deccan Basalt
Deccan Basalt
Deccan Basalt
Alluvial
Deccan Basalt
Deccan Basalt
Deccan Basalt
Deccan Basalt
Deccan Basalt
Deccan Basalt
Deccan Basalt
Sandstone
From above observations in the table 6, it was concluded that if buildings are constructed as per
bye laws, almost 20 to 35 percent of the normal runoff can be reduced for the same area and same
precipitation. Apart from built up as per bye laws, other mean of balancing runoff is the correlation
of land cover and geology. Geological base plays an important role in the occurrence of runoff.
The results of runoff having different geology had same observations and some with same geology
had different observations. Hence, correlation among them needs to be identified. The correlation
of geology and land cover upon it are having separate effects on runoff is the assumption of the
next simulation modelling. For this, catchments with their soil type and the existing land cover
upon it are examined for resulting runoff. The correlation thus includes observations for group of
catchments based on soil type and hence it is named as intra location analysis.
121
7. RESULTS AND DISCUSSION

After all the analysis and correlations a final table has been made to find out the gaps and need
for better working of natural behaviour of soil and runoff in accordance with increasing built up .
Table 7 Behavior of catchments for runoff with Maximum built up in context of geological
characteristics.
Sl.
No.
Catchment
Soil
(Geology)
Max Built-up &

Runoff
Percent
Recharge
(less)
Remarks
Built
up
83.92
Runoff
56.63
49
Needs connected pervious areas.
99.97
69.29
89
95
71.61
75
Needs conservation of natural

drainage pathways
Open space as prime land cover
92
65.41
89.21
Interception storage needed.
82.71
52.87
73.72
Allows built up with open

spaces.
87.18
64.59
61.77
Large chunks of open spaces

allow recharge
Dense vegetation helps recharge
and less runoff
Porosity makes recharge better
Water body hence good storage
Excellent for recharging.
Natural drainages,
excellent storage
Lineament fractures make
recharge less.
Impervious layer affect
recharge.
Impervious layer affect
recharge
Large open spaces needed
with built up
Steep slopes and built up
affect recharge
Impervious surface affect
recharge ,intensify runoff
Impervious surface affect
recharge.
Green spaces help percolation.
BSHC S1
BSHC s2
BSHC S3
BSHC S4
BSHC S5
BSHC S6
Loamy
Sandstone
Loamy
Sandstone
Loamy
Sandstone
Loamy
Sandstone
Deccan
Basalt
Lineament
rock
Alluvial Soil
BSHC 7
Deccan Basalt
92.75
75.75
90.51
8.
9
10
11
BSHCS8
BSHC-S9
BSHC S10
BOBC-S1
Deccan Basalt
Deccan Basalt
Deccan Basalt
Alluvial Soil
59
46
51.12
55.30
48.92
5.13
44.01
44.01
57.2
24.86
16.38
56.40
12
BOBC-S2
Deccan Basalt
51.87
35.76
53.34
13
BOBC-S3
Deccan Basalt
47.62
38.22
46.14
14
BOCC-S1
Deccan Basalt
94.48
56.36
49.77
15
BOCC-S2
Deccan trap
45.50
32.09
44.03
16
BOCC S3
Deccan trap
80.68
44.23
50.82
17
BLPC-S1
Deccan trap
86.91
60.24
67.68
18
BLPC-S2
Deccan trap
51.60
42.14
83.21
19
BCIC-S1
Sandstone
9.45
20.68
20.15
122
7.1 Observations: Remark 4

Observations of different catchments and land covers show that the catchments having land cover
with roughness values ranging from 0.011 to 0.013 had no very less infiltration and most runoff
due to absence of vegetation. Similarly concrete and dense bushes showed slightly better behaviour
in catchments BSHC S4, BLPC S1 etc. grass and mud surfaces helped more in reducing the runoff
intensity and thus helped satisfactory infiltration also. Dense bushes and natural soil conditions
were best to protect natural cycle of water with least runoff and most infiltration. The roughness
values , land cover and the geology when compared together with runoff pattern it is clear that
alluvial soil accompanied by dense bushes and natural soil cover assures best working of natural
cycle. Since urbanization does not support this combination all over, it can be planned at some
pockets of urban area having alluvial soil as geological base. Similarly sandstone is good in fast
infiltrating the runoff water with the help of grass and medium vegetation land cover. Basalt shows
some scope of infiltration if land cover imposed on it is a dense bush or forest. Hence city parks
and natural drainages with basalt base should be landscaped with dense bushes. Land cover with
scanty grass and concrete does not support infiltration greatly and hence development should be
proposed on such pockets with impervious base and least grass or natural cover. These observations
help to decide the planning perspective based on geology and land cover. This perspective can be
further confirmed with long time variations in water levels which reveal the infiltration pattern of
natural cycle in urban areas.
8. CONCLUSION
Permissible and exceeding percentage values for built up and resulting runoff with four groups of
land cover roughness and a broad range of built up that allows satisfactory recharge are considered
as acceptable features of physical planning along with some man made efforts needed for better
performance. Pervious connected areas and unconnected impervious area play vital role in
intercepting the rain water and allowing the rainwater to flow in desired direction. Connected
impervious areas and disconnected pervious areas play an important role in handling the runoff as
BC S9 where pervious areas and impervious have combination of 25 to 55 percent connectivity.
Such connecting areas can be planned in cities to ascertain the speed of runoff from different land
uses. Similarly land use like residential with 40 to 50 percent are acceptable for water cycle if open
spaces are left in natural state and developed with efforts with grass, bushes and trees to minimize
the intensity of runoff. Infiltration gets very much affected in basalt soil as it is poor in holding
runoff. Hence special land cover planning is must for this soil group. Peak runoff is largely manifest
in alluvial soil and basalt soil as in BSHC S6 and BOBC S2, but alluvial if treated merely with
grass and natural soil state pockets also helps in fast infiltration whereas basalt does not allow
infiltration of rain so easily with normal land covers. It needs proper land use allotment and
planning to work satisfactorily. Even least connected areas of impervious and pervious areas like
25 and 15 percent as in BSHC S4 have more runoff generation but since sandstone infiltrated rain
water easily, peak runoff can be avoided in such areas with land use and land cover planning. Hence
planning in urban areas with mostly roughness values of 0.011 to 0.017 are to be planned wisely
for the resulting runoff. Thus it is concluded that natural system sustains its working till its carrying
capacity is exceeded and with some planning principles and manmade efforts this capacity can be
extended to support the normal working of natural system in developed conditions.
1. Runoff in urban areas varies from 25.15 percent to 88.21 percent.

2. Some catchments produce more runoff than others though having same built up percent.
3. Catchments with connected open spaces have less run off, whereas unconnected pervious
areas act as interception storages at bigger scale.
123
4. Lineaments and fractures add to runoff or add to ground water depending upon the land
cover characteristics.
5. Runoff from 5.35 to 50 percent can be manipulated with help of basic use of hydrological
knowledge in planning urban landscapes.
LITERATURE:
1. Booth, Derek. (1991), "Urbanization and the natural drainage System:Impacts, solutions and
Prognosis." The Northwest Environmental Journal 7, no. 1, pp. 93-118.
2. Heidi M. Peterson, John L. Nieber, Roman Kanivetsky. (2011), "Hydrologic regionalization
to assess anthropogenic changes." Journal of Hydrology Volumne 408, no. Issue 3-4, October,
pp. 212-225.
3. Kundzewicz Z. W, et al (2007), Feshwater resources and their management, Climate CHange
2007. Assessment report of the Intergovermental Panel on Climate Change., Cambridge.
4. IPCC. Climate Change 2007. (2007), The Physical Science Basis. Contribution of Working
Group I to the Fourth Assessment , Cambridge: Cambridge University,.
5. IPCC. (2007), Linking climate change and water resources. Technical Paper,
www.ipcc.ch/pdf/technical-papers/ccw/chapter3.pdf,.
6. Worldwater. (2007), Coping with Water Scarcity, CHallenges of the twenty first Century.
World Water Report., New York: www.world water 2007.org.
7. E. B, White. "Thestate of Resource, Chapter 4." UNESCO.ORG. 2004.
www.unesco.org/bpi/wwap/press/pdf/wwdr2_chapter_4.pdf (Retreived Sept 11, 2011).
8. GRUMP. "Global Rural-Urban Mapping Project (GRUMP)." columbia.edu. 1997.
http://sedac.ciesin.columbia.edu/data/collection/grump-v1 (Retreived 07 12, 2013).
9. UN2013. "World Urbanization Prospects, the 2011 Revision." www.un.org. 2013.
http://esa.un.org/unup/p2k0data.asp (Retreived June 12, 2010).
124
ANNEXURE A
Figure 1: Built up area as per GIS- 1971
Figure 2: Built up area as per GIS 2013
Snap shot 1. SWMM modeling
Snap shot 2. modeling
125
A MODEL OF EDUCATION FOR ASSISTANTS OF STUDENTS WITH

DISABILITIES SUPPORTED BY INFORMATION AND
COMUNICATION TECHNOLOGY
Violeta Vidacek-Hains
University of Zagreb, Faculty of Organization and Informatics Varadin, Croatia
[email protected]
Melita Kozina
[email protected]
Valentina Kirinic
[email protected]
ABSTRACT
Todays system of education is becoming more flexible for students from different underrepresented groups. Possible obstacles in education can arise from age, gender, disability,
language skills, low social status, income etc. All students from under-represented groups have
an equal right to access to education and the subsequent labour market that such education
provides. The majority of students with disabilities are included in mainstream preschools,
schools and universities. Depending on the type of disability (hearing impairments, visual
impairments, psychological disorders, mobility difficulties etc.), students need more or less
support. This paper will explore the model of support provided by assistants for students with
disabilities at different levels of education. The model includes personal teaching assistants in
preschools and schools and peer-teaching assistance at the university level. The quality of
training for teaching assistants in preschools and schools was evaluated using a sample of 90
assistants participating in the 20-hour course. The initial motivation of assistants was estimated
by an open-ended question survey. A content analysis of teaching assistant reports shows that
motivation for this job is not only current unemployment, but also the gathering of social skills,
job experience and enjoyment. The results were positive, with an emphasis on the high quality
of the curriculum and the usefulness of lifelong learning. Interviews with peer assistants at the
university emphasised the importance of training supported by information and communication
technology. Students with disabilities also need access to the internet, high quality digital
learning materials and different assistive technology. Quality of support provided by assistants
also depends on their training and any aversion of inclusion students with disabilities within
the mainstream education system. Inclusion is good way of preparation in terms of human
capital management for the future labour market. Further research will be focused on
measuring the usefulness and practical implementation of the results.
Keywords: Education, Labour Market, Students with Disabilities, Teaching Assistants
1. INTRODUCTION
The inclusion of children and youth in the mainstream schools and universities is part of further
career planning and inclusion in the further labour market. The national strategy of equalisation
of possibilities for persons with disabilities (2007), enabling the equal right to education and
employment for children, youth and adults with disabilities. There are different categories of
disability that need special treatment and have different impacts at the education process
(Michalk, 2012). Mental disorders are classified according to the Diagnostic and Statistical
Manual of Mental Disorders (2013). The international classification of disability and handicaps
126
includes the following sub domains for children with intellectual impairment: sensory
perception (visual and hearing perception), motor activity, laterality, sense of direction,
intellectual functions, concentration, memory, phatic functions, emotions, adaptability and
sociability, acting, aspiration and taking care of oneself (Michalk, 2012). The categories for
students with disabilities in tertiary education are grouped into the following categories:
students that are blind or visually impaired, deafness, have motor disorders, multiple disorders,
chronic illness, mental disorders, learning disorders and ADHD and other disorders that could
have impact their studies (Centre for Students with disabilities at the University of Zagreb,
2007).
1.1. Process of Inclusion in the Schools and Universities
The process of integration of children and youths with disabilities depends on their specific
needs. The integration process differs at different levels of education. For example, the
successful treatment of dyslexia is related to early identification and selection of teaching
methods (Pesova et al., 2014). Futher more, Muntaner et al. (2014) explore the elements of
effective inclusion of children with chronic diseases in mainstream schools. The successful
inclusion of peers with disabilities also depends on the attitudes of other children in the classes:
Children that are used to have schoolmates with disabilities report more positive attitudes
towards inclusion (Bebetsos et al., 2014). The strategies for creating inclusive classroom
depends on teaching strategies and the quality of teachers training (RahimOv et al., 2011;
Kurawa, 2010). The development of academic, professional and survival skills for children with
disabilities needs to be part of the school curriculum and supported by competent teachers and
staff. An inclusive curriculum is an element of the development of the education system
(Ninlawan and Areerachakul, 2015). Secondary school students with visual impairments can
be successfully integrated into mainstream school environments. The problem is that only 27%
staff from counselling centres have knowledge and expertise about tools for mathematical
expressions for students that are visual impaired (Regec, 2015). Kakabaraee et al. (2012) find
that the majority of primary school teachers (90%) cant identify students with learning
disorders.
Collaboration between schools and stakeholders are part of creative process of teaching and
learning (Rustiadi, 2015). Inclusive teaching requires the development of inclusive schools in
local community, and needs to be supported by tools and knowledge of teacher education
community (Isosomppi and Leivo, 2015).
Tertiary education provides opportunity for professional and social life for students from the
disadvantage groups. Students that are hearing impaired, visually impaired, have autism
spectrum disorders or orthopaedic disabilities need different types of academic support.
Institutions have academic and social regulations that could be helpful in their academic
achievement. The quality of student support services can be improved by informing and training
the staff. Services during registration period provide important information linked to fulfilling
academic and social needs (Kayhan et al., 2015). For example, students with psychiatric
disorders in tertiary education are academically capable, but the level at which they cope with
difficulties and illness symptoms can determine their academic achievement. According to
research conducted by Yahaya et al., (2010), those students need supported education.
Furthermore, literature reviews from Belgium, Canada, France, Italy, Switzerland, UK, USA
and Romania show the importance of awareness towards the needs of students with disabilities
at tertiary education institutions (Vrma, 2014). The quality management of tertiary education
institutions is relevant for the quality of education, innovative economy, technological progress,
social development and consequent quality of life (Glushak et al., 2015).
Today, many tertiary education institutions are increasingly adopting different quality standards
and frameworks in order to achieve the goals and improve the quality of educational processes.
127
Some of these are ISO 9000 and Total Quality Management (TQM), maturity models. One of
the most significant maturity model in the field of human resource management, knowledge
management and organisational development is the People Capability Maturity Model (PCMM). P-CMM is a well-documented set of practices that enables the growth of organisational
workforce competencies and helps organisations to integrate workforce development with
continual process improvement (Curtis, Hefley and Miller, 2009). The life cycle of process
improvement includes assessment of the current level of process capability, determining the
target level of process capability, prioritisation of the process improvement, as well as the
implementation, monitoring and evaluation of these improvements (Wysocki, 2004, p.p.13). PCMM provides the alignment between the workforce practices and the business objectives,
determines the maturity of workforce practices and provides the program of continuous
workforce development. The P-CMM can be combined with other quality methods and
standards. Recently, new Capability Maturity Models (CMMs) are developed for the purpose
of improving the quality of tertiary education. The planning and implementation of the best
practice according to these models is very expensive and complex project for the tertiary
education institutions, especially for small institutions. However, the benefits of these models
for the quality of the tertiary education institutions as well as tertiary education institutions and
students with disabilities are great.
The model of inclusive education for children and youth with disabilities will be explored in
terms of quality and P-CMM in institutions for primary, secondary and tertiary education within
the local community. Human resources management and manpower is one of the most
important investments in the organisation which has an influence on organisational
development (Cmpan, 2013). There are differences in the level of awareness between human
resources staff and managers that work with employees with disabilities, in terms of their
knowledge and competences of recruitment of people with special needs. Employees from
enterprises which do not employ people with disabilities have different knowledge of the
degrees and causes of disability, suitable working times, jobs and adaptations of workstations
(Polak-Sopinska et al., 2015). The investment in somebodys education is recovered when a
person enters the labour market and finds employment (Mariana, 2015).
1.2. The Role of the Information and Communication Technology for Students with
Disabilities
Information and Communication Technology (ICT) plays an important role in the process of
education because of its different aspects, such as ICT supported teaching/learning, E-learning
courses, Massive Open Online Course (MOOCs), the gamification of education and so on. In
other hand, ICT is important as an assistive technology, helping persons with disabilities to gain
information, to communicate easier and to make education more accessible to persons with
disabilities. ICT/computer can be accessible and considered as (computer) assistive technology
with the help of different software such as screen magnification software, screen reader
software and speech recognition software enhanced with all kinds of different input/output
devices (alternative keyboards, keyboard emulating interfaces, switches).
In todays information society, access to information represents a basic human right and a
prerequisite for equality, equal opportunities. The Convention on the Rights of Persons with
Disabilities (United Nations, 2006, Preamble, V) emphasises Recognising the importance of
accessibility to the physical, social, economic and cultural environment, to health and education
and to information and communication, in enabling persons with disabilities to fully enjoy all
human rights and fundamental freedoms. Web accessible information/content are in the focus
of the Web Content Accessibility Guidelines (WCAG) 2.0 with a wide range of
recommendations for making Web content more accessible (W3C, 2008) and ensuring that
information/content is perceivable, operable, understandable and robust to all web users.
128
Software producers are also more and more aware of the needs of all kinds of software end
users as well as the fact that software products should make information accessible. This results
in more accessible software/web interfaces for gaining software functionality (in word
processors, presentation tools...) which can help in producing accessible digital documents,
presentations, i.e. accessible teaching/learning materials. Information and communication
technology provides support for teachers and students with disabilities in achieving learning
outcomes. E-learning enables students with disabilities to be included in the mainstream school
system and can be implemented for different specific learning disabilities (Bjeki at al., 2014).
Different software and tools such as Learning Support Assistants (LSAs) help the inclusion of
pupils with complex special needs in mainstream classes (McConkey, 2011).
2. METHODOLOGY
The paper presents a model of education for teaching assistants and peer assistants that enables
the inclusion of children and youth in mainstream primary, secondary and tertiary education.
The overall objective of the research is to identify the elements of supportive learning for
children and students with disabilities that are included in mainstream schools and universities.
The specific objectives are to figure out the motivation of the teaching assistants training for
their job, to examine the quality of the training in mainstream primary and secondary schools
as well as at universities.
The research was divided in the two parts, according to the levels of education:
First part of the research: teaching assistants in preschools (children aged 3-7), primary
schools (pupils aged 7-15 years) and secondary schools (pupils aged 15-19 years) were asked
about a) their motivation for choosing the job of teaching assistants for children with disabilities
and b) for feedback about the training curriculum. The initial motivation for the teaching
assistant job was measured at the beginning of the training and feedback regarding to the quality
of education was measured at the end of the 20 hours of training.
Second part of the research: peer assistants for students with disabilities at the Faculty
(students 19 years and older) were asked about their experience in supporting and helping
students with disabilities. The answers were collected through semi-structured interviews.
2.1. Respondents
Respondents at the first part of the research, that is aimed to the primary and secondary
education were N=90 teaching assistants included in the training. The majority were aged 1837 and 80% had a tertiary level of education (bachelors or masters degree of education) and
all were unemployed. 95.5% already had experience in working with children with disabilities.
Respondents at the second part of research, which was conducted at the tertiary level of
education, were N= 6 personal peer assistants. Interviews with peer assistants was made once
a month during 4 months (one semester) of the academic year.
2.2. Measuring Instruments and Conducting the Research
During the first part of the research, two anonymous questionnaires were created: a)
Questionnaire IM-1 included 11 open ended questions, with the purpose to identifying the
motivation of the teaching assistants for their job and b) Questionnaire FB-2 included 11
Likert scale or open ended questions, the purpose of which was to collect feedback of the
training program. At the second part of the research the semi-structured interview was designed
to explore the current experience, needs for institutional adjustment, usability of information
and communication technology and planned further activities for improvement. The interviewer
was the coordinator for students with disabilities at the Faculty.
129
3. RESULTS AND INTERPRETATIONS

3.1. Preschools, Primary and Secondary Education: Quality of Education for Teaching
Assistants
A group of 90 personal teaching assistants were included in the 20 hours of training. The
training curriculum contents pedagogical and psychological topics, methodology of supporting
inclusion and teaching. Training is made by 12 professionals form different fields of expertise.
Other
Unemployment
60
50
40
30
20
10
0
Support
Working with
Children
Pleasure
Job Experience
Figure 2: the Motives for Choosing the Career of Personal Teaching Assistant
(in % for N= 90)
Teaching assistants were asked about their motives for choosing this job at the beginning of the
training. Although all of them were unemployed, employment was not the main reason. Only
16.13% report that unemployment is the main reason for choosing this job. The percentages of
other motives (Questionnaire IM-1) for choosing the carrier of teaching assistant are presented
in Figure 2
Teaching assistants were asked about their expectations of their further job. The content
analyses of the open ended questions at the IM-1 questionnaire shows that the major
expectations were grouped in the four categories: 1. Friendship (all answers similar to trust,
good relationship, collaboration, communication...); 2. Adjustment and adaptation (answers
like getting know each other, networking, acceptance...); 3. Achievement (success,
independency, self-regulated learning...) and 4. Satisfaction (happiness, positive emotions, selfesteem...)
The numbers of answers that belong to the each category are presented in Figure 3. Each
respondent describes at list one category. The number of answers is bigger comparing with the
number of respondents, while some respondents choose two or more categories.
130
Satisfaction
Friendship
70
60
50
40
30
20
10
0
Adjustment
Achievement
Figure 3: what Teaching Assistants Expect as the Result of their Support for Children and
youth with disabilities (N=90)
It is interesting to realise that teaching assistants more often expect friendships and adjustment
/adaptation of children than their own achievement or satisfaction. That could be interpreted in
the terms of high awareness importance of social interactions and communication that will
enable the successful learning and school achievement.
70
60
50
Content
40
30
Teaching Materials
20
10
Communication with
Teachers
Communication with
Peers
Figure 4: Teaching Assistants Satisfaction with the Curriculum and Course Content,
Teaching Materials, Communication with Teachers (Trainers) and Peers (other Teaching
Assistant Colleagues) for N=90 Teaching Assistants
Legend: Access X: Likert scale feedback from 1 = Completely Dissatisfied, 2 = Mostly
Dissatisfied, 3 = Neither Satisfied or Dissatisfied, 4 = Mostly Satisfied, 5 = Completely
Satisfied; Access Y: Number of Respondents
131
After completing the training, teaching assistants were asked for feedback regarding their
satisfaction with the curriculum and content of the course, teaching materials, quality of
communication with teachers (trainers) and with the quality of communication with other
teaching assistants colleagues (peers). The results are presented at the Figure 4. The results
presented at the Figure 4 show the positive feedback of the teaching assistants for students with
disabilities regarding to the curriculum/course content. They report that the teaching materials
are useful and have high quality. Respondents also very satisfied with the communication with
teachers and colleagues during the course. The majority of answers are grouped at the estimates
4 (mostly satisfied) and 5 (completely satisfied). The respondents were asked if they would like
to continue the training. Almost all of the teaching assistants (95.5%) would like to continue
the training in the form of supervision of their teaching assistants work
Results of this research are similar to the research conducted by Bebetsos et al. (2014). Authors
found that the successful involvement of peers with disabilities in the mainstream classes
depends on the attitudes of all children in the classes. Children that are used to having
schoolmates with disabilities in their classes report more positive attitudes regarding to
inclusion.
3.2. Faculty Adjustment to the Needs of Students with Disabilities
In order to encourage the enrolment of students with disabilities at higher levels of education,
the University established the peer support service. The additional institutional support issues
were available through the education of teachers and staff, students counselling services,
informing, improving accessibility, adjustment of teaching materials, enabling mobility,
removing the architecture barriers...). 207 students with disabilities were studying at the
University of Zagreb, which is 0.32% of the whole student body (Centre for Students with
Disabilities, 2014). The majority of students with disabilities have mobility disorders (55.28%),
motor disorders (21.13%), learning disorders (6.33%), were blind, visually impaired or deaf
students (5.99%), have mental disorders (3.17%), chronic illness (1.76%) or multiple disorders
(0.70%).
3.2.1. Personal Peer Assistants for Students with Disabilities in Institutions of Tertiary
Education
A group of 6 personal assistants were selected to provide support for students with disabilities.
They were also enrolled at the University course Peer Assistant for Students with Disabilities.
The results of interviews with peer assistants report the: 1. importance of providing education
for peer assistant, other students, academic and staff; 2. the need for installing architectural
improvements for mobility and orientation: handrails, elevator, door signs on Braille signs...;
3. the need for improving information and communication technology: visual impaired students
use Linux operating system, screen reader software for blind or visual impaired people, voice
recognition system for mobile devices...; 4. further activates were planned according to the
interview result, suggestions of the Central Counselling centre for students with disabilities at
the tertiary level, founding opportunities etc.
The majority of those suggestions were successfully implemented at the Faculty. Web
accessible information/content, accessible digital learning materials as well as accessible ICT
devices made education easier for students with disabilities. The potentials and benefits of ICT
are important parts of education for peer assistants and students with disabilities.
3.2.2. Additional Network and Values for University Students towards Inclusion
The inclusion of students with disabilities in mainstream faculties and universities has
additional value for all students, staff, academic and local community. All students were raising
their awareness of accepting diversity, learning about the needs of students with disabilities and
132
preparing themselves for the labour market. Students were doing research with topics linked to
the usage of ICT and assistive technology. They presented results at student conferences,
sharing their knowledge and networking with other students in a national and international
environment. For example, students completed research and wrote diploma theses which were
presented at the International student poster section. This event is traditionally part of the
Central European Conference on Information and Intelligent systems CECIIS. Conferences
help students to establish further networks at the national and international level.
Information about institutional adjustment for students with disabilities was published in local
news, web portals and on social networks, which also raised local community awareness. Usage
of information and communication technology is an important element of sustainability of the
project results and networking. The attitudes of university lecturers and academic persons
towards students with disabilities is an important factor of inclusion. Research conducted by
Costea-Brluiu and Rusu (2015) shows the positive attitudes of teachers towards the inclusion
of students with disabilities in tertiary education, but a lack of knowledge regarding their special
needs.
4. CONCLUSION
The model of collaboration between educational institutions from all levels of education
includes networking with other stakeholders and partners: industry, local government and
agencies for employment. Children and youth with disabilities need specific institutional
adjustments regarding their specific needs, which enables their inclusion in mainstream
preschools, primary schools, secondary schools and universities. This inclusion will provide
learning outcomes, professional competences and social skills required for the further career
development in a competitive labour market.
The elements of supportive learning environment depends on different factors: the social and
professional competences of teachers and peers, community awareness, curriculum quality,
access to information and communication technology and well trained personal teaching
assistants and peer support for students with disabilities. These results could be compared with
the results of Vreeburg Izzo (2012), who found that universally designed technology for
teaching and learning is helpful in creating the student-centred learning environments.
Technology can enhance the quality of tertiary education in general and is suitable for the area
of Science, Technology, Engineering and Maths (STEM).
After finishing primary and secondary education, access to tertiary education for students with
disabilities again provides different obstacles, such as physical barriers, material and financial
matters, a lack of qualified staff for mentoring, lack of guidelines etc. Each community has its
own diversity. Access to tertiary education can be improved if the diversity of each community
is recognised and is taken into account at the national and international level (Mara, 2014).
Networking between different institutions within the local community and the quality of their
collaboration is an important factor for school achievement. Students with disabilities are
building their own network with the local community, industry and institutions. High-quality
human resources management could ensure a professional approach with well-trained special
teachers, who will help pupils with disabilities in their process of education. Universities have
an option to include volunteers and peer support for students with disabilities that will help all
students in raising diversity awareness. Sharing information through local media, professional
papers and scientific conferences are important elements of creating an effective learning
environment for the labour market. Collaborative learning for all peers enables the successful
integration of students with disabilities. Results confirm the research completed by Ismaili and
Etemi (2010), who found that planning human resources and human resources management
must be an element of the Universitys strategic objectives.
133
Further research will be focused at the improvement of the curriculum for personal teaching
assistants and improvement of the collaborative learning for peers that support students with
disabilities.
ACKNOWLEDGEMENT: It is our privilege to thanks the County of Varadin and all project
partners at the project which was funded by the European Social Fund, Operational
Programme Human Resources Development Component IV of the IPA programme Enabling
Teaching Assistants for Pupils with disabilities in schools of the County of Varadin HR.2.2.040028. Special thanks to the teachers and trainers who created and conducted the courses on a
voluntary basis. We would like to thank the Central Counselling Office for Students with
Disabilities at the University of Zagreb which provides education and useful information for
improving institutional adjustments.
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135
GLOBALIZATION AND NEW STAGNATION TENDENCIES

Davide Gualerzi
Department of Economic and Managerial Sciences (DSEA)- University of Padua, Via del
Santo, 23 - 35123 Padova, Italy
[email protected]
ABSTRACT
The paper focuses on the recent resurfacing of the question of secular stagnation and it impacts
on the prospects of the global economy after the great financial crisis of 2008. Although over
the recession that lasted in the US from the fourth quarter 2007 to the third quarter 2009, was
followed by a relatively weak recovery, specially in Europe. Despite the differences
unemployment rates are high throughout the industrialized economies with little sign that
redundant workers will be reabsorbed into employment any time soon. The crisis is therefore
ongoing. It casts a considerable doubts on the prospects of the global economy. Underneath
much of the discussion there seems to be the idea of a resumption of growth based on a return
to normal scenario, which implies that growth would resume along similar lines as before the
crisis. In fact the question is that of the pattern of growth on which industrialized economies
will settle in and whether it will provide the conditions for an expansive transformation. On the
other hand we have observed the return to a discussion of secular stagnation, prompted by
Lawrence Summers comments at the 2013 IMF conference in honor of Stanley Fisher. The
reemergence of what two historians of economic thought Backhouse and Boianovsky, call a
heresy in macroeconomics suggests a new awareness on a question that almost disappeared
from the economic discourse.
Keywords: Crisis, stagnation, macrodynamics, Lawrence H. Summers, advanced industrial
economies and global economy
1. INTRODUCTION
The paper focuses on the recent resurfacing of the question of secular stagnation. Prompted as
it appears from the severity and continuing effects of the financial crisis and the 2008-2009
recession. The term was frequently used until the 1950s combined with an important debate on
the causes of stagnation. It then became much less used with periodical moments of interest in
a long-term declining trend. It never completely disappeared and is back into the economic
debate in 2012-2015.
Underneath much of the discussion of the crisis there seems to be the idea of a resumption of
growth based on a return to normal scenario, which implies that growth would resume along
similar lines as before the crisis. But then there would have been no crisis. In fact the question
is that of the pattern of growth on which industrialized economies will settle in and whether it
creates the conditions for an expansive transformation. The likely alternative is stagnation.
There is little sign that this perspective is penetrating economists thinking and the solutions
offered to re-establish long-run growth. We have observed however the return to the fore of the
question of secular stagnation after Lawrence H. Summers comments at the 2013 IMF
conference in honor of Stanley Fisher. Summers returned on the topic several times in the last
two years although with so far little consequence.29 It is open to discussion whether Summers
really elaborates on the issue of secular stagnation. He is certainly trying to convince his
audience that modern macro theory does not have much of a clue on what is happening and that
a drastic change must occur in the understanding of the crisis and its prospects.
29
Views on stagnation have been recently proposed by Paul Krugman and Robert Gordon.
136
The paper outlines first the major features of the ongoing crisis. It argues that through different
phases the possibility of a long term stagnation is indeed materializing. It then examines
Summers argument and quotes extensively his words. That is to provide the textual evidence
of the reasons for the rejuvenation of the concept.
2. The ongoing crisis
Despite being technically over in the US in the third quarter of 2009 the crisis was followed
by a weak and uneven recovery. Especially high unemployment rates are a reason of continuing
concern. The crisis appears to have gone through three phases.
2.1. Financial crisis and recession
At the beginning of the first phase the crisis was mainly financial. It started in 2007 with the
subprime crisis, but it did not explode until the late summer 2008 with the collapse of Lehman
Brothers. The downturn was marked by the collapse of the stock market that reached its lowest
point around March 2009. The most urgent task appeared to be the prevention of a complete
collapse of the banking system. Meanwhile the credit crunch began. That appears to be the
channel though which the crisis was transmitted to the real sector.
The generalized debt and liquidity crisis originating in the private financial sector prompted the
Federal Reserve, together with other central banks, and US Treasury to intervene on a massive
scale, setting aside worries about deficit and inflation.30 At the peak of the crisis in 2009 the
amount of toxic assets, potentially worthless securities and bonds, on the balance sheets of
financial institutions was unclear. Nobody knew exactly the value of the portfolios they held.
Uncertainty and a collapse of confidence had created a situation in which nobody was willing
to lend, while firmsinternal resource were drained by decreasing sales and a worsening
outlook. That brought the private sector to a virtual halt.
The Fed made money easily available by lowering interest rates to unprecedented levels. That
did not prevent the economy from falling into a severe recession, but it did avoid the collapse
of the financial system. Indeed, financial markets have recovered (although uncertainties persist
and there have been periodical corrections). The influx of government money saved the
financial institutions, but rather than lending to the private sector they have returned to
speculating on financial markets (the Goldman Sachs case might be the best example) and
restoring their profit margins at pre-crisis levels. Efforts to regulate the sector have been
notoriously weak, raising serious doubts about the regulatory framework ability to prevent
another financial crisis. Furthermore, the response to the crisis facilitated a dramatic
consolidation of the banking and financial sector, so that a few major player became even
fewer.
Faced with this turn of events the priority became to support a failing economy by means of a
fiscal stimulus to avoid a collapse of investment and employment. In Europe, where the
financial crisis hit a little later, there was a similar call for government intervention directed at
saving the financial system and also at supporting the real economy. In the US the stimulus,
though weaker than what was needed, was more forceful.
The last act of the Bush administration, the Paulson plan to save the banks (September 2008,
approximately $ 750 billion) had not helped to restart the real economy. In January 2009 the
news of the Obama New Deal (the president himself drew a parallel with Roosevelt) referred
to the new administrations plan to get the economy out of the recession. Worth approximately
$ 800 billion the American Recovery and Reinvestment Plan was a combination of tax cuts (for
households and firms) and Government investment. Broadly defined the spending would be
concentrated in energy, health and education, with a focus on public works in infrastructure. Its
30
There was a short-lived but dramatic reversal of the policy stance that had argued against government
intervention and supported an increasing deregulation of financial markets.
137
implementation helped to shorten the recession, but it certainly did not end the crisis, as the
recovery was weak and uncertain.
2.2. Austerity and public debt
The crisis entered a new phase in 2010. It became the crisis of public debt. In the presence of a
massive government intervention, including the fiscal stimulus, in 2010 the problem became
the rising deficits of governments. Obviously not just more spending but also the standstill of
the real economy drove the rapid expansion of public debt. Indeed, the debt crisis continued
through what was at best a weak recovery.
In Europe the crisis of sovereign debt became the common currency crisis. The circumstances
were all in place to trigger a wave of speculation against government issued bonds. Financial
markets more aggressively targeted, and Central Banks provided almost unlimited liquidity,
especially the countries worse hit by the crisis of the real economy in the periphery of the
Eurozone. The so-called PIGS (Portugal, Ireland, Italy, Greece, Spain) are indeed the weakest
economies of the Eurozone and had large deficits. Some had also large public debt.31 In July
2011 the crisis in the Eurozone appeared deadlocked. Not only speculation continued unabated
but it was fueled by the slow and uncertain response by the European institutions. That in turn
reflected the conflicting interest of national economies manifested in the lack of agreement
between national governments. The point appears to be that the common currency, praised as
the decisive step towards integration and consequently towards prosperity across Europe
became the straitjacket making the PIGS countries perfect targets for speculation. If they were
to stay within the common currency they had to cut deficits and debt, otherwise they would be
punished by the international financial markets.
It became increasingly clear that European institutions lacked the means or the political will to
address the causes of the debt, entangled as they were in the underlying conflicts of national
government. At the same time it became clear that getting out of the common currency was an
event that nobody had considered, and for which there were no clear rules or institutional
arrangements. Thus the uncertainty and the postponement of decisions while PIIGS countries
further precipitated into the crisis. The liquidity pumped into the system by the ECB was not
sufficient to contain the unfolding of the sovereign debt crisis. While pursuing the same kind
of monetary policy of the Fed, it did not have the same power, and the ECB policy was less
effective because the Euro zone had no political unity behind it. That called into question the
very existence of the common currency with an up and down of crises and rebounds as the EU
insisted on austerity measures as a condition to have access to European rescue funds.32
The EU governments have rapidly moved from stimulus to fiscal austerity, cutting public
spending, with the usual corollary of structural adjustment policies. A well-known scenario
often advocated for developing economies by the IMF during the 1990s was finally landing into
developed Europe. But austerity can be hardly a strategy for the resumption of economic
growth. It simply started what we can call the debt trap, which is likely to have long-term
consequences. The debt trap has two sides. On the one hand, weak growth inflates deficits that
then require rescue efforts. These come at the price of reinforced austerity measures. On the
other hand, speculators anticipating that austerity measures will have a negative effects on the
economy, at least in the short run, raise the cost of borrowing to the troubled countries, thereby
exacerbating the fiscal problem.
The speculative attacks on sovereign debt and the common currency shifted the focus for a time
from the US to Europe and from private to public debt. But the issue of the government deficit
31
But similar deficits and deteriorating economic growth did not have the same dire consequences for wealthier EU
economies like the UK and France.
32 First Greece then Ireland and Portugal asked the EU for aid in 2011. In June 2012 Spain asked for European
support in the effort to address the financial fragility of its banks.
138
was making a rapid comeback in the US. In June 2010 the US government expressed its concern
that austerity may result in a new depression. The administration however also faced mounting
pressure from Republicans in Congress to reduce the deficit. A striking and somewhat novel
development in the US is the commitment of the Federal Reserve to fight persisting high
employment.33 The Chairman and other top officials defended a strong and continuing
expansionary monetary policy and dismissed worries about inflation as unwarranted in the
current economic circumstances.
The US appeared to be the Keynesian of last resort. Still the stimulus was much less than
much less that what was needed, as Paul Krugman has repeatedly pointed out, and there was no
serious debate about how government policies - particularly as regards public investment could
help restart the economy.
Amid weak signs of recovery, and some positive data about employment, in April 2011 the
confrontation over the government budget led to a last minute deal averting a government shutdown. The agreement included severe spending cuts that destroyed the prospects for a new
fiscal stimulus. The tentative budget compromise, with $ 38 billion in cuts, was sharply
criticized by the IMF.34 It sealed for a time a precarious balance of power in the run-up to the
2012 presidential campaign.
In 2012 it was unclear whether after growth rates around 2% in 2010 and 2011 the US recovery
was consolidating or loosing steam. In Europe the economic scenario was dominated by
simultaneous austerity measures of national governments. The stall of Eurozone was such that
a new recession and a further rise of unemployment became a possibility. The new factor was
the European Central Bank determination to save the common currency. In July 2012 Chairman
Mario Draghi stated that the currency will be saved Whatever it takes. That was a not so
veiled indication that the central bank would buy if necessary directly the sovereign debt issued
by the weakest economies, despite the fact that it was arguably forbidden by the European
Treaties. The worst of the speculative attacks on sovereign debt were stopped and financial
speculation tamed. Meanwhile severe austerity measures went into effect. Such policies were
put in place in several rounds in the PIGS country, and again in 2012 in Italy and Spain, but
they are in fact the dominant trait of economic policy in the entire Euro-zone. Austerity was
combined with renewed calls for revamping economic growth. But with stagnant private
consumption and investment where is the growth to come from?
2.3. A deflationary scenario
We reach then in 2013 a third phase: The debt crisis is developing into a deflationary scenario.
The overall situation is that of a weak US recovery and near- stagnation in Europe, except for
Germany. To that we must add the deteriorating picture of the periphery of the Eurozone, with
negative growth rates in the PIGS countries where unemployment has grown rapidly together
with bitter social conflicts.
US modest growth rates and the crisis in Southern Europe, and notably the case of Greece in
2015, illustrate how deeply rooted the problem is. Austerity measures may lead to marginal
On its current economic trajectory the United States runs the risk of seeing millions of workers unemployed
for many years As a society, we should find that outcome unacceptable: [since] the ultimate purpose of
economic growth is to deliver higher living standards at home (Federal Reserve Chairman Ben S. Bernanke, The
New York Times, November 19, 2010, p. B1-B2)
34
The US lacks credibility on debt, says the IMF (Financial Times, April 13, 2011). The IMF argued the US
was the only advanced economy to be increasing its underlying budget deficit in 2011 at a time when its economy
was growing fast enough to reduce borrowing. The same day the President delivered a radio message stating that
budget cut will not break the basic social contract underlying programs such as Medicaid and Medicare, which
are being cut under the budget deal, and will have to combine with a rise of taxes for the rich.
33
139
improvement public finances, but did not and could not revamp growth prospects.35 In a
deteriorating macro picture the conflicts between national states in Europe are exacerbated
while the US economy is hardly moving ahead with the strength you would expect after such a
serious and prolonged downturn. The expected raise of the interest rates by the Fed failed to
materialize in September 2015 and Mario Draghi admitted hat the growth prospects in the
Eurozone were not encouraging. In other words the celebrated bazooka, i.e. the Quantitative
Easing policy put into effect by the ECB at the beginning of 2015, four years after the FED,
was not giving the Eurozone economy the expected lift.
This admittedly oversimplified contour of the ongoing crisis allows a tentative conclusion. In a
deflationary scenario the real economy is unlikely to recover, while financial markets remain
themselves volatile, with speculation and their profits the main engine of expansion. The
sovereign debt and debt in general are left hanging over a weak expansion. How far that can go
is very serious question, complicated by the not so rosy picture of the world economy and the
adjustment in the Chinese economy.
The budget cuts are unlikely to succeed in bringing down debt, even less to re-start growth. But
they might be effective in doing away with the welfare state, which seems to be the only
achievable goal of austerity policy. The possibility of long-term stagnation is then suggested by
two converging trends: a deflationary scenario materializing in Europe; an ongoing battle over
cutting the government deficit in the US and the lack of a decisive turn of policy to address the
ongoing stagnation. They have to seen in the context of the absence of a possible growth
scenario driven by private investment, which is arguably the most serious problem posed by the
crisis. Indeed the resurfacing of stagnation tendencies is to be linked to the lack of an investment
drive capable of launching a new phase of transformation and the exhaustion of the previous
sources of dynamism. (Gualerzi, 2013).36
3. SECULAR STAGNATION?
The hypothesis above has little role in todays official discourse on the crisis. However the issue
of stagnation found its way into the discussion thanks to Lawrence H. Summers. As indicated
above Summers first introduced the idea of secular stagnation in his comments at the 2013 IMF
conference in honor of Stanley Fisher.37
3.1. The IMF Fourteenth Annual Research Conference in Honor of Stanley Fischer (2013)
At the beginning of his speech Summers agrees with Ben Bernanke, Stan Fischer and Ken
Rogoff on the importance of providing liquidity decisively; the importance of not allowing
financial problems to languish; the importance of erecting sound and comprehensive
frameworks to prevent future crises. He then defines a special role for his comments. Were I
a member of the official sector, I would discourse at some length on each of those themes
But, Im not part of the official sector, so Im not going to talk about any of that. Im going to
talk about something else that seems to me to be profoundly connected, and that is the nagging
concern that finance is all too important to leave entirely to financiers or even to financial
officials. Financial stability is indeed a necessary condition for satisfactory economic
performance but it is, as those focused on finance sometimes fail to recognize, far from
sufficient. So while there is no doubt that a remarkable job was done in containing the 20072008 crisis38 the tone of his comments change when looking at the real economy issue. Yet,
35
Italian Prime Minister Mario Monti in the summer of 2012, argued that it was understood that the immediate effect
of austerity would be deflationary, but expansion would soon follow.
36
See also a collection of essays (De Juan, Febrero, Marcuzzo, 2011) where competing explanations are combined
with sectoral and national perspectives.
37 A notion which, according to Summers, was rejected in Stanley Fischer's monetary theory class at MIT.
38 He mentions the fact that despite statistical indicators suggested a macroeconomic picture worse than that of
1929 the results were quite different. The panic was rapidly overcome and financial conditions normalized. Thus
140
in the four years since financial normalization, the share of adults who are working has not
increased at all and GDP has fallen further and further behind potential, as we would have
defined it in the fall of 2009. He argues that Japan is presenting a much similar
picture. Japans real GDP today in 2013 is little more than half of what we at the Treasury or
the Fed or the World Bank or the IMF predicted in 1993.
He then introduces the idea of secular stagnation in two steps. First he recalls that both classical
models and Keynesian models are about stabilization of fluctuations around a given mean. But
we are looking for something else than having less volatility. I wonder if a set of older and
much more radical ideasthat went under the phrase secular stagnation are not profoundly
important in understanding Japans experience in the 1990s, and may not be without relevance
to Americas experience today.
Although firmly rejected by Stanley Fisher these ideas are according to Summers important to
explain the experience of the crisis. Why?
Despite the consensus that in the economy prior to the crisis there was Too much easy money,
too much borrowing, too much wealth, there was no great pressure on capacity utilization,
unemployment was not particularly low and inflation was not a problem. Thus even a great
bubble wasnt enough to produce any excess in aggregate demand.
To get the point across he relies on a comparison with a power failure. When that is solved and
electricity production restored there would be a rush in the economy to recuperate what had
been lost because of lack of electricity. In a similar way when the temporary failure of the
financial system was fixed up the economy should accelerate its pace simply because it had lost
ground. So, youd actually expect that once things normalized, youd get more GDP than you
otherwise would have had, not that four years later, youd still be having substantially less than
you had before. So, theres something odd about financial normalization, if panic was our
whole problem, to have continued slow growth.
The key concept in Summerss argument about stagnation is the interest rate. So, whats an
explanation that would fit both of these observations? Suppose that the short-term real interest
rate that was consistent with full employment had fallen to -2% or -3% sometime in the middle
of the last decade. Then, what would happen? Then, even with artificial stimulus to demand
coming from all this financial imprudence, you wouldnt see any excess demand. And even
with a relative resumption of normal credit conditions, youd have a lot of difficulty getting
back to full employment.
Monetary policy can still support demand when the short-term interest rates are zero, argues
Summers, but not when natural and equilibrium interest rates have fallen significantly below
zero. we all seem to agree that whereas you can keep the federal funds rate at a low level
forever, its much harder to do extraordinary measures beyond that forever; but, the underlying
problem may be there forever.
That is why Summers concludes it does seem to me that four years after the successful
combating of crisis, since theres really no evidence of growth that is restoring equilibrium, one
has to be concerned about a policy agenda that is doing less with monetary policy than has been
done before, doing less with fiscal policy than has been done before, and taking steps whose
basic purpose is to cause there to be less lending, borrowing, and inflated asset prices than there
were before. This policy agenda concerns what he regards as the fundamental issue, that is to
manage an economy in which the zero nominal interest rate is a chronic and systemic inhibitor
of economic activity holding our economies back below their potential.
The phantom of the Great Depression is evoked but then dismissed.
141
3.2. Speech at Julius-Rabinowitz Center, Princeton University, 2015

Summers has returned to the question of secular stagnation several times suggesting that his
comment at the IMF conference was not just an aside or a casual reference to an important
question, but rather a pressing concern. To identify the core of his argument we can compare
the comments at the 2013 IMF conference with his Reflections on Secular Stagnation, one of
the most recent speeches delivered at Princeton University in February 2015.
The reflections concern the profound macroeconomic challenge of the next 20 years in the
industrial world, and that is a problem of what I like to call secular stagnation, following Alvin
Hansen. Summers articulates this perspective along six points. Im going to talk about why
were talking about secular stagnation, the dismal performance of the industrial world in recent
years. Im going to talk about the secular stagnation hypothesis, as Hansen framed it. Talk about
whats the central element in that, the low level of real interest rates. Reflect on some of the
challenges that have been posed to the hypothesis, and then discuss what is it to be done.
The problem is that there has be no decisive catch up in the US economic performance with
respect to the situation prior to the 2007-2009 crisis. The GDP gap is indeed smaller than it
was in 2009, but that is entirely because our judgments about potential has been revised
downwards, in the face of dismal performance. If anything, the picture is worse Europe today
looks very much like Japan did seven or eight years post-bubble. Demographically challenged,
incipiently deflating with severe financial strains, with dysfunctional politics, and ineffective
decision-making.
The picture of the crisis he argues is largely worse that expected and inconsistent with the
dominant descriptions that fall within the framework of what I would call financial network
failure theory. That goes back to power failure analogy. Yes, the financial collapse was
avoided, but that is only part of the story. The rest goes beyond a traditional business cycle.
To explain why we need to think of something thats further outside the conventional sandbox
Summers recalls again that before the crisis an (excessively) expansionary fiscal and the
mother of all housing bubbles did not result in a spectacular economic performance, nor were
inflation pressures strong. More to the point an adequate economic performance was combined
with an unsustainable growth of debt to disposable income.
Looking further back we find the internet bubble and then the 2001 recession. So the question
Summers ask is: How long has it been since the American economy enjoyed reasonable
growth, from a reasonable unemployment rate, in a financially sustainable way? The answer
is that is has been really quite a long time, certainly more than half a generation. Thats why it
seems to me that one has to contemplate macroeconomic theories of a very different kind than
suggested by the conventional business sector theory.
Indeed something profound has happened. The evidence on falling inflation, diminishing
expected inflation over the long term, even deflation suggest we should probably think of it as
at least being substantially related to demand factors.That is confirmed by the evidence of a
decline of expected interest rates in the last five years. Some of that was because, despite the
recovering economy, expected inflation has come down substantially. More of it is because of
market judgment about the real interest rate has come down substantially.
According to Summers Alvin Hansen prophesied, or addressed, this kind of problem in the
late 1930s when he spoke about secular stagnation and quotes Hansen definition of the
problem: Sick recoveries which die in their infancy and depressions which feed on
themselves.
Hansen was obviously wrong in the sense that what followed his words in 1939 was not secular
stagnation. But, it has always seemed to me, and this is a good example, that economists have
a tendency to suppose that because the world equilibrates and is stable, that that means they
must operate with models that equilibrate and are stable. Thats fine if their model captures
every aspect of the world, but their model should not have capture the Second World War,
142
should not have captured the immense financial repression that took place during the Second
World War, could not have reasonably been expected to capture the various features the baby
boom, the post-war housing boom, and more that drove the economy forward. So, whether
the experience invalidated Hansens model, or reflected the fact that variables that were
exogenous in Hansens model changed very substantially seems to me to be a quite open
question. What seems clear however is that dynamics stochastic general equilibrium is kind
of irrelevant What you need is a theory of a big, bad, protracted thing.
The problem is that when the interest rate is constrained for whatever reason the normal
operation of the market will not lead to a restoration of full employment. One can draw the
picture in a different way by envisioning that investment is a function of the interest rate, and
savings are a function of the interest rate. The point at which they balance at full employment,
is an unattainably negative level of the nominal interest rate, and so the adjustment has to take
place through a reduction in income that inhibits savings. Although not rigorously microfounded relating the level of investment and the level of savings to the rate of interest highlights
that there has been a pronounced increase in private savings, suggesting an increase in the
savings propensity, at the expense of a diminution in the investment, and also an increase in
private savings, and a decrease in the level of investments.
We can therefore say that Secular stagnation is the phenomenon that the equilibrium level that
savings are chronically in excess of investment, at reasonable interest rates. But what are the
reasons behind the change in savings and investment propensities? Summers highlights a few
factors, among them demography (This is what Hansen emphasized), declining capital
requirements (savings can buy much more capital than it used to), the developing world
accumulating reserve in safe assets (pushing down yields), inflation tax interactions (putting
downward pressure on the level of nominal rates).
All the above concerns the demand side. A supply side explanation of stagnation seems hard
to relate to a period of declining inflation, and a period where much of the industrial world is
actually experiencing something quite close to deflation. Except for the productivity slowdown that mean less demand for investment.
Summers concludes with policy recommendations. He single out a particular role they may
play. Past fears of secular stagnation have indeed proven to be unfounded, but as I already
tried to explain, that is largely because exogenous variables changed. It is certainly possible
that exogenous variables will change in the future. Indeed and I hope that they will. In an
important respect, that is the task of economic policy.
He favors structural reforms over monetary policy. The latter has a role to play but I believe
the case is much stronger for structural measures to promote private investment, and for
expansionary fiscal policy. He strongly argues for infrastructure investment both for the
possibility of taking advantage of low borrowing cost and the impact on GDP. These changes
appear warranted since the most important arguably market price in our economy, the real
rate of interest, is going to be substantially lower than most of us have been accustomed to.
Underneath are the fundamental forces of savings and investment and the need to restore
stronger economic performance through a more appropriate investment and saving path.
4. WHY SECULAR STAGNATION
Summers reiterated these views in April 2015 when he contrasted the secular stagnation
viewpoint with the debt super-cycle view put forward by Ken Rogoff and Ben Bernankes
savings glut hypothesis. He regards them as overlapping but insofar as their nuances of
difference, I prefer the secular stagnation view.
He then returns to the policy implications of this general view of the global economy for the
next decade. Real forward rates over the 2020 to 2025 period, which should clearly be after
the hangover of the financial crisis, are negative in Japan and the Euro area and barely positive
143
for the United States. The so-called five-year indexed bond yields are negative or barely
positive. And nowhere in the G7 is market-expected inflation over a 10-year period likely to
reach the two percent target.
The discomforting conclusion is that although we are more and more moving away from the
crisis market pricing (interest rates nominal, inflation rates) has actually moved in all the
directions you would expect if you thought that there was a chronic excess of savings over
investment. All indicators confirm that the financial crisis was overcome And yet with
interest rates of zero the United States is still likely to grow at only two percent this year. I do
not see a good reason to be confident that that situation will be significantly better three years
from now.
If the fundamental challenge is to absorb the savings in the global economy then policy must
be redirected. The first priority for policy should not be financial engineering in either the
private sector or the public sector, but should be a concerted effort to identify and find the
means of financing the most productive investment opportunities globally.
5. CONCLUSION
One main point of the paper is that Summers supports his new stagnation hypothesis with an
assessment of the crisis. He basically argues that: a) the crisis is not over and stagnation is a
clear possibility; 2) a dramatic change in policy is necessary. Further, the central issue is
investment, and private investment in particular.
Summers elaborates on the reasons why we should take a stagnation perspective five years after
the end of the recession. He is trying to convince his audience that the idea of stagnation is not
just an afterthought or a diversion. It should be taken seriously. That concerns the nature of the
crisis. It is a persistent, long-term phenomenon.
It his theoretical framework Secular stagnation is an excess of saving over investment,
combined with a zero (negative) interest rate. He does say a few things about what may lay
behind this situation. But they remain confined to the domain of the exogenous forces. And
yet directing policy on a new path revolves around them. What else could be behind the a
concerted effort to identify and find the means of financing the most productive investment
opportunities globally?
LITERATURE
1. Backhouse R. and Boianosky,M. 2015. Secular Stagnation: The History of a Macroeconomic
Heresy. (version 1) Blanqui Lecture, ESHET, Rome May 14, 2015.
2. De Juan, Febrero, Marcuzzo (eds.) 2011. The First Great Recession of the 21st Century.
Edward Elgar, Cheltenham, UK .
3. Gualerzi, D. 2013. Crisis and Stagnation, unpublished.
4. Summers, Lawrence H. Speech at The IMF Fourteenth Annual Research Conference in
Honor of Stanley Fischer, Washington, DC, November 8, 2013.
5. Reflections on Secular Stagnation. Julius-Rabinowitz Center, Princeton University, February
19, 2015.
6. Rethinking Secular Stagnation After Seventeen Months, IMF Rethinking Macro III
Conference, April 16, 2015.
144
THE IMPACT OF INTELLECTUAL CAPITAL ON FIRMS

DEVELOPMENT
Trina Mjeda
University North, Croatia
[email protected]
Mario Tomisa
[email protected]
Marin Milkovic
[email protected]
ABSTRACT
In today's global economy where physical presence is no longer important, and where
everybody can sell and buy no matter where they are, effective communication and interaction
is a key feature of continuous development. The new rules have significantly changed the way
of defining enterprise - the issue of what a company owns has evolved into what the company
knows and can do. Companies nowadays are successful if they have realized that investments
in intellectual capital and synergy effects based on creativity, innovation and competence of its
employees are the drivers of long-term growth.
Business and human life in general changes fundamentally with regard to innovation process.
Every innovation works in the micro and macro environment, and they are based on developing
an intellectual capital. It can be called as a driver for creating new knowledge or improving
existing, with a direct impact on the business of one company, and indirectly impacting the
environment in which the company exists, constantly increasing the amount of world
knowledge. The main purpose of this paper is to point out the importance of developing an
intellectual capital in a firm, as an asset that comprises the same importance as every other
type of firms capital for long-term business growth.
Keywords: intellectual capital, long-term growth, innovation, firms development
The best way to predict the future is to invent it (Alan Curtis Kay, 1971.)
1. INTRODUCTION
Influenced by globalization and technological change, the way of doing business is irreversibly
changed, as also the way of achieving sustainable economic growth. Technological progress is
affecting every aspect from business and culture to social life and security. Driven by the
process of globalization, which encompasses not only economic, but also social and political
dimension, changes are removing the world barriers, thus making geographical presence less
important. Globalization in general can be defined as the process of creating a network of
geographically remote participants by transmitting different flows including people,
information and ideas as well as financial capital and goods. In today's global economy,
physical presence is no longer important - everybody can sell and buy no matter where they
are, which significantly altere the way of defining enterprise. The issue of what a company
owns has evolved into what the company knows and can do. An obvious gap between firms
market value and book value underlines the fact that the source of economic value is not the
production of material goods, but the creation of intellectual capital (Chen, Cheng & Hwang
145
2005, p. 159.). Companies nowadays are successful if they have realized that investments in
intellectual capital and synergy effects based on creativity, innovation and competence of its
employees are the driver of long-term growth. The objective of this study is to investigate trends
in worlds industries and leading companies, aiming to confirm the thesis that a company
searching for success in future has to invest in intellectual capital today.
2. INTELLECTUAL CAPITAL
Firstly mentioned in the late 20th century, the theory of intellectual capital has been an exciting
topic since than, diminishing the value of the material capital such as plants, machinery and
money, and trying to put the value not included in the balance sheets under spotlight. This
theory is considering human capital, structural capital and relational capital as an important
corporate value that cannot be strictly measured, but brings profits to a company creating the
added value. The main characteristic of this capital is intangibility, thanks to which it is difficult
to measure and offen not taking into consideration as a driver of long-term growth among
companies leaders. Long time passed by from Schumpeters research of the creative
destruction, a characteristic of every successful entrepreneur, which as a way of thinking is
still very modern especially when considering how economies evolve. The importance of
accumulating knowledge for long-term growth was presented by Paul Romer in 1986. (Romer,
1986, pp. 1002-1037). In his work he stated that human knowledge is the only production input
that is not characterized by diminishing marginal revenue, because it has no known boundaries.
In contrary, Romer stated that human knowledge is assumed to be a production input that has
increasing marginal productivity. Human knowledge will always find ways to recombine
existing product resources, restructure product process or invent a new technology for a better
and more effective use of existing product inputs. If thought that way, the physical and financial
capital becomes irrelevant in terms of creating new value, unless combined with intellectual
capital what adds a new value is innovation, creativity and technology. If knowledge is a
resource characterized by increasing returns, it surely can be a source of long-term economic
development. Acknowledging the importance of intellectual capital, Karl-Erik Sveiby was the
first that recommended models for measuring the value of intellectual capital in 1997, in his
work called The New Organizational Wealth. His research was than continued by Leif
Edvinsson, a Swedish economist that developed models for intellectual capital management.
2.1. What is intellectual capital?
According to Sunda and vast, intellectual capital is a complex economic category
encompassing business factors, which have not been explicitly expressed in the traditional
financial statements, although they provide the added value to the organization and significantly
affect long-term profitability and competitiveness of the enterprise. (Sunda & vast, 2009, p.
35). Intellectual capital is conducted of:
a. human capital
b. structural capital
c. relational capital
Human capital can be seen as the core of intellectual capital. It represents accumulated value of
knowledge, skills and education among all the management and employees of a company, thus
creating new value by combining innovation, imitation, adaptation and materialization (Sunda
& vast, 2009, pp. 38-40). It is considered to be the most valuable corporate asset.
Structural capital includes intellectual property and organizational structure and processes that
can be measured. Intellectual property is conducted of patents, licenses, intellectual rights,
software, franchises, while organizational structure encompasses business organization,
146
strategy, plans, documents, rools, data base and all other processes that are part of companys
business (Sunda & vast, 2009, pp. 43-45).
Relational capital is stands for the value of relations, both inside and outside the company.
There are three main groups of relational capital, business networks, brand value and customer
relations.
2.2. The importance of intellectual capital
The importance of intellectual capital started to increase as the paradigm shifted from traditional
economy towards knowledge-based economy, which stands for production, distribution and use
of information creating new knowledge. Although the importance of knowledge has always
been recognized in growth theories, the success of one company has never been more
dependable on innovation, research and development and other resources of intellectual capital.
Due to the globalization, rapid technology development and higher consumer expectations, to
be a successful company it takes more than just having a good product. Among fierce
competition that characterizes todays market, innovation and intellectual capital is a source of
competitive advantage for a company in so many ways, for example, improving productivity
and cutting down production costs, differentiate your products and services, developing loyal
customers etc. It is hardly impossible to imagine a company in future that takes no care for at
least one component of intellectual capital.
2.3. Measurements of intellectual capital
Intangibility is the main characteristic of intellectual capital, and also the main reason why it is
so difficult to get an exact approximation of intellectual capitals value. There are several types
of indicators that can be used for measuring the intellectual capital as for example, Balanced
Scorecard tool developed by Kaplan and Norton in last decade of 20th century, Intangible Assets
Monitor that measures the value of companies hidden assets, and Value added Intellectual
Capital developed by Puli in 1997, being commonly used tool for measuring the intellectual
capital. Karl-Erik Sveiby, one of the intellectual capital measurements pioneer provided a list
of 34 commonly used intangible assets measuring models, grouped in four categories depending
of measurement approach (Figure 1):
a. Direct Intellectual Capital Methods - estimate the nominal value of intangible assets
by identifying its various components.
b. Market Capitalization Methods - calculate the difference between a company's
market capitalization and its stockholders' equity as the value of its intellectual capital
or intangible assets.
c. Return on Assets Methods - average pre-tax earnings of a company for a period of
time are divided by the average tangible assets of the company. The result is a company
ROA that is then compared with its industry average. The difference is multiplied by
the company's average tangible assets to calculate an average annual earning from the
Intangibles. Dividing the above-average earnings by the company's average cost of
capital or an interest rate, one can derive an estimate of the value of its intangible assets
or intellectual capital.
d. Scorecard Methods - the various components of intangible assets or intellectual capital
are identified and indicators and indices are generated and reported in Scorecards or as
graphs. Scorecard methods are similar to direct intellectual capital methods, except that
no estimate is made of the nominal value of the intangible assets. A composite index
may or may not be produced.
147
For the purpose of this article, the analysis will be based on price to book ratio (also called
market to book ratio), a method of calculating the difference between a companys market and
book value.
Figure 1: Intangible Assets Measuring Models (Sveiby, 2001 2010)

3. INDUSTRIES AND COMPANIES ECONOMIC PERFORMANCE ANALYSIS
Under market circumstances influenced by the globalization, there is a substantial change in
top companies ranking measured by market capitalisation. Capital-intensive industries are
trading places with knowledge-intensive industries with high market capitalization growth
rates. There is a significant upwards trend in market value of industries driven by innovation as
technology, finance and healthcare, and a drop or a slowdown in industries like oil&gas which
is highly affected by oil price shocks, and telecommunications and consumer goods that are not
yet fully recovered from the global financial crises. There are several organizations that provide
service of measuring market capitalization of industries and companies then publishing top lists
as Financial Times, Forbes, Fortune magazine, PricewaterhouseCoopers (PwC) etc. For this
purpose, the Financial Times and PwC rankings will be used. Both measures rank companies
by market capitalization, the greater the stock market value of a company, the higher its
ranking.
3.1. PwC Global Top 100 Companies
PricewaterhouseCoopers yearly publishes the list of global top 100 companies ranked by market
capitalization value. Data source used for the analysis is PwC and Bloomberg. The PwC
analysis identifies the sector dynamics and presents the main changes on the world level. Their
analysis represents a useful source for investigating market trends and development, especially
among industry sectors. In 2015, leading industries were technology, healthcare and consumer
services, as mentioned before, all the sectors are highly knowledge-intense and innovation
driven.
Among top ten companies with largest absolute increase in market capitalization, only one
company comes from oil and gas sector, others belonging to sectors such as technology,
financials, health care and consumer goods or services (Table 1).
148
Company
Apple
Google
Berkshire
Hathaway
Wells Fargo & Co
Microsoft Corp
Novartis AG
Tencent Holdings
Ltd
Anheuser-Busch
The Walt Disney
Co
General Electric
Industry
Technology
Technology
Financials
Market
capitalization
March 2009
($bn)
94
110
134
Market
capitalization
March 2015
($bn)
725
375
357
Change in
market
capitalization
2009/2015 (%)
674%
242%
167%
Financials
Technology
Health care
Technology
60
163
100
13
280
334
267
178
364%
104%
169%
1236%
Consumer Goods
Consumer
Services
Industrials
44
34
196
178
346%
429%
107
250
134%
Table 1: The 10 Global Top 100 companies with the largest absolute increase in market
capitalization (PwC, 2015)
Since 2009, only 66 companies survived to be in the list at 2015 (PwC, 2015), which surely is
resulted by effects of global financial crises. All technology companies listed among top 10
show a huge increase in their market value, which sounds even more impressive knowing that
Google and Tencent are companies founded only 17 years ago. When analyzing the complete
ranking by market capitalization, there are two companies from oil&gas sector, both of them
showing a significant drop in rankings in 2009 they were holding the first and second position
by market capitalization, in 2015 sinking to third and sixth place and being replaced by two
technology firms (Table 2).
Company
Apple
Google
Exxon Mobil
Corp
Berkshire
Hathaway Inc
Microsoft Corp
PetroChina Co
Ltd
Wells Fargo & Co
Johnson&
Johnson
Industrial &
Commercial Bank
of China Ltd
Novartis AG
Industry
Rank March
2009
33
22
1
Rank March
2015
1
2
3
Rank +/-
Financials
12
Technology
Oil & Gas
6
2
5
6
1
(4)
Financials
Health Care
55
8
7
8
48
0
Financials
(5)
Health Care
29
10
19
Technology
Technology
Oil & Gas
32
20
(2)
Table 2: The 10 Global Top 100 companies complete ranking by market capitalization
(PwC, 2015)
149
3.2. Financial Times Global 500

Financial Times Global 500 is the second data source that will be used in the analysis. Their
annual ranking provides valuable information about global economic situation. The data
analysed by Financial Times is collected by Thomson ONE Banker, Thomson Reuters
datastream and individual companies (Financial Times, 2015). According to Financial Times,
healthcare equipment and services, technology hardware and equipment and general retailers
are among the best performing sectors in the year to March 31 2015, while oil and gas
producers, oil and gas equipment and services and mining are among the worst performing
(Financial Times, 2015). These results are a confirmation of what was stated before, that leading
industries in 2015 were technology, healthcare and consumer services, all the sectors that are
highly knowledge-intense and innovation driven.
Due to a different methodology used during analysis, the data collected by Financial Times
slightly differs from results gathered by PwC, although the differences are not affecting analysis
of this work, since companies listed among top 10 of Global 500 are the same as in previous
table.
The top 10 ranks for 2015 by Financial Times are as follows (Table 3):
Company
Industry
Rank March
2009
33
1
Rank March
2015
1
2
Rank +/-
Apple
Technology
Exxon Mobil
Technology
Corp
Berkshire
Oil & Gas
12
3
Hathaway Inc
Google
Financials
39
4
Microsoft Corp
Technology
6
5
PetroChina Co
Oil & Gas
2
6
Ltd
Wells Fargo &
Financials
54
7
Co
Johnson &
Health Care
8
8
Johnson
Industrial &
Financials
4
9
Commercial
Bank of China
Ltd
Novartis
Health Care
25
10
Table 3: The top 10 companies of Financial Times Global 500 complete ranking
capitalization (Financial Times, 2015)
32
(1)
9
35
1
(4)
47
0
(5)
15
by market
3.3. Price to book ratio

Price to book ratio (or market to book ratio) is an indicator that calculates the ratio of companys
market value over the book value (expressed on the balance sheet), implying that everything
left in the market value after accounting for the fixed asset must be an intangible asset (Stewart
1997, referenced by Fink, 2012, p. 70.).
150
According to research conducted by Sveiby and Stewart, we care able to assume that:
Intellectual capital = Market value Book value
If a companys intellectual capital is greater than zero, than the market value is greater than the
book value and the price to book ratio will be greater than one (p/b > 1).
Price to book ratio is usually lower for capital-intensive industries that requires more tangible
resources for their production, and much lower that service-based companies that needs less
tangibles in their doing business. It implies how much is an investor willing to pay for a share
over its book value. A ratio over one implies that the market is willing to pay more than the
equity per share, while the ratio under one implies that the market is willing to pay less. It is
also an indicator that reflects the companys potential for creating future profits and companys
growth potential. It is not uncommon for technology firms in our analysis to have very high
price to book ratio, since the analysis of book value is based on accounting rules that do not
measure accurately intangible goods like brand value, customer relation, business networks and
other intangible aspects of intellectual capital.
Using the top 10 companies ranked by PwC and Financial Times analysis, price to book ratio
was calculated for each company. The results comparing a company's current market price to
its book value are as follows (table 4):
Company
Industry
Price to book
ratio 2015
Market value per

share 2015 ($)
Book value per

share 2015 ($)
Market value per

share / Book Value
Per Share
Apple
Technology
4,74
101,42
21,40
Google
Technology
4,29
725,25
169,03
Exxon Mobil
Oil & Gas
1,87
76,57
41,01
Corp
Berkshire
Financials
1,27
191.396,00
151.044,77
Hathaway Inc
Microsoft
Technology
5,39
52,29
9,70
Corp
PetroChina Co Oil & Gas
0,58
59,33
102,60
Ltd
Wells Fargo & Financials
1,45
49,02
33,83
Co
Johnson&
Health Care
3,74
96,75
25,86
Johnson
Industrial &
Financials
0,73
10,11
13,76
Commercial
Bank of China
Ltd
Novartis AG Health Care
2,57
82,24
32,02
Table 4: Price to book ratio calculated by authors using Yahoo financials dataset market
value per share is the current price per share of 22nd of January 2016, book value per share
for last available balance sheet (most recent quarter, as of Sep 30, 2015)
151
In case of the top ten world companies rated by Financial Times and PwC that were analysed,
the price to book ratio for technology companies is relatively highest, thus implying that their
intellectual capital value is very high. With its high growth in market capitalization and high
price to book ratio, it is clearly stated that intellectual-capital intensive companies generate
added value that is recognized among investors and by market in general.
4. WHY IS INTELLECTUAL CAPITAL SO IMPORTANT FOR ECONOMIC
DEVELOPMENT?
Influenced by globalization and technological change, intellectual capital has become the driver
of long-term economic growth. It cannot be observed without also taking into consideration
physical and financial capital, but unlike the traditional product inputs, it shows increasing
marginal productivity. In a world with physical limits, it is discoveries of big ideas (for
example, how to make high-temperature superconductors), together with the discovery of
millions of little ideas (better ways to sew a shirt) that make persistent economic growth
possible. Ideas are the instructions that let us combine limited physical resources in
arrangements that are ever more valuable (Romer, 1998. p. 212). To paraphrase Romer, the
most important among all production resources is intellectual capital, because physical
resources can only be effectively transformed into goods and services by the good idea of a
highly skilled worker or manager. In a modern post-industrial economy of today that is highly
affected by technological progress, the intellectual capital is the driver for economic growth.
For companies that want to be successful nowadays, it is vital to gain competitive advantage by
making innovation a core business strategy, combining employers, customers and companys
partners for a full synergy effect.
4.1. The Global Innovation 1000
According to PwC, there is a clear correlation between innovation and growth. Innovation is
a driver for rapid and profitable revenue growth and is recognised by the executives we
interviewed as being integral to sustaining the long-term future of their business (PwC, 2015).
PwC conducted a global research to analyse a global research and development spending among
companies worldwide. The analysis resulted in a study called The 2015 Global Innovation
1000, which identifies the 1000 public companies around the world that spends the most on
R&D during the last fiscal year.
When analyzing the industries spending on R&D, computing and electronics together with
healthcare and auto-industry are industries that hold the trone of investing in innovation.
Software and Internet industry has the highest growth rate of all the industries (Figure 2).
Figure 2: Corporate R&D spending by industry in US$bn (Strategy& 2015 Global Innovation
1000 analysis, Bloomberg data, Capital IQ data, 2015)
152
Interestingly, among companies listed as ten most successful companies by market

capitalization we analysed in section three, Apple and Google are two most innovative
companies. Furthermore, half of the most successful companies listed among top ten by market
capitalisation are from technology or healthcare sector, as new economy knowledge-driven
companies that are taking the place of representatives of traditional economies.
5. CONCLUSION
In a world filled with smartphones, tablets, phablets, social networks and all the other benefits
of todays technology, a personal computer seems like something from the Stone Age. Going
further in past, it is difficult to imagine how world was functioning without well-known assets
that make life much easier and the communication faster. When one ask himself what is the
main reason for this technological revolution, furthermore, what is the source of all
technological revolutions, one answer appears naturally human innovation and knowledge.
With regard to innovation process, business and human life in general changes fundamentally
constantly evolving in ways it is hard to imagine. Nowadays as economy evolved from
traditional to knowledge-based, companys long-term economic development is strongly
related to technological progress, ICT development and intellectual capital.
A successfull company should never stop innovating, and it would be wrong to assume that
innovation is limited to a small number of companies. It depends on the engaging all the three
different aspects of intellectual capital, with regard to innovation and creativity as being the
most important. Those companies will be more shock-absorbent which is a valuable
characteristic in this turbulent environment. The findings of this research imply there is a strong
relationship between intellectual capital and firms market value. Companies that find the right
way to engage their intellectual capital resources can affect their performance in order to
maximize value creation and obtain a lon-term growth.
LITERATURE:
1. Chen, M., Cheng, S and Hwang, Y. (2005). An empirical investigation of the relationship
between intellectual capital and firms market value and financial performance, Journal of
Intellectual Capital 6(2), 159176.
2. Fink, K. (2004). Knowledge potential measurement and uncertainty (pp. 125-200).
Deutscher Universittsverlag.
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http://www.ft.com/intl/cms/s/2/1fda5794-169f-11e5-b07f00144feabdc0.html#axzz3y5JV76JZ
4. Jaruzelski B., Schwartz, K. and Staack, V. (2015) The 2015 Global Innovation 1000:
Innovations new world order Study report. Retrieved 06.01.2016 from
http://www.strategyand.pwc.com/reports/2015-global-innovation-1000-media-report
5. Kolakovi, M. (2003). Teorija intelektualnog kapitala. Ekonomski pregled. 54(11-12),
925-944.
6. Lev, B. (2000). Intangibles: Management, measurement, and reporting. Brookings
Institution Press.
7. PwC Global Top 100. (2015). Retrieved 06.01.2016 from
https://www.pwc.com/gx/en/audit-services/capitalmarket/publications/assets/document/pwc-global-top-100-march-update.pdf
8. Romer, P. M. (1986). Increasing Returns and Long-Run Growth. The Journal of Political
Economy, 94(5), 10021037.
153
9. Romer, P. M. (1998). Two strategies for economic development: using ideas and producing
ideas. The strategic management of intellectual capital, 211-238.
10. Sunda, D., vast, N. (2009). Intelektualni kapital: temeljni imbenik konkurentnosti
poduzea, Zagreb: Ministarstvo gospodarstva, rada i poduzetnitva
11. Sveiby, K. E. (1997). The new organizational wealth: Managing & measuring knowledgebased assets. Berrett-Koehler Publishers.
12. Sveiby, K.E. (2001 2010). Measuring Models for Intangible Assets and Intellectual
Capital: an overview of 34 methods with links. Retrieved 31.12.2015 from
http://www.sveiby.com/articles/IntangibleMethods.htm
13. Yahoo! Finance data. Retrieved 22.01.2016 from http://finance.yahoo.com
154
CHALLENGE FUNDS AND INCLUSIVE BUSINESSES KEY TO

SOCIO-ECONOMIC DEVELOPMENT?
Boleslaw Stawicki
Africa Enterprise Challenge Fund, c/o Alliance for a Green Revolution in Africa (AGRA),
West End Towers (Wing A), 4th Floor, Kanjata Road, off Muthangari Drive, Off Waiyaki
Way, P.O. Box 66773, Westlands 00800, Nairobi, Kenya
[email protected]
ABSTRACT
This paper will introduce the concept of the challenge fund mechanism, and its role, from both
a private sector development (PSD) perspective as well as from the sustainable social impact
angle. The paper is informed by practical experience and reflections from the point of view of
a manager who manages one of the worlds largest challenge funds with a capitalisation of
USD 250m and 200+ investments across 23 different markets.
A challenge fund, which by nature, is a risk taking and risk-sharing PSD mechanism is used to
support innovative, for-profit business ventures, which, by the virtue of being innovative, and
therefore, more risky than other business ventures have restricted access to capital.
A challenge fund, in a developing or frontier market context, will invest in innovative for-profit
companies that exhibit strong intentionality on social impact, i.e. they will implement the
inclusive business model concept. Essentially, inclusive businesses engage low income
communities in a formal way either as suppliers of raw material, such as cocoa seeds, which
the company then processes, or they engage low income communities as customers who buy
and consume products and services which cater to them specifically.
In this way, an inclusive business makes a profit and at the same time increases the income of
low income communities. In this arrangement social impact remains sustainable because the
business sees that it can make a profit by collaborating with low income communities.
A challenge fund, by financing innovative and risky SMEs doesnt only support PSD and social
impact, it also creates a tested and proven deal flow of companies for more commercial
investors such as private equity funds or development finance institutions such as the
International Finance Corporation. Therefore, the challenge fund mechanism serves a critical
function in sustainable business and social development.
Keywords: Agribusiness, challenge fund, climate change, inclusive business, inclusive
finance, private sector development, social impact, sustainable development
1. INTRODUCTION
1.1. What is an enterprise challenge fund?
An enterprise challenge fund is a relatively novel mechanism in the development sector which
is used, and funded by, the public sector to achieve sustainable social and economic impact.
The first enterprise challenge funds initially emerged in the late 1990s and were funded by
European development organisations such as DFID and SIDA as well as Australian DFAT
(Brain, Gulrajani, Mitchell, 2014, p. 3). In the following years, as the enterprise challenge fund
mechanism was proving successful more and more development agencies and foundations
started contributing to challenge funds, most notably the Dutch government, DANIDA or the
MasterCard Foundation. While the challenge fund mechanism as such does not necessarily have
to be directly supporting the private sector, it may specifically target gender equity or education,
very many of the challenge funds are enterprise challenge funds which support the development
of the innovative private sector, which in turns achieves inclusive social and economic
155
development. One of the worlds largest enterprise challenge funds is the Africa Enterprise
Challenge Fund (AECF) which has raised in excess of USD 250 m since its inception in 2008.
1.2. How does it work?
An enterprise challenge fund provides concessional financing to innovative businesses across
emerging and frontier markets where access to finance is prohibitively expensive or, quite
simply, very difficult to access. Typically, this concessional funding is provided either as grants
or soft loans with minimal interest, if any, and a long grace period. While providing
concessional funding an enterprise challenge needs to realise that one of its responsibilities is
to stimulate and encourage business mind-set which means that the companies shouldnt fall
into the trap of believing that theres such a thing as cheap capital therefore additional
conditions are normally put in place such as a matching requirement, which means that the
company will need to match awarded funding at a special ratio. Normally companies will
compete with one another to obtain funding by submitting concept notes outlining the inclusive
nature of their business model, and a detailed business plan with financial models and projected
cash flows. The Swedish SIDA, which is one of the worlds largest development agencies funds
several enterprise challenge funds with the aim to support innovations in ICT, renewable energy
or agribusiness (SIDA, 2012, updated 2015). Companies which are deemed to bring about the
highest social impact will be awarded funding. It is very important to note that an enterprise
challenge fund, like the AECF, will only award funding to for-profit business ventures which,
apart from being profit-oriented, also implement the inclusive business model concept which
benefits the poor. The supposition is that if businesses can make a profit by engaging poor
people, either as suppliers or as consumers, and thereby create financial benefit for these
communities, then the socio-economic impact will be sustainable. This impact will be further
strengthened when other companies, realising the potential profit of working with low income
communities, start crowding in.
1.3. What is it supposed to achieve?
An enterprise challenge fund has two overarching objectives: to support private sector
development (PSD) and, through these investments in the innovative private sector, bring about
inclusive social and economic development. These two objectives, or elements, are typically
measured by establishing how the enterprises are doing from a business and financial
perspective, and, how many poor people are benefiting by working with these businesses and
by how much. These two elements, however, comprise a number of components that are very
significant as they contribute to the overall success of achieving private sector development and
inclusive social and economic development. One of these components is innovation. An
enterprise challenge fund, in fact, very often is an innovation fund which funds innovation, i.e.
something new, and as such, something that is perceived as risky and therefore unbankable. In
order to meet Sustainable Development Goals and bring about rapid change, at scale, there
needs to be innovation (Harvard Kennedy School). A disruptive innovation is something that
changes the way an industry or a market operates. One of those disruptive innovations is the
Kenyan M-Kopa which introduced mobile money transfers. Over a very short period of time
millions of Kenyans suddenly gained access to financial services which they were previously
excluded from as most Kenyans didnt qualify to open a bank account. This has since been
156
replicated around the world with great success. Since enterprise challenge funds are supposed
to change the way a market system works they will likely fund two or three or more businesses
in the same sector, rather than funding only one business which would be deemed to have the
highest potential. By funding several similar businesses it is more likely to bring about a
systemic change that will change an entire market system.
Closely linked to innovation, in the case of AECF, is the funds intentionality on addressing
issues related to climate change such adaptation to climate change and renewable energy.
Innovation can be used successfully to strengthen resilience of rural communities to climate
change by for example supporting companies that introduce improved seed varieties. Reducing
the deforestation process as well as addressing health risks can achieved through the support of
companies that distribute solar cook stoves.
As an enterprise challenge fund provides cheap capital it needs to ensure that businesses do not
become excessively reliant on donor money. There needs to be a mechanism in place whereby
the businesses are stimulated to, at a point in time when their innovation is proven successful,
and are in need of more expansion capital, be able to access commercial funding from banks or
private equity funds. This is key in ensuring that projects dont collapse as soon as donor money
has been utilised.
1.4. Inclusive business
A central element of an enterprise challenge funds underpinning philosophy, and indeed of
much of modern-day development, is the notion of inclusive business. Inclusive business is a
for profit enterprise which engages the so called base of the pyramid (four billion people who
live on less than USD 2.5/ day) (Simanis, Hart, 2008, p.1) in a way which is beneficial to both
parties. An inclusive business makes market systems work for the poor. The central idea is that
the poor are dependent on market systems for their livelihoods. Therefore changing those
market systems to work more effectively and sustainably for the poor will improve their
livelihoods and consequently reduce poverty (DCED). By integrating low income individuals
into the formal economy inclusive businesses make them visible for the market, for other
companies that gradually will start serving these communities while making a profit. In essence,
inclusive business models try to find synergies between development goals and the companys
core business operations (WBCSD).
1.5. An enterprise challenge funds role in the development value chain
When one looks at a business development value chain the AECF emerges as a tremendously
important element of it. The AECF, or any other enterprise challenge fund, doesnt compete
with commercial sources of funding such as banks or investors. A study conducted and
presented by Gompers and Lerner in their article (Gompers, Lerner, 2002) asserts that nearly
90% of new businesses fail within three years without venture capital support. The AECF,
specifically fills the gap where commercial investors, such as venture capitalists, perceive the
business venture too risky, be it because of its innovativeness, a companys lack of adequately
long track record or because of systemic risks that are too high. In fact, the AECF will not award
funding to a company whenever it is deemed to be able to access commercial funding.
Therefore, an enterprise challenge fund doesnt distort the market. On the contrary, the AECF
and other similar funds alike, in fact, are a feeder fund to commercial investors. By providing
157
expansion capital to innovative businesses, at an early business growth stage, the fund is
testing the innovation and once it becomes successful and requires further expansion capital
that business becomes very attractive for commercial investors. In other words, the AECF takes
a company through a growth phase where the innovation is either approved or rejected by the
market. Successful graduates represent a high quality pipeline for commercial investors.
2. INCLUSIVE BUSINESS MODELS IN PRACTICE
The AECF has invested in nearly 200 innovative businesses across 23 different markets which
all implement the inclusive business model. It means, as was mentioned above, that the
businesses need to engage smallholder farmers either as suppliers of produce, or as consumers
of products or services that are designed to cater specifically to their needs. By formally
becoming suppliers to a business smallholder farmers are entering the formal sector of the
economy which very beneficial as they gain easier access to inputs, finance or markets. The
two businesses, M-Kopa and Bioalnds, in which AECF has invested nearly USD 2m which are
presented below illustrate how inclusive businesses work in practice.
2.1. M-Kopa
AECF funding was used by M-Kopa to develop and sell affordable solar powered household
systems that can charge mobile phones, power light bulbs and radios (M-Kopa). The technology
is leased to users for a period of one year, during which time the user should be making regular
payments on a daily basis. After the one year period the user becomes the owner of the system
and continue using it free of charge. It is an affordable way to substitute kerosene in rural areas
which lack access to the energy grid. M-Kopa uses the GSM network and mobile money
transfers to collect payments from its users on a daily basis to pay. The company which was
established only a few years ago in Kenya is growing exponentially with 280 000 households
(M-Kopa) connected as of late 2015 and has since its establishment expanded to Tanzania and
Uganda. The company is constantly developing new products and devices that can be added
and connected to the system such as TVs and, possibly in the near future, also fridges or hair
clippers. These add-ons are offered to loyal and predictable customers who make regular
payments for the usage of the system during the first year.
This technology is transformative. Smallholder farmers, who are now able to charge their
phones, can access vital mobile-based information about prices of inputs and outputs or the
availability of inputs such as fertilisers or seeds. This is directly consequential to their income
as they can now better plan their production and sales. The potential introduction of fridges to
the system means that not only waste can be greatly reduced at household level, it also means
that micro enterprises in the local market places can emerge which will be able to store food
products for a longer period of time. Furthermore, once the user has acquired the system after
a year of making payments they will start making very concrete savings by not having to
purchase kerosene anymore. It is estimated that each household will make a saving of nearly
USD 200 annually (M-Kopa).
It should be noted that M-Kopa isnt just a renewable energy company which brings savings to
smallholder farmers or supports the establishment of micro enterprises. It is much more than
that. More importantly, M-Kopa, in effect, is a remarkably successful financial inclusion and
financial services company which brings hundreds of thousands of individuals in rural areas
158
into the formal economy by creating both a market for them and a financing mechanism for
them to access that market. By creating a financing mechanism which relies on mobile
payments the company is able to acquire clients who have always been neglected by the
financial sector. By monitoring the reliability of clients M-Kopa can make reasonably accurate
predictions as to whether a certain client is trustworthy enough for M-Kopa to offer them an
additional device for which they will be making regular payments over a certain period of time.
M-Kopa has effectively broken down the barrier of financial exclusion and transforms
thousands of livelihoods. Since AECFs investment in M-Kopa the company has been very
successful in attracting commercial financing.
2.2. Biolands
Biolands, since 2014 owned by Barry Callebaut, one of the worlds largest producers and
processors of cocoa beans, has received nearly USD 1m in funding from AECF since 2009.
The funding that the company was awarded by AECF was used to expand Biolands operations
in Sierra Leone and engage, over the course of a few years, nearly 40 000 farmers as suppliers
of high quality cocoa beans (AECF). Biolands main objective with expanding their operations
into Sierra Leone was to create a sustainable and consistent supply of high quality organic cocoa
beans which the company would process and sell on international markets. In order to achieve
that end Biolands decided to set up an out-grower scheme where they would contract large
numbers of smallholder farmers which would become suppliers of cocoa beans. Outgrower
schemes, also known as contract farming, are broadly defined as binding arrangements through
which a firm ensures its supply of agricultural products by individual or groups of farmers. In
other words, ad hoc trade agreements are being replaced by co-ordinated commercial relations
(Felgenhauer, Wolter). As is often the case in a developing economy an off taker (i.e. a company
that purchases produce from suppliers) frequently needs to assume the role of an input supplier
as well to ensure consistency, both when it comes to the quality of the produce as well as the
quantity and on time delivery. In this particular case Biolands had to supply farmers with quality
organic seeds, training, fertilizers as well as Fair Trade certification which was helpful in
Biolands becoming a supplier to Barry Callebaut. The companys effort led to the successful
establishment of a large out-grower scheme with farmers benefiting from the companys
business model. By 2011 the average income for the farmer had increased from approximately
Leones 1 600/ lb to Leones 4 000/ lb that Biolands is paying for the improved cocoa beans
(DFID, 2011, p.3). Also, in some cases the average yield has increased from 20 bags to 60 bags/
acre (AECF). Effectively, Biolands made a market system work for smallholder farmers in
Sierra Leone by connecting them to the global market of cocoa beans, and by doing so,
increased their incomes in a sustainable way. This is an example of an inclusive business which
truly managed to transform the livelihoods of tens of thousands of people in rural Africa.
3. DISCUSSION - THE NEXT GENERATION OF ENTERPRISE CHALLENGE
FUNDS
Over the past fifteen years or so the challenge fund mechanism has undergone some evolution,
and, the lessons learnt and accumulated experience of supporting private sector development at
the same time as maintaining focus on social impact bring us to the following reflection what
should the next generation of challenge fund look like, what issues should it address? Some of
159
these issues, as raised by Adam Brain et al. in the EPS Peaks publication (Brain, Gulrajani,
Mitchell, 2014), include the breadth versus depth discussion, however, there are a few more
angles that should be looked at, such as ensuring the development of a strong business mindset in the funding company as well as ensuring that the business remains intent on benefiting
the poor. Below follows a discussion which touches on these issues which are central to the
next generation of the challenge fund mechanism.
3.1. Lessons learnt by the AECF
There are two angles to the raison detre of an enterprise challenge fund: the private sector
development angle and the socio-economic impact. With regard to the private sector
development angle it is key to ensure that a challenge fund by de-risking an innovative
business model at a stage when the business launches or commercialises a newly developed
product or service, also referred to as the Valley of Death (Osawa, Miyazaki, 2006, p.91-116)
does not develop a mentality of over reliance on cheap capital or aid money. The de-risking of
the valley of death stage is represented on the graph below which is an adapted version of the
graph presented by Osawa and Miyazaki in their article.
Profit
/ Loss
Profitability
Produc
Product
Commercialisatio
Research Development t
development Launch n
Produc
t
Success
Time
Valley of
death
De-risking by
a challenge
fund
Figure 1: Adaptation of Osawa and Miyazaki, 2006

The challenge fund needs to ensure that there are mechanisms in place that will develop a strong
entrepreneurial mind-set in the funded company, which will lead to the company being able to
operate in a competitive business environment. This is key as the entire rationale of using the
private sector to create sustainable socio-economic impact is that these companies, sooner
rather than later, will be able to make a profit and access commercial sources of funding for
further expansion. This can be achieved by being categorical about the company having skin in
the game that they also invest their own financial resources to match the risk taken on by the
challenge fund. An additional, but equally important way on ensuring increased professionalism
160
of the funded company is to enforce various compliance requirements related to financial

management, HR policies or business development strategies. All of these will make a company
more agile, more competitive, and in consequence more attractive for commercial investors.
The socio-economic impact is clearly a very important feature of any challenge fund, and what
the fund needs to ensure is that the business, over the course of time, does not deviate from the
intentionality of working with, and benefiting, low income communities. Ultimately, this is a
question about how rigorously the business model has been tested prior to the challenge fund
investment taking place. As inclusive business is a relatively novel concept some companies
may struggle with fully understanding what it entails. Some companies, over time, may mutate
their inclusive business model into a corporate social responsibility project which doesnt bring
the company any profits. Other companies still, for a variety of reasons, may tweak their product
or service in such a way that it no longer serves the low income community but instead targets
a better off market segment. Again, this would defeat the purpose an enterprise challenge fund.
It is therefore of utmost importance for the company to have rigorously tested their model and
ensure that the company will make a profit while serving low income communities. Related to
socio-economic impact is the question of whether to support companies that have a relatively
small financial impact on large numbers of poor people or, rather, to support companies that
will have a truly transformative impact on relatively small numbers of individuals? Possibly the
answer lies in technology and innovation. Challenge funds should direct their support to
companies that will not only benefit large numbers of people, albeit by relatively small amounts
of money, but that will also attract other complimentary businesses into a similar space. The
previously mentioned M-Kopa serves as a good example. The solar energy that their devices
introduce to rural areas can trigger a significant multiplier effect with many micro enterprises
emerging as a consequence of energy being accessible. It is worth noting that this
transformative change was, in fact, brought about by two elements or factors or components
renewable energy and financial inclusion.
4. CONCLUSION
The enterprise challenge fund mechanism, over a course of only fifteen years, assumed a central
role in the private sector development and socio-economic impact alike. This time was also an
opportunity for practitioners to reflect on how this mechanism works and how it should be
adjusted to serve its purpose even better in the future. It appears that with massive challenges
ahead, such as considerable population growth, the enterprise challenge fund mechanism will
be even more relevant in combating poverty through the support of innovative private sector.
The main areas that need to be further emphasised by enterprise challenge funds are suitability
and business viability of a business model, likelihood of other business crowding in to create a
multiplier effect, and ultimately, the support of a smooth transition of a business initially relying
on concession funding to one which can successfully attract commercial investors. When it
comes to specific fields or sectors where enterprise challenge funds should focus their efforts
financial services for the poor is certainly one of the main ones, alongside innovations within
resilience to climate change, renewable energy and agriculture. It is key that mobile technology
will play a key role in this process. To achieve this, support mechanisms will be needed,
especially technical assistance, both prior to the investment as well as once the investment has
taken place.
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LITERATURE:
1. About Inclusive Business. Retrieved 17.01.2016 from http://www.inclusivebusiness.org/inclusive-business.html
2. Biolands International Limited. Retrieved 21.01.2016 from
http://www.aecfafrica.org/windows/general-window/projects/biolands-international-limited
3. Brain A., Gulrajani N., Mitchell J. (2014). Meeting the challenge: How can enterprise
challenge funds be made to work better. Retrieved 14.01.2016 from
http://www.globaleconomicgovernance.org/sites/geg/files/How%20can%20enterprise%20cha
llenge%20funds%20be%20made%20to%20work%20better.pdf
4. Challenge Funds. (2012, updated 2015). Retrieved 14.01.2016 from
http://www.sida.se/English/partners/resources-for-all-partners/Challenge-Funds/
5. DFID. (2011). Bio United LTD. Retrieved 21.01.2016 from
http://r4d.dfid.gov.uk/PDF/Outputs/AECS/Bio-United-case-study-Final.pdf
6. Felgenhauer K., Wolter D. Outgrower Schemes Why Big Multinationals Link up with
African Smallholders. Retrieved 21.01.2016 from http://www.oecd.org/dev/41302136.pdf
7. Gompers P., Lerner J. (2002). The Money of Invention: How Venture Capital Creates New
Wealth. Ubiquity, 2002 (1530-2180). Retrieved 20.01.2016 from
http://ubiquity.acm.org/article.cfm?id=763904
8. Innovation for Sustainable Development. Retrieved 16.01.2016 from
http://www.hks.harvard.edu/centers/mrcbg/programs/sustsci/activities/programinitiatives/innovation
9. Making Markets Work for the Poor. Retrieved 17.01.2016 from http://www.enterprisedevelopment.org/page/m4p
10. M-KOPA IV Solar Home System. Retrieved 21.01.2016 from http://www.mkopa.com/products/
11. Osawa Y., Miyazaki K. (2006). An empirical analysis of the valley of death: Largescale
R&D project performance in a Japanese diversified company. Asian Journal of Technology
Innovation, 2006 (1976-1597), pages 91-116.
12. Our Impact. Retrieved 21.01.2016 from http://solar.m-kopa.com/about/our-impact/
Simanis E., Hart S. (2008). The Base of the Pyramid Protocol: Toward Next Generation BoP
Strategy. Retrieved 17.01.2016 from
https://www.johnson.cornell.edu/portals/32/sge/docs/BoP_Protocol_2nd_ed.pdf
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DO LARGE RETAILERS DISPLACE SMALL INFORMAL

RETAILERS? THE CASE OF A PICK N PAY STORE IN KWAMASHU,
DURBAN, SOUTH AFRICA
Thabani T Madlala
Trade & Industrial Policy Strategies (TIPS),
Pretoria, South Africa
[email protected]
ABSTRACT
South Africa is characterised by high unemployment and a relatively small informal sector.
This paper generates better insight into the economic relationship between formal and informal
sectors of the South African economy. It investigates whether or not the development of large
retailers displaces small informal retailers. The study focuses on current and former owners
of informal grocery shops spaza shops in a township of KwaMashu, Durban. The analysis
revealed that the impact of a large retailer is highly localised, with the greatest impact being
on shops adjacent to the mall. Within this radius, most informal shops experience lower
consumer volumes and are forced to adjust marketing strategies. These shops typically respond
to supermarket entry by diversifying commodities.
Keywords: South Africa; informal sector; grocery shops; large retailers; agglomeration
economies
1. INTRODUCTION
The persistence of high level of unemployment is widely recognised among one of the major
socio-economic challenges for South Africa. The Quarterly Labour Force Survey (QLFS)
results for the third quarter of 2015 show that 25.5% of the labour force is unemployed
(Statistics South Africa, 2015). While this high unemployment rate has numerous roots such as
lack of demand for labour by possible employers, poor education system and lack of
productivity (National Treasury Department, 2011; Department of Labour, 2013), the weakness
of the South African informal sector plays a key role in explaining this trend. The informal
sector is indeed an important component in expanding economic participation. However, little
attention has been paid to its role in fostering growth and creating employment. It is a neglected
component of the economy and has not been recognised in the formal system of law. In an
address to the National Council of Provinces in 2003, the former South African President Thabo
Mbeki made the following statement:
The second economy (or the marginalised economy) is characterised by underdevelopment,
contributes little to GDP [gross domestic product], contains a big percentage of our population,
incorporates the poorest of our rural and urban poor, is structurally disconnected from both the
first and the global economy and is incapable of self-generated growth and development
(Valodia & Devey, 2010, p. 134).
Furthermore, the country has a relatively small informal sector employment compared to other
developing countries, particularly Sub-Saharan African countries (Kingdon & Knight, 2004;
Valodia & Heintz, 2012; International Labour Organisation, 2013). Among the reasons for this
is a growing competitive formal sector. This paper contributes to the understanding of the
competitive behaviour of informal sector enterprises in a growing economy. In South Africa,
the formal sector dominates the informal sector. The QLFS results for the third quarter of 2015
show that the formal sector accounted for over 10,500 of employees, while the informal sector
accounted for over 2500 (Statistics South Africa, 2015). The critical issue to be examined is
whether the expansion of formal sector stimulates or displaces the informal sector. In this
163
situation, the paper focuses on the character of competition between large retailers and their
smaller counterparts, informal grocery shops. The questions raised include: Are there any links
between large retailers and small grocery shops? If so, how are these two sectors linked? Do
shop owners lose markets for their goods as a result of the entry of large retailers? If so, what
are the dominant reasons for these changes? And how do small grocery shops respond to the
entry of large retailers? The paper specifically focuses on the behaviour of informal shops in
the KwaMashu area, in Durban, South Africa. It sheds light on whether and how informal shops
adapt to competitive conditions. Given the limited prior research, the paper does not intend to
present a definitive position, but highlights interesting findings from primary research.
The paper proceeds as follows. Section two gives a brief literature review on large-scale retail
development in South Africa and theoretical framework. Section three provides the
methodological framework. Section four presents the findings from the study area and gives an
analysis and interpretation. The final section concludes with recommendations and summarises
the main findings.
2. REVIEW OF EXTANT LITERATURE
Large retail development in emerging markets in South Africa
Commercial development has transformed the geographic structure of retailing. Since
democracy, the South African retail grocery industry has seen the construction of a new
retailscape. Large retailers which tended to locate in more suburban settings have also moved
to second economy areas, i.e. township and rural areas. The South African Cities Network
(2010) indicates that over 160 retail centres had been developed in second economy areas by
2009. This growth is expected to continue. Most often the anchor tenants in these shopping
centres are national grocery chains which offer goods that are the same or similar to that offered
by informal retailers. Several studies explore factors that influence large-scale retail
development. It is argued that commercial development in second economy areas is driven by
the economic upliftment of inhabitants moving from a lower- to middle-income class. For
instance, Tagg, Tustin and Strydom (as cited in Ligthelm, 2008) indicate that the Black South
African middle class increased from 2.8% to 10.5% between 1998 and 2008. The consequent
increase in consumer spending has caused large retailers to increasingly focus on market
expansion strategies in emerging markets, forming inbound shopping.
Other studies point out that formal industry competiveness may drive large retailers to seek new
markets. It is recognised that retailing is one of the toughest and most competitive sectors.
According to Terblanche (as cited in Mathenjwa, 2007, p. 11), retail business environment is
becoming increasingly hostile and unforgiving, with intense competition from domestic and
foreign competitions. As a result, large retailers have started to target non-urban settings. One
should take note that the development of industrial clusters is one of the focus areas in the
municipal documentation. For instance, the eThekwini Municipality (as cited in Department of
Provincial and Local Government & Business Trust, n.d.) indicates that the development of
formal nodes and corridors attempts to bring economic opportunities closer to local
communities and provides the establishment and opportunities for informal retailers to conduct
businesses.
Linkages between formal and informal economic activities
In contrast to Mbekis pronouncements (quoted above), it has been theorised in the literature
that informal sector firms are linked to formal sector firms. This is explained via theories such
as structuralism. The structuralist perspective argues that the informal sector is a conduit used
by formal sector firms to produce and distribute goods and services, and is an inherent part and
164
by-product of a new emergent mode of production (Bose, 1974; Moser, 1978; Weeks as cited
in Moser, 1978; Castells & Portes, 1989; Skinner, 2005; Chen, 2007; Valodia & Devey, 2012).
Additionally, structuralism argues that the nature of the relationship between these sectors can
be a benign or exploitative one. Considering the nature of the production system through which
they are linked is vital to understand the linkages between these sectors. Some scholars have
shown that the nature of the linkage varies according to the nature of the production system.
Chen (as cited in Meagher, 2013, p. 6), for instance, explains that there are three broad structures
to mapping formal-informal sector linkages in the economy:
Open markets involving direct exchange linkages between formal and informal
firms; subsectors which focus attention on supply, labour and production linkages
across formal-informal boundaries; and global value chains, which examine
linkages between lead firms and subcontractors extending across national borders.
3. RESEARCH METHODOLOGY
In order to understand the impact of large retailers in emerging markets, a sample of informal
grocery shops located in KwaMashu, Durban, was interviewed. The study area is within the
boundary of the eThekwini Municipality, which the municipality manages through a single
administrative unit known as INK (Inanda, Ntuzuma and KwaMashu) Nodal Economic
Development Project (Department of Provincial and Local Government & Business Trust, n.d.).
The Nyala Centre was opened in May 2013 and houses a national chain store Pick n Pay.
In 2014, a year after the opening of the store, interviews and surveys were conducted with
current and former shop owners. Prior to the fieldwork, individual meetings were held with
some of the local participants to introduce the research and acquire their participation.
Purposive and snowball sampling procedures based on locality size were adopted. This
fieldwork was undertaken with the local participants in two phases. The first phase occurred
between March and April 2014. The aim during this phase was to produce rich and detailed
information regarding the market in the area. The second phase took place in July 2014, two
months after the first phase. During this period the purpose was to observe changes in the market
that had occurred after the first phase of the research. The sampling allowed for the selection of
respondent businesses in concentric circles around the shopping centre with the application of
geographic information system (GIS). Figure 1 confirms distance categories that were selected.
The various residential blocks included in each of these distances were selected using the
distance measure on a map created by the eThekwini Municipality Corporate GIS (2014). This
approach allows a measurement of the impact of the store development on informal shops by
distance from the centre. A total of 24 active and five inactive shop owners were interviewed
across the distance categories.
165
Figure 1. Sampling plan, KwaMashu, Durban (illustration by the author, data obtained from
the eThekwini Municipality, 2014).
Strengths and weaknesses of the study
This study provides some interesting insights of informal retail employment in a growing South
African economy. It is important, however, to note some of the limitations of the study. The
study findings cannot be generalised to the entire business market because of the relatively
small sample size. Furthermore, the study was carried out among informal grocery shops, which
excludes other types of businesses in the informal sector. It would be advisable to conduct a
similar study in an alternative area that may portray a somewhat different socio-economic
structure. Also, such a study should preferably include other business sectors in addition to the
retail sector addressed in this paper.
4. STUDY FINDINGS
Participants in the study were asked several questions on the impact of the Pick n Pay store on
surrounding shops. These questions ranged from perceived small business mortalities to more
exact questions on the decrease or increase in consumer volumes, stock movement, profitability
and product range of existing individual shops.
166
The impact of large retail development in emerging markets

Descriptive statistics confirm a generally negative impact of the store on the surrounding
informal shops. Table 1 below shows that the larger segment in close proximity to the centre
indicated a dramatic decline in consumer volumes, stock movement and profitability since the
opening of the store. Table 2, on the other side, shows that the larger segment far from the
centre experienced only a slight decline. However, it is not known how these businesses
performed prior to the entry of the store. Their performance might have been poor then too,
which means that one cannot be definitive in the findings. The results of the study suggest that
although there have been changes in the small business market, the negative effect of large
retailers is more severe in the case of businesses in close proximity to the retail node.
Source: Field Survey (2014)
Table 1. Perceived impact on business performance after the development of Pick n Pay
(within 600 m) March to April 2014
Stock size
Profits
Customers
Number of
Number of
Number of
shops/
shops/
shops/
Shopkeepers
% shopkeepers
% shopkeepers
%
Increased
in large
0
0
0
0
0
0
amount
Increased
in small
0
0
0
0
0
0
amount
10 1
10 1
10
The same 1
Decreased
in small
2
20 2
20 2
20
amount
Decreased
in large
7
70 7
70 7
70
amount
Total
10
100 10
100 10
100
167
Table 2. Perceived impact on business performance after the development of Pick n Pay
(above 600 m) March to April 2014
Stock size
Profits
Customers
Number of
Number of
Number of
shops/
shops/
shops/
shopkeepers
%
shopkeepers %
shopkeepers
%
Increased
in large
0
0
0
0
0
0
amount
Increased
in small
0
0
0
0
0
0
amount
21.43 3
21.43 3
21.43
The same 3
Decreased
in small
8
57.14 8
57.14 8
57.14
amount
Decreased
in large
3
21.43 3
21.43 3
21.43
amount
Total
14
100
14
100
14
100
Having lost market sales of products in their businesses, participants were asked to determine
which type of products were most affected. Most shop owners indicated that they had lost sales
in bread. Table 3 shows the differences in price of commodities in the informal shop sector and
the chain store. The evidence confirms that there exists a competitive product market between
informal shops and large retailers. One of the participants, particularly close to the store, stated
that Sales of loaves of bread declined significantly and most end up expiring as very few
customers purchase from me, resulting in financial loss. As a result, I no longer order many
cases [trays] of bread from a wholesale bakery. Sometimes I buy few loaves of bread at Pick n
Pay. As shown in the table, the price of a white loaf of bread, for instance, from Pick n Pay
was R5.99 compared to R10 from informal shops; a price difference of R4.01. This finding
indicates that the impact of the store on some shops has resulted in significant losses of sales of
perishable foods and has led to some businesses limiting or severing linkages with their
suppliers. Other participants indicated that they have lost market sales of refrigerated products.
For instance, one reported I do not stock fresh-milk anymore. Instead, I stock long-life milk
as it requires no refrigeration. The participants further indicated that the dominant reasons for
the changes resulted from a duplication of products in the area, price differences, increased
levels of competition and decreased consumer volumes.
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Table 3. Price comparison between informal grocery shops and a Pick n Pay store in
KwaMashu March to April 2014
Food product
Item
1. Rice
2. Rice
3. Maize
meal
4. Maize
meal
5. Fresh
milk
6. Fresh
milk
7. Halfdozen
eggs
8. Halfwhite loaf
9. Full
white loaf
10. Halfbrown
loaf
11. Full
brown
loaf
12. White
sugar
13. White
sugar
14. Softdrink
15. Softdrink
Spaza shops
(average)
Pick n Pay
Weight/Mass
500g
1kg
1kg
Brand
Aunt Caroline
Aunt Caroline
Ace
Price
R8
R12
R8.50
Price
N/A or DNS
N/A or DNS
R6.79
Other large
retailers
(Shoprite)
Price
N/A or DNS
R10.79
R6.99
5kg
Ace
DNS
R28.99
R31.99
500ml
Clover
R6
R8.29
R7.99
1l
Clover
R12
R11.99
R11.99
No brand
R9
R8.99
R9.99
BB Bakeries
R5
DNS
DNS
700g
BB Bakeries
R10
R5.99
R9.19
BB Bakeries
R4.50
DNS
DNS
700g
BB Bakeries
R9.50
R5.49
R7.99
250g
Huletts
R4
N/A or DNS
N/A or DNS
500g
Huletts
R7
R6.49
R6.99
330ml
Coca-Cola coke
R7
R7.49
R6.99
2l
Coca-Cola coke
R17
R13.99
R14.89

Notes
N/A
DNS
g
l
kg
ml
not available at the time of data collection

does not stock
gram
litre
kilogram
millilitre
169
Although there is a competitive market between informal shops and large retailers, the majority
of the participants reported no change in the number of shops in their immediate vicinity.
However, those who reported a decline stated that two to three shops had been shut down
since the opening of the store. Out of the five former shop owners interviewed, it was
established that three shut down their businesses before the opening of the store. Their reasons
were lack of business planning, employee-theft, and finding new employment. This indicates
that the opening of the store had no direct or indirect role in the closure of these businesses.
However, one of the participants went out of business due to loss of customers after the store
opened. During the second phase of the field research, some changes were observed in the shop
sector. One of the most important findings was the discovery of new shops surrounding the
centre. The finding indicates that new entrants locate in a favourable position to large retailers
to take advantage of passing traffic. These results reflect the importance of nodal integration.
Another discovery was that prices of commodities were almost the same between these sectors.
For instance, a loaf of bread (white) had increased to R10.40 from Pick n Pay compared to R11
from informal shops. It was also observed that none of the shops documented in the first phase
had shut down.
Linkages between large retailers and small grocery shops
Although most of the participants indicated that the opening of the store had no benefit for their
businesses, some indicated slight benefits. Reasons given by these participants who indicated
positive effects included:
When people [consumers] find that Pick n Pay is closed [after trading-hours], they tend
to buy small products from me; I used to source goods such as loaves of bread from
large wholesalers but now I purchase them at Pick n Pay because they are cheaper; and
Pick n Pay benefits my business as I do not have to hire a vehicle to get some goods at
wholesalers. Instead, I purchase some products at Pick n Pay as it is closer to my shop.
The findings suggest that a large retailer can draw in consumers from surrounding communities
and that small businesses may benefit from the exposure and to foot traffic. This shows that
there is some recognition of the positives that can be gained by being around large retailers
which are already drawing the desired customers as well as save time and costs.
Competitive response from informal shops to large retailers
Participants were also asked if they had included new products or services in their business
since the opening of the store. Very few indicated that they had done so. Given that there are
few incentives to improve business performance; one can conclude that the majority of these
entrepreneurs made few dramatic adjustments to their competitive strategies and were either
unwilling or unable to enact a competitive response. The businesses that adopted a competitive
strategy to fight the store tended to focus on other commodities or extend their markets to
sustain competitive advantage. These businesses have thus decisively shifted away from being
general shops.
Although informal shops cannot compete with large retailers on price, some have assessed their
strengths and weaknesses, and committed to a competitive strategy by providing merchandise
mix where there is little direct competition. Some of the participants reported:
I have now introduced towel sales in my business, offering something different from
Pick n Pay; and I have become a part-time tailor, producing such products as common
shirts and dresses as well as sewing embroidery designs on fabric.
Take-away food business is another industry which has emerged in the informal shop sector.
For instance, one of the participants opened a small take-away business in addition to her
business selling Russian sausages and potato fries. According to this participant, her
170
intention is to build strong relationships with many of her key customers over time, which will
further protect her from competitive threats.
Some shops have competed in a narrowly defined market segment with specialised offerings or
in niche marketing, focusing on specific groups of consumers and the specific needs and wants
of these groups. For instance, two of the participants reported that they focus on children as a
niche market and have become reliant on a relatively small market. They offer products such
as sweets, chips, and biscuits for this market segment. Responses to market demand included
easy to sell, sells fast and goods always in demand.
Additionally, the informal shops have slight advantages because they have longer trading hours
compared to large retailers. Most participants indicated that they trade between 7 am and 8
pm, whilst the store is open from 8 am to 6 pm. Furthermore, the participants allow
customers to purchase goods on credit as a strategy to keep them loyal.
Discussion and conclusion
It is important to keep in mind that an entry of a large business reshapes the economic geography
of grocery retailing and this is supported by scholars who place the findings in a broader
academic discourse.
Differences and similarities in results and conclusions in relation to other studies
Previous studies have been conducted on the impacts of large retailers on local labour markets.
The findings of the present study confirm the argument made by Ligthelm (2008) about the
adverse effects of large retailers on the local labour markets of small retailers. He argues that
small retailers surrounding large retailers suffer a larger loss in market share compared to those
further away. The findings of the present study show that the entry of a new large store
significantly impacts only those rival small businesses that operate in close proximity to a large
store. Rival small businesses outside a certain radius are not significantly affected by the entry
of a large store.
This paper also confirms the findings of Valodia, Davies, Altman, & Thurlow (2007), who
assess the importance of the geographic concentration of industries as a source of agglomeration
economies. The finding implies an increase in retail employment with new shops attributable
to the opening of the chain store. The concentration of these new businesses is evidence for the
existence of agglomeration economies. Although it is hard to predict, there is likely a possibility
that new shops might be harmed over the long-term in the absence of clear business strategies.
However, this anecdotal evidence requires better understanding and is something that will have
to be addressed in future studies.
The paper has also confirmed that the entry of a chain store impacts on spatial and temporal
scale in the labour market involving interactions of businesses in a decreased spatial-temporal
scale. As the store located closer to local businesses, some were able to overcome the barrier of
the time and space separation, which formerly separated and isolated individual businesses. A
growing preference from shop owners for goods sourced from the large retailer, situated nearby,
over wholesalers (located far away) was noted. This has reduced dependence on long supply
chains and the cost of moving goods. It could also be argued that the presence of the large
retailer has significant impacts on time savings. Distance, therefore, plays a critical role in
determining the distribution of ideas and interaction.
Recommendations and policy implications of the empirical findings
Commercial development of large retailers is one of the governments strategies to address
unemployment in South Africa. There is a belief that if a large store is opened in the trade area
it is going to capture a considerable amount of trade or perhaps change zoning status in order
to attract small businesses. The government focuses much on large retail development which is
hoped to contribute to gross domestic product. Little attention has been paid to a competitive
market that exists between large retailers and their smaller counterparts. The findings of this
study suggest that government needs to carefully weigh the costs and benefits of associated
171
with the development of large businesses. It is therefore recommended that there should be a
broader understanding of spatial competition in dynamically evolving industries.
Additionally, the participants were requested to make suggestions of what the government
could do to improve the relatively small informal sector enterprises in the area. They reported
that the government should make efforts to assist small businesses in financial and business
planning through appropriate development plans, and establishing special institutions and
programmes to assist informal enterprises as they do formal ones.
5. CONCLUSION
This paper has provided some evidence to support two important predictions of the structuralist
perspective. The first is that there are linkages between formal and informal sector firms in the
labour market. The case of KwaMashu shows that a Pick n Pay outlet has minimal linkages
with informal shops in terms of easy access to market and product distribution. The second
contribution is that informal businesses may be exploited by the capitalist structure of mass
merchandisers as direct competitors in a competitive environment. As is evident in the present
study, large retailers and informal shops compete within the same product market. The results
indicate that informal shops struggle to compete on price with larger chains. More importantly,
the results indicate that the entry of a new large store significantly impacts only those rival
small businesses that operate within a tight radius of the large retailer site and these small
businesses in the trade area lose a comparable amount of trade. It is considered that the
government sector needs to weigh the costs and benefits of commercial development in second
economy areas as well as provide special institutions and programmes to assist small informal
businesses.
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Ntuzuma, KwaMashu (INK) Nodal Economic Development Profile. Retrieved from
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and policies. Margin: The Journal of Applied Economic Research, 6 (2), 13357.
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173
CERTIFICATION EFFICIENCY OF QUALITY MANAGEMENT

SYSTEM IN METAL - PROCESSING INDUSTRY ACCORDING TO
STANDARD ISO 9001 IN THE REPUBLIC OF CROATIA
Djuro Tunjic
TV Croatia d.o.o. Savska 41, 10 000 Zagreb, Croatia,
[email protected]
Goran Kozina
University North, University center Varazdin,
104. brigade 3, 42000 Varadin, Croatia
[email protected]
Dinko Primorac
University North, University center Varazdin,
104. brigade 3, 42000 Varadin, Croatia
[email protected]
ABSTRACT
Implementation and certification of quality management system according to standard ISO
9001 is a voluntary process to which the companies decide for various reasons: internal or
external. That is conducted by independent accredited institution through conducting audits.
Audit is controlled and defined process which is carried out by qualified, professional and
independent person. Regardless of all that, and although the first certification in the world was
conducted more than 25 years ago, in the public and among experts, it is still possible to hear
voices which question the appropriateness of conducting the certification of companies.
Extensive research was conducted on the metal processing industry in Croatia in order to:
1. Research the impact of the implementation and certification of Quality Management
System in the company
2. Research the level of awareness about the quality of employees
3. Research factors that have influence on the certification process.
In this paper are research findings that were obtained using different statistical methods.
Keywords: quality, certification, ISO 9001, competitiveness
1. INTRODUCTION
Certification of Quality Management System according to ISO 9001 standard has become an
essential factor on the way of achieving companys business excellence. It is associated with a
change in philosophy of the company where the customer comes first and everything is
subordinated to the satisfaction of his needs. The certification confirms that the company has
accepted approach of achieving quality throughout entire enterprise, by the actions of all
employees regardless of type of work they do. Certification leads to improvement in all aspects
of the company, from increasing the level of product quality, through reducing costs to the
empowerment of market position and competitive advantage.
Without certification, company has no real evaluation of QMS, which finally completes the
cycle and helps businesses to further improve the quality of its system. Certifications
significantly impact the further improving of the management system. It helps to maintain light
pressure and a trend of needs for further improvement and for research of new areas for further
development of the system.
The certificate has significant effect on enhancing the reputation of company in the public, in
the market, and also influences the competitive ability of company. Certification is a process
174
that opens the company to the outside and with this process company sends a message to all
about their serious intentions to improve the overall business. Certified companies improve
their market position and build a competitive advantage over those companies that have not yet
decided on the move.
Certification of the QMS according to standard ISO 9001 is voluntary process to which
companies decide on for various reasons. Certification is conducted by independent accredited
institution for conducting audits. Audit is controlled and defined process which is carried out
by qualified, professional and independent person. Regardless of all this, and although the first
certification in the world has been more than 25 years ago, it is still possible to hear voices in
the public and among experts that question the appropriateness of conducting the certification
of companies.
100
80
60
82
40
20
15
30
0
2-3 y
Figure 1:
Number of
companies
3-5y
more than 5 y
Period of possession of certificates in the surveyed companies
2. RESEARCH AND DATA COLLECTION

Accordingly, the subject of survey was the stand of companies towards the actual impact of the
certification process of Quality Management System according to ISO 9001 on the metalprocessing industry in Croatia. The goal was to determine in what way the certification process
has a positive effect on the processes within the company (internal benefit), likewise how it
directly helps in positioning the company on the market and increases its visibility and improve
its market position.
The study was carried out by conducting a survey on a representative sample of companies in
the metal processing industry. Surveyed companies have had the system certified for at least
two years at the time of the research.
The survey consisted of three groups of data:
1. Research on the impact of the implementation and certification of QMS at the company,
2. Research of the level of awareness about the quality of employees,
3. Research of influential factors on the certification process.
The first that was carried out was the study of the impact of implementation and certification
of QMS in the company. The survey was conducted on - line and respondents were mostly the
QMR. Afterwards, the subject of analysis was the awareness of employees, and that study was
conducted in a small number of companies with an organization structure that ensured the
independence of the respondents. The aim was to analyze the range in what employees, which
are not directly involved in the implementation and certification of company and are busy with
their daily work, are able to understand the system and how they evaluate its impact on the
company. The survey was conducted by filling out survey forms submitted by mail, given that
surveyed employees did not have the possibility of on - line filling. Finally, research of the
175
influential factors at the certification process was conducted. In this study, in addition to QMRs
were also included the auditors from certification institutions. The poll was also conducted on
- line.
3. ANALYSIS AND RESULTS
After collecting the surveys we approached to statistical analysis of results. First activity was a
statistical analysis of the survey results through review of the share of individual responses in
the total sample. These results, its processing and graphical representation indicated that the
collected data support the hypotheses. E.g., the question of whether certification of the company
according to ISO 9001 has a positive effect on improving the reputation in the public, 84% of
companies assessed the impact of large and very large while the positive impact on increasing
the competitive ability of the company declared 66% of the respondent companies. The impact
of certification on attracting new customers as large and very large was rated by 60% of
businesses and 75% said the same of the process of certification to increase the reputation by
the existing customers. Also, 67% of the companies declared that impact of certification of
QMS on increasing customer satisfaction was high or very high.
2 test results show that there is no significant difference in the impact of company size on the
efficiency of the certification process and the implementation of Quality Management System.
Enterprises are classified by size into two groups. By analyzing the value of 2 test there were
not significant differences in the impact. 2 test results support the hypothesis about the impact
of company size on the efficiency of the certification of Quality Management Systems in only
one of the 28 questions asked. In the implementation of Quality Management System the
influence of the size of the company proves to be significant also in one of the 26 questions in
the survey.
Grade 1 Grade 2 Grade 3 Grade 4 Grade 5
Small
enterprises:
Medium and
large enterprises:
20
17
10
26
25
Output:
Reset all
Chi-square:
degrees of
freedom:
p-value:
Yates' chi-square:
Status: Status okay

Figure2. Example of 2 test conducted
Yates' p-value:
4.075
4
0.3959
2,377
0.6667
Testing of the value of the arithmetic mean scores the z - test, one-way to the lower limit was
conducted. As acceptance limit of positive impact was set average grade 3,5. The test results
(82%) support the hypothesis about the positive impact of the implementation and
certification of Management System at the company.
176
By applying t test on two dependent samples it was conducted testing of differences of

influence of the implementation and certification of Quality Management System in the
company. The test result proves that there are no significant differences in the assessment of
the effects of implementation of the Quality Management System (as a permanent process) the
impact of certification (as a short-term and annually recurring process) on various aspects of
business enterprises. Only for 3 factors (of 20) it was found different impacts on the company
in the process of implementation in relation to the certification process, except that in one case
the impact of the certification process was evaluated as more significant. These results once
again support the hypothesis H0.
The research on the awareness level about the employee quality was also conducted. The result
shows a developed awareness of employees regarding the importance of the Quality System
and its certification. Employees believe that certification helps to achieve a better market
position and the positions with existing and potential customers. They understand modern
market mechanisms and support these activities. On the other hand, they are sufficiently aware
of all possibilities of Quality Management System and have critical look back at its efficiency
within the company and its impact on the improvement process. The research results support
the hypothesis of a side H2.
Finally, the study of factors influencing the efficiency and effectiveness of the certification
process of Quality Management Systems has been conducted. The prior ranking factor method
from the standpoint of QMR's and external auditors was in the use. The most important factors
that affect the certification process are determined:
- Expertise of auditors
- Professional and correct behavior of auditors
- Expertise, knowledge and quality of preparation of employees in the company for the audit.
It is particularly important to separate the factor associated with the expertise, knowledge and
quality of preparation of companys employees for audit. Through this result once again is
confirmed the importance of education and the impact of the awareness of the positive
development of the Quality Management System as well as the impact on the result of the
certification, and then the use of all the advantages and opportunities that it brings. Without
education, and without raising awareness about the importance of quality and its placement on
the place it deserves, will be difficult to raise the system to a higher level and to direct it towards
business excellence.
4. CONCLUSION
Final overall results of the conducted study support the hypothesis. Enterprises have positively
evaluated that impact of the certification process of QMS improves business processes and the
reputation of company in the public and among customers, also improves its market of the
company position likewise the competitive ability of enterprises. It is confirmed that the
company certification has a positive effect on further improvements of the system and for the
many internal and external aspects of the business.
Certification of the company according to ISO 9001 and awarding of certificate:
-
Is a positive process for the company,

Has a positive effect on increasing the competitive capabilities and on improving
market position of company,
Has a positive effect on improving public reputation,
Improves the position of the company with customers (existing and potential)
177
Equally effects on the company's positive processes like the implementation of QMS,
Has the same effect on the improvement of QMS in small and large companies (by
number of employees),
- Acts to increase customer satisfaction,
- Effect on upgrading the culture of the company,
- Apart from external equally effects on improving of internal aspects of the business:
improvement of product quality, cost savings in production, reducing errors, and so on.)
- Is the process by which companies are satisfied with the quality aspects of the process
of certification (certification organizations),
along with a number of other positive effects presented in the dissertation.
It has been proven that the certification process is a positive for the company, and contributes
to its positioning in the market and for improvement of its market positions and
competitiveness. The research results provide information that can direct the further
development of the Quality Management System and activities on the path of constant
improvement in the certified companies. Also they can help to those companies that have not
yet decided on the implementation and certification of Quality Management Systems in making
such a decision. They point them to areas where they can expect the greatest benefit, but also
to the areas that can expect the most problems and the minimum efficiency of the system. In
this way it can act preventively in avoiding the most common failures in the system and to
increase the efficiency of the introduction of Quality Management System and the process of
its certification. With this study, companies receive an overall picture about the quality of the
certification process and its actual benefits.
The implementation of a Quality Management System, observed individually without
certification of company, has a significant impact on improving business processes and quality.
Likewise, implemented Quality Management System changes the behavior of the company to
the outside in a manner that positive effects are felt in the market and among customers.
However, the implementation itself without certification is uncompleted cycle and does not
enable exploitation of the full potential of the system. Only the certification of company
achieves the real result. Companies recognize the fact that the impact of the certification
process, as short-term but repetitive processes, is as important as continuous process of
implementation of the system.
Applying of scientific tools enables additional development of QMS and improvement of the
system status. The survey results indicate improvements that can be applied in practice and
influence the creation of value-added to the companies:
-
Professionalization of QMR position in company,

Extra money on the understanding of standard requirements and the requirements of the
building model for the qualification and selection of suppliers and thus improve the
procurement process as well as the impact that has the lowest score in the survey results,
Further integration of QMS with other standards (e.g. ISO 9001, ISO 14001, etc.)
Certification of QMS according to all requirements of standard, exclusion of certain
claims (especially development) only in exceptional cases,
The selection of consultants who do not promise the implementation of systems and
certification in unrealistic (too) short deadlines,
178
Selection of certification institutions according to criteria of quality of their

implementation audits and auditors in order to obtain information on areas to improve
QMS,
Investing significant resources in training the management structure and all employees
(from basic knowledge of the standards and quality to training of internal auditors),
Improving the structure and quality of implementation of internal audits in companies,
Creating a model of greater involvement of all employees in making proposals for
improvement and to solve quality problems within their workplaces, and processes
Stronger involvement of company in work of formal organizations and associations that
promote quality and strengthening of activities related to quality in Croatia and giving
incentives to strengthen the infrastructure and the importance of understanding the
importance of quality in the Croatian society,
Analysis of results of the study indicates the need for further work on the:
-
research of the level of impact of certain (ranked) factors on efficiency and effectiveness
of the certification process,
research of the differences influence of the implementation and certification of QMS
to internal and external aspects of the business enterprise,
research of the actual situation of education in the field of quality and raising awareness
of need for training of all employees,
research methods of strengthening employees motivation in finding suggestions for
improvement,
research of Quality Management representatives position,
research into the causes for which the impact of implementation and certification of
Quality Management System on the processes associated to procurement is rated as least
important,
examine parameters of quality culture of enterprise and its integration into the Quality
Management System,
development and implementation of methods for measuring the efficiency of business
processes,
more precise analysis of the impact of QMS to reducing errors and application of
methods for monitoring quality costs,
Study the impact of QMS on optimization of the number of documents and records in
practice.
LITERATURE:
1. Tunji, . Uinkovitost certifikacije sustava upravljanja kvalitetom prema normi ISO 9001
u metalopreraivakoj industriji, Doktorska disertacija, Strojarski fakultet u Slavonskom
Brodu, 07/2013
2. Bhuiyan, N.; Alam, N.: ISO 9001:2000 implementation the North American experience,
International Journal of Productivity and Perfomance management, Bradford, 2004., Vol.
53, Iss. 1/2, str. 10-17
3. Alpeza, M.; Eterovi, D. i dr.; Istraivanje o malim i srednjim poduzeima u Hrvatskoj
2011, CEPOR, Zagreb, 12/2011
179
4. Pivka M.: ISO 9000 Value added auditing, Total Quality Management and Business
Exelence, 2004., Vol. 15, No.3., str. 345 355
5. Jaarevi, S.: QMS u BiH Pregled stanja Istraivanje uinaka uvedenog sistema
kvaliteta u BH organizacijama, Mainski fakultet u Zenici, Zenica, 2010.
6. Tunji, .; Magli, L.; Kondi, .; Kljajin, M.: Utjecaj certifikacije sustava upravljanja
kvalitetom na konkurentnost u hrvatskom gospodarstvu, XIV. simpozij o kvaliteti HDMK,
Rovinj, 2013.
7. Tunji, .; Magli, L.; Kondi, .; Kljajin, M.: Istraivanje utjecaja formalnih organizacija
i drutava na sustave upravljanja kvalitetom u Republici Hrvatskoj, 13. Konferencija o
kvaliteti HDK, Brijuni, 2013.
8. GraphPad
software,
QuickCalcs,
t
test
calculator,
URL:
http://www.graphpad.com/quickcalcs/ttest1/, (20.03.2013.)
9. Serdar, V.; oi, I.: Uvod u statistiku, kolska knjiga, Zagreb, 1990.
10. URL: www.skymark.com, (10.12.2012.)
11. Tunji, .; Samardi, I.; Kljajin, M.; Ethics management system i proces certifikacije,
Zbornik radova 8. Hrvatske konferencije o kvaliteti, Brijuni, 2007.
12. O'Connor, John J.: Robertson, Edmund F.: Student's t-test, MacTutor History of
Mathematics archive, University of St. Andrews, http://www-history.mcs.standrews.ac.uk/Biographies/Gosset.html. (01.03.2013)
13. GraphPad
software,
QuickCalcs,
t
test
calculator,
URL:
http://www.graphpad.com/quickcalcs/ttest1/, (20.03.2013.)
14. URL: http://www.eknowledgecenter.com, (10.12.2012.)
Calculation for the chi-square test, http://www.quantpsy.org/chisq/chisq.htm, (15.02.2013.)
180
THE LUCAS PARADOX AND THE HUMAN CAPITAL RESOURCE

CURSE IN PHILIPPINES, INDONESIA, MALAYSIA, THAILAND AND
SINGAPORE
Iana Justine Vea C. Cale
University of Santo Tomas, Philippines
[email protected]
Peter Jeff C. Camaro
[email protected]
Kristel P. Melendres
[email protected]
Marie Antoinette L. Rosete
[email protected]
ABSTRACT
Lucas (1990) stated in his study that capital doesnt flow from rich to poor countries because
of differences in capital per worker. The resource curse tackles the irony of why resource
abundant economies tend to grow slower than those with low resources (Sachs and Warner,
1997). This study examines the connection between the Lucas Paradox and the Resource Curse
between the developed and developing countries in the ASEAN based from Solows neoclassical
model and the Cobb Douglas production function. The study would like to state if a connection
exists between the two phenomena and determine how they affect each other and if the Lucas
Paradox and the Resource Curse exists in the Philippines, Indonesia, Malaysia, Thailand and
Singapore. Developing countries are all rich in natural resources, specifically have high human
capital and high human capital investments. This research also proves that an increase in
education directly affects human capital stock and that age is positively related to human
capital as different age groups increase human capital. It was also confirmed that human
capital stock depends upon the distribution of the population between urban and rural sectors.
While on the other hand the effect of the Capital per Effective worker hypothetically increases
the overall Income per Effective worker but seems to be lacking in the developing countries
thus proving the Lucas Paradox and the Human Capital Resource Curse are present and are
interconnected with each in countries such as the Philippines, Indonesia, Malaysia, Thailand
and Singapore. The lack of investments in human capital discourages capital to flow from
developed to developing countries which results to slow economic growth.
Keywords: ASEAN, Human Capital, Lucas Paradox, Resource Curse
1. INTRODUCTION
It has been believed that there is a positive relationship between natural resources and economic
development (Rostow, 1961; Balassa 1980) until Sachs and Warner (1997) argued that
countries with high natural resource wealth tend to grow more slowly than countries with low
natural resources. This paradoxical result is also known as the resource curse is observed in
most developing countries when most resource rich countries tend to be left
behind by resource-scarce countries. Sachs and Warners work supported the resource curse
thesis of Auty (1990, 2001).
181
Van der Ploeg (2011) mentioned that natural resources will open a lot of opportunities for
economic growth and development and yet many countries are still cursed by natural resource
wealth. As countries like Africa who have high resources but have a low GDP, researchers
would tend to question the slow growth of their economy as there should be a positive
relationship between natural resources and development. In East Asia, the countries with few
raw materials such as Hong Kong, Singapore, South Korea, and Taiwan have done even better
than the resource-rich ones like Indonesia, Malaysia, and Thailand. The same instance with oilrich countries like in Nigeria, Iran, Venezuela, Kuwait, Iraq and other Organization of the
Petroleum Exporting Countries (OPEC) in exploiting their resources to compete against
developed countries but it just leads to the progress of oil-importing ones (Gylfason, 2001).
The modified Solow-Swan neoclassical growth model states that capital should flow from
developed to developing countries. Lucas (1990) observed that the neoclassical theory does not
occur presently. He also stated that developing countries tend to suffer because of low capital
flows. This ideology brings us the Lucas Paradox.
The resource curse is a big issue of resource abundant economies, and they depreciate the GDP
of a country. However, if a country is abundant in resources, shouldnt the economy of that
country flourish? We theorize that maybe the manufacturing sector or the service sector of the
economy is the weak point that maybe capital in one of those sectors has the issue. Since the
Lucas Paradox speaks of capital not flowing from rich countries to poorer ones, we ask, does
the Lucas Paradox result to the resource curse? We developed a hypothesis, if abundant
countries are affected by the capital flows in the economy.
The original resource curse discusses more on natural resources but instead of doing the same
study, this research contributes in examining whether the curse, as theorized by Sachs and
Warner (1997), holds true for measures of human capital. A lot of countries tend to monitor
their natural capital especially when they have high resources that they neglect other potential
assets such as education that may help the growth of the economy (Gylfason, 2001).
Additionally, countries with low resources focus on their manufacturing industry. They value
education or job trainings because they wish to be employed in the manufacturing sector (Sachs
& Warner, 1997). Meanwhile, resource-rich nations tend to focus on their agriculture industry
and neglect opportunities of education because their job does not require professional skill.
Researchers like Sachs and Warner (1997) and Gylfason (2001) stated the crowding out abilities
of natural resources to human capital investment and as stated by Shao and Yang (2014),
researchers like Birdsall et al. (2001) carried out comparative analysis on the negative
correlation between resource abundance and human capital investments, which results to the
well-known resource curse.
This research aims to examine why resource-rich economies tend to grow slower than those
resource-scarce economies in the case of developed and developing countries in the ASEAN
nation. This research also investigates if investment to human capital is inversely related to
resource abundance and to find out if the lack of investments to human capital discourages
capital flow to the resource rich economies resulting to a slow economic growth. For this
purpose, we examine 5 countries (Philippines, Singapore, Indonesia, Malaysia and Thailand)
from the Association of South East Asian Nations (ASEAN). We opt to study the economy of
the Philippines, classified as a low middle-income country by the World Bank (2013) in their
World Development Report since we are the first ones who experience the inconsistent
development and growth although we have a lot of resources. We also used other developing
ASEAN countries namely Indonesia, Malaysia, Thailand. We also chose to study the top
ASEAN country in terms of per capita income (Table 1) and is also a developed country namely
Singapore to further see why they are more prosperous than other ASEAN nations given that
they have low resources. Also, from the 2011 data of International Monetary Fund (IMF) in
182
Table 1 Singapore has the least land area which implies that it would have less resources than
other ASEAN countries since the others have a larger land area for natural resources but has
the most per capita income among the ASEAN nations followed by Brunei which also follows
Singapore in the least land area which somewhat gives more confirmation on the so called
resource curse.
2011 Per Capita
ASEAN Countries
Land Area
2011 Population
Income (USD)
2
Myanmar
676,578 km
60,280,000
$832
2
Thailand
513,120 km
67,091,089
$5394
2
Cambodia
181,035 km
14,652,665
$931
2
Malaysia
329,000 km
28,728,607
$9700
Singapore
710 km2
5,183,700
$49270
2
Indonesia
1,904,569 km
248,216,193
$3508
2
Brunei
5,765 km
408,786
$36583
2
Philippines
299,764 km
103,775,002
$2223
2
Vietnam
331,210 km
91,519,289
$1374
2
Laos PDR
236,800 km
6,586,266
$1203
2
Total
4,478,551 km
626,741,597
Table 1. Source: Asian Development Bank (2010), Central Intelligence Agency (2012),
International Monetary Fund (2011)
The remainder of this study proceeds as follows: Section 2 discusses a review of related studies
about the variables that we will be using. In Section 3, we present the econometric model as
well as the data and method used. Results and interpretations are discussed in Section 4. Section
5 concludes with a short summary of the study and recommendations for future research.
2.1. Capital per effective worker to Income per Effective Worker
Lucas (1990) wanted to show the effects of human capital investment to the Cobb-Douglas
Production Function. From the capital per worker he added the term effective to stress the
impact of labor effectivity to the variable from Solow (1956) model to be elaborated in our
theoretical framework.
Hypothesis 1: Investment in Capital per effective worker increases Income per Effective
Worker
2.2. Human Capital per worker to Income per Effective Worker
Economies with a stable labor would presumably have an edge in economic development if
their policies focus on the accumulation of human capital (Lucas, 1990). Human capital of
individuals have two concepts namely education and experience of the labor market (Wasmer,
2001).
183
Persson and Malmber (1996) stated that human capital measured by average years of schooling
affects subsequent per capita income growth positively.
Hypothesis 2: Investments in Human Capital increases Income per Effective Worker
2.3. Education to Human Capital Stock
The quality of education a worker has attained is the most marketable in the eyes of the
investors. The more skilled you are, the more likely an employer would hire you (Hanson II,
1996). As stated by Canlas (2003), it is widely accepted that education is an essential cause of
long-run economic growth.
Spending on education has a positive and significant direct effect on the accumulation of
education and indirect effect on growth spending has a positive and significant impact on the
accumulation of education (Baldacci et. al., 2008). Krueger (1968) stated that even though India
and the United States had the same education-sector distribution in each age, the attainable per
capita income would be lower than in US because of the distribution of age in India.
Consequently, even if the age-sector distribution of Indian and American was the same, the
educational attainment in India would result in a lower attainable income. Gille (2014) argued
that the quality of education and income per capita has a negative relationship and that the
relation is stronger in developed nations.
According to the study of Ding and Knight (2009), the average annual growth rate in China
(1.5%) was faster comparing to high-income economies (1.2%) due to the growth rate of human
capital. On the other hand, the average annual growth rate of China was slower than other
developing countries because of the level of education which was explained by the growth rate
of human capital.
As stated by Shao and Yang (2014), better-quality education can contribute to increasing the
demand for educational and promoting human capital accumulation and growth.
Hypothesis 3: An increase in Education directly affects Human Capital Stock
2.4. Age to Human Capital Stock
Frosch and Tivig (2007) examine that there is an additional effect of age on innovative
performance at any given level of human capital. In addition, an independent effect of age
based on the (age-specific) level of exploitation abilities and motivation can control the effect
of human capital on innovative performance.
Fougre et al. (2009) have observed a significant increase in the participation rate of older
workers but human capital accumulation is lower for older workers. At middle age (41-44), the
labour supply experience an increase and additional allocated time on work. Moreover, these
individuals are more qualified and effective since they have invested more time in human
capital.
184
Feinstein et al. (2004) states that male workers from UK who undertook work related training
in ages 3342 experienced a higher wage growth of 45 percent over the period 1991
2000. Skirbekk (2003) also added that older workers are getting more productive over time.
Crepon et al. (2003) suggest to include age indicators such as mean age or different age groups
for age-productivity pattern on aggregate level and use Cobb-Douglas function to explain ageheterogeneous human capital. Also, Ilmakunnas et al. (2004) include age effects to explain the
stock of different types of human capital differentiated by age. According to Crespo et al. (2008;
2009); Goujon et al. (2008); Lutz and KC (2011) as most educated tends to work longer and
retire at later ages, an increase in human capital will balance the declining working-age
population. Hence, an increase in the human capital working-age population will lead to
economic growth but also decrease it by rise in pensions upon retirement Philipov (2014).
Hypothesis 4: From the cases above, age is positively related to human capital as different age
groups increase human capital.
2.5. Sectoral Distribution to Human Capital Stock
The sectoral distribution was considered as an important explanatory component in the
difference between the developed and developing countries. It is also commonly held to be a
factor in determining income per head. The sectoral distribution has a significant effect on
attainable income. Individuals who live in an urbanized zone tend to invest in human capital
than those who are living in the rural area (Krueger, 1968; Sachs & Warner, 1997)
Hypothesis 5: Human Capital Stock depends upon the distribution of the population between
Urban and Rural sectors.
2.6. Sythesis
The two variables discussed in the Lucas (1990) model should affect the output per capita
positively if the variables have a positive value and therefore has a direct relationship to income
per capita while the 3 variables of Krueger (1968) has positive effects on human capital.
2.7. Theoretical Framework
The researchers will be using the model proposed by Lucas (1990) derived from the CobbDouglas Production Function.
=
y is the Income per effective worker
TFP is intercept parameter (often called the level of technology) or Total Factor Productivity
x is capital per effective worker
h is human capital invested in the working population taken from the Anne Krueger and
Resource Curse Model
185
is the external factors that affect the human capital invested in the working population,
which for the consistency with the Cobb Douglas Production Function would have the value
of 0.50
is the external factors affecting capital per effective worker, which as of the would also
have a value of 0.50
Note that by adding effective to the variables, Lucas (1990) stresses the effect of labor
efficiency to the capital stock. The variable Capital per Effective Worker will be taken from
Solows (1956) model.
=
where
K is Capital or Foreign Direct Investment
L is the Working Population
E is Labor Productivity
Human Capital Invested in the Working Population is the knowledge and skills invested and
accumulated by the Working Population, which will be taken from Anne Kruegers Human
Capital Stock Equation which would also be used for the resource curse.
= (, , )
The researchers employ the per capita form of Krueger (1968) production function
= 1 1 1
where
B is the fraction of population in the labor force or the Working Population
A is Age
E is Education
S is Sectoral Distribution
would have a value of 0.50, 0.25 and 0.25 to remain consistent with the Cobb Douglas
Production Function.
Note that the value of the value of the Education Variable is 0.50 since the researchers
would want to add emphasis on Education since it is the best indicator of human capital
investment, but the researchers would also show the results of changing the exponent of the
other independent variables to 0.50.
From this we replace the x and h from the Cobb-Douglas Production function resulting to the
formula the researchers will be using for the Lucas Paradox.
= (
0.50
) (0.25 0.50 0.25 )0.50
186
2.8. Simulacrum
Capital per Effective

Worker
Education
Income per Effective

Worker
Human Capital
Invested in Working
Population
Age
Sectoral Distribution
3. RESEARCH METHOD
The objective of this research is to determine if the Lucas Paradox and the Resource Curse
exists in 5 ASEAN countries. The researchers also want to investigate if what Gylfason (2001)
stated in his paper is true, that natural resource abundance crowds out the investment on other
capital resources such as human capital result in less capital flows to developing countries. As
previously stated in our theoretical framework, we will be using a modified Cobb-Douglas
production function for our Lucas (1990) model.
= (
0.50
) (0.25 0.50 0.25 )0.50
Our dependent variable is the income per effective worker. The variable donates an
intercept added by Lucas (1990) to denote the level of technology or Total Factor Productivity.
The term is the expanded form of our variable taken from Solow (1956) which is capital
per effective worker. The variable explains the term capital per effective worker which gives
us the measure of physical capital used by effective workers. The variable would represent
the effect of the Human Capital Resource Curse in the Lucas Paradox.
To measure the Resource Curse we would be interpreting the results of Kruegers (1968) human
capital stock equation. We would like to check upon if investments in human capital would be
a determining factor in the Resource Curse. We would be using the per-capita version of the
production function.
= 0.25 0.50 0.25
With the dependent variable representing Human Capital Invested in the Working Population,
the variable represents the fraction of the population in the labor force. The variable
representing age differential since age is a determinant of productivity since different age
187
groups affect income per capita differently. The independent variable represents education
which is one of the best proxy variables to use as human capital investment and lastly the
variable represents the Sectoral Distribution in the Population. The Sectoral Distribution of
the Population is also known as the Distribution of the population in the Rural and Urban
Sectors of the economy. Sectoral Distribution is an important factor in determining the quality
of human capital since the rural and urban sectors of the economy has different effects on human
capital stock.
The researchers will be using the data from the Barro-Lee and World Bank Database. Figures
will be obtained using 5-year intervals from 1970-2010. The researchers opt to study 1
developed ASEAN country namely Singapore and 4 developing ASEAN countries specifically
Indonesia, Malaysia, Thailand and Philippines because of the completeness of their data.
4. RESULTS AND DISCUSSION
Indonesia
Malaysia
Philippines
Singapore
Thailand
1970 31,872,751.66 3,843,896.10 14,845,433.09 1,453,673.66 14,830,203.11
1975 42,985,758.86 5,238,117.87 20,473,372.40 1,938,612.80 16,594,007.15
1980 56,081,819.32 7,321,527.55 26,536,472.68 2,622,881.56 26,841,952.10
1985 74,276,332.40 9,570,917.69 32,447,284.09 2,988,574.53 31,780,677.32
1990 96,309,475.32 11,986,441.38 42,731,754.66 3,964,340.94 44,967,457.23
1995 117,585,442.42 15,754,389.87 51,156,862.24 4,780,030.31 48,565,118.93
2000 146,224,465.39 20,970,993.27 55,991,667.05 6,121,578.46 50,828,113.49
2005 175,318,074.31 24,266,064.90 67,063,173.49 6,461,505.20 66,952,423.35
2010 227,292,455.91 30,879,086.58 75,876,276.09 9,280,542.47 80,673,534.56
Table 4.11 Human Capital Invested in the Working Population ((persons employed)*
(Education^0.5)*(Sectoral Distribution^0.25)*(Population, 15-64/100))
Table 4.11 shows Human Capital Investment on the Working Population of the selected
ASEAN countries. Referring and incorporating the Anne Krueger formula for the Human
Capital Resource, and be consistent with the Cobb Douglas Production Function, the
researchers used the exponents with the values of 0.25, 0.25 and 0.5 for the tables 4.11, 4.21
and 4.31.
Indonesia
1970
1975
1980
1985
1990
1995
2000
2005
15781733.74
21323664.84
27858848.22
37871977.65
50089709.97
62158089.57
78142216.92
90709514.35
Malaysia
2042073.26
2769239.492
3805590.749
4892692.049
6196926.276
7996528.715
10716073.13
12418047.71
Philippines
7636546.81
10328487.82
13152947.45
16409867.67
21856109.71
25718033.17
27818787.02
32764175.43
188
Singapore
962644.8385
1291930.307
1731937.609
1911923.486
2467757.27
2844002.199
3519720.249
3748379.224
Thailand
7965409.093
8795532.028
13980927.34
16210946.8
22317128.94
23523850.34
24677045.87
32180528.97
115031345.8 15764102.68 36522942.29 5118196.305 39098021.95

2010
TABLE 4.21 Emphasis on Sectoral Distribution [Sectoral Dist. ^0.5] ((persons
employed)*(Education^0.25)*(sectoral distribution(urban/(rural+urban))^0.5)*(Population
(15-64 % of total/100)^0.25))
TABLE 4.31 Emphasis on Age (Age ^0.5)
Indonesia
Malaysia
Philippines
Singapore
Thailand
839,635.61 10,029,649.52
1970 20,994,303.16 2,279,489.98 8,516,618.28
1975 27,573,099.48 3,031,772.34 11,379,973.25 1,151,258.26 10,798,775.08
1980 35,042,310.13 4,114,069.23 14,388,574.63 1,574,049.53 16,871,721.98
1985 46,109,289.25 5,188,277.98 17,444,662.60 1,751,497.16 19,693,972.63
1990 59,226,588.32 6,473,391.82 22,637,752.28 2,280,608.46 27,236,057.04
1995 71,222,296.70 8,166,898.36 26,816,856.45 2,614,341.62 28,730,296.01
2000 87,022,999.63 10,753,240.01 29,205,689.39 3,233,168.32 30,096,996.42
2005 99,044,318.74 12,367,109.98 34,827,514.01 3,460,363.47 37,627,472.21
2010 123,430,261.16 15,590,978.42 39,353,492.82 4,741,382.58 44,186,075.82
TABLE 4.31 Emphasis on Age [Age ^0.5] (persons employed)*(Education^0.25)*(sectoral
distribution(urban/(rural+urban))^0.5)*(Population (15-64/100)^0.25))
To be precise with the results the researchers tried all the possible combinations from the
exponents. We let our independent variables of Education, Age and Sectoral Distribution all go
through the 0.25, 0.25 and 0.5 exponents and checked the results of each one. Table 4.11 shows
the Human Capital Resource if Education is raised to 0.5 while Age and Sectoral Distribution
are both raised to 0.25. Table 4.21 shows the effect of raising the Sectoral Distribution to 0.5
while both Education and Age are 0.25. For Table 4.31, Age was the one raised to 0.5 while the
Education and Sectoral Distribution was raised to 0.25.
The results in tables 4.11, 4.21 and 4.31 shows the relationship of the independent variables of
Education, Age and Sectoral Distribution to the Dependent Variable of Human Capital Invested
in the Working Population. The results of the Tables were all positive with only Singapore
lagging behind in the Human Capital Resource. The results of Indonesia, Malaysia, Philippines
and Thailand all surpass that of Singapore across all the time periods from 1970-2010 but the
results remain consistent increasing across time.
While the results of the Lucas Paradox in tables 4.12, 4.22 and 4.32 tells us otherwise. The
Lucas Paradox Model shows us the Income per Effective Worker of the country and the
researchers used the results from Tables 4.11, 4.21 and 4.31 to determine the outcome of the
dependent variable of income per effective worker. We also remained consistent with the CobbDouglas Production Function and used 0.5 on both the Capital per Effective Worker and the
Human Capital Investment on the Working Population but the results from the tables previously
stated shows that the results from tables 4.12, 4.22 and 4.23 are inversely related with the results
in tables 4.11, 4.21 and 4.31. It indicates that Singapore now exceeds the Income per Effective
Worker of other selected ASEAN Countries.
189
Indonesia
Malaysia
Philippines
Singapore
Thailand
0.070239536 0.033971036
1970
0.047450186 0.041160933
0.191699071 0.10542432
0.07837081 0.11914941 0.046705223
1975
0.07799611 0.187770567
0.073928664 0.261666087 0.086030629
1980
0.108520317 0.138964686
0.058104584 0.204469729 0.086368573
1985
0.199991118 0.245989871
0.150936018 0.434985853 0.302597942
1990
0.41806439 0.351325132
0.251238096 0.516226233 0.20933146
1995
0.2570886
0.249924726 0.766383295 0.203070455
2000
0.378010954 0.291927588
0.214872667 0.697578829 0.396441046
2005
0.492633893 0.441038398
0.17669534 1.291047161 0.428664405
2010
Table 4.12 Lucas Paradox Model or Income per Effective Worker (Income per Effective
Worker = TFP*(Capital per effective worker(FDI/Labor Productivity*Person
Employed)^0.5)*(Human Capital Stock Model^0.5))
Table 4.22 (TFP*(Capital per effective worker(FDI/Labor Productivity*Person
Indonesia
1970
1975
1980
1985
1990
1995
2000
2005
2010
Malaysia
Philippines
Singapore
0.057158552
0.03338916 0.030000953
0.135017056 0.076653754 0.055664462 0.097267085
0.054972245 0.135374763 0.052047851 0.212629845
0.07748985 0.099357716
0.04132128 0.163543102
0.144228291 0.176872477 0.107945354 0.343194922
0.303959154 0.250299034 0.178136297 0.398189413
0.183776998
0.17616378
0.58112344
0.271905167
0.20883444 0.150189215 0.531310261
0.350461147
0.31512206 0.122589979 0.958768805
Indonesia
Thailand
0.024896556
0.034003284
0.062088911
0.061684829
0.21317485
0.145688905
0.141495077
0.274847665
0.298420926
Malaysia
Philippines
Singapore
Thailand
0.053381847 0.027936894
1970 0.038510475 0.031697005
1975 0.153532564 0.080205004 0.058429243 0.091819038 0.037677065
1980 0.061653575 0.140754557 0.054437748 0.202706324 0.068206499
1985 0.085502742 0.102314993 0.042604209 0.156531481 0.067989342
1990 0.156831955 0.180774862 0.109858629 0.329924828 0.235498921
1995 0.325367661 0.252951348 0.181902001 0.381773618 0.161006098
0.184095422 0.180501684 0.556965734
0.15626306
2000
0.20840569 0.154846132 0.510490074 0.297199439
2005 0.284122629
2010 0.363030072 0.313386919 0.127251741 0.922800723 0.317244862
Table 4.32 (TFP*(Capital per effective worker(FDI/Labor Productivity*Person
190
Resource Curse was presented from the tables 4.11, 4.21 and 4.31. The countries of Indonesia,
Malaysia, Philippines and Thailand are all resource-rich countries based on the stated tables.
They are rich in human capital resource and all far exceeds that of Singapore but as we refer to
Tables 4.12, 4.22 and 4.32 we show that those countries that are resource rich have a far lower
income than that of a low resource country such as that of Singapore. We then divulge into the
Lucas Paradox, in tables 4.11, 4.21 and 4.31 the researchers show to us that Indonesia,
Malaysia, Philippines and Thailand are all resource rich countries. In the present, these
countries are all classified as developing countries. From the previously stated tables, the
expected results were that these resource rich countries would all have a high income per
effective worker since these countries already have the advantage in the Human Capital
Invested in the Working Population or Human Capital Stock Variable. But the results in Tables
4.12, 4.22 and 4.32 show that the countries of Indonesia, Malaysia, Philippines and Thailand
are overtaken by Singapore who had a very low Human Capital Stock Value. We now then look
at the other independent variable of Capital per Effective Worker and the Intercept Variable of
TFP. The researchers assumes for either of these two to be the basis behind the significant
change in the results and in the Lucas Paradox Model.
1970
1975
1980
1985
1990
1995
2000
2005
2010
Philippines
Singapore
Indonesia
Malaysia
Thailand
0.4767
0.922
0.3561
0.4791
0.4155
0.6572
0.961
0.4946
0.6515
0.4383
0.6309
1.0809
0.5594
0.7484
0.5146
0.4525
0.9978
0.5599
0.6364
0.5892
0.5024
0.9687
0.5682
0.6122
0.5528
0.4951
0.8798
0.6452
0.6408
0.5033
0.4147
1.1614
0.3902
0.5661
0.379
0.4006
1.0736
0.3976
0.6476
0.4785
0.4175
1.1182
0.4071
0.6482
0.4844
TABLE 4.4 TFP level at current PPPs (USA=1) (Penn World Table 8.1)
Indonesia
1970
1975
1980
1985
1990
1995
2000
2005
2010
Malaysia
Philippines
Singapore
Thailand
1.9202E-09
-8.388E-12
3.9924E-09
4.51E-10
5.57073E-10
3.49468E-09 4.99894E-09
6.94583E-10
7.9295E-09
6.84E-10
3.4664E-10 8.59777E-09
5.17442E-10 2.23432E-08
1.04E-09
5.05767E-10
4.9819E-09
5.08166E-10
1.4051E-08
6.76E-10
1.28632E-09 1.34697E-08
2.1122E-09 5.08628E-08
6.66E-09
3.57062E-09 1.90797E-08
5.03363E-09 7.20247E-08
3.56E-09
-3.54538E-09 9.83468E-09
6.48675E-09
7.1132E-08
5.65E-09
5.15572E-09 8.37408E-09
4.28999E-09 6.53383E-08
1.03E-08
6.4426E-09 1.49924E-08
2.36065E-09 1.43639E-07
9.71E-09
TABLE 4.5 Capital per Effective Worker (Calculated to from FDI/(Working
Population*Labor Productivity))
191
The values from Table 4.4 indicates the Total Factor Productivity which is an intercept variable
in the Lucas Paradox Model. Based on Table 4.4, Singapore, a developed and resource-scarce
country has a higher Total Factor Productivity than those of the developing and resource-rich
countries such as Philippines, Indonesia, Malaysia and Thailand. The values in the column of
Singapore are already far above those of the other countries in the final year of 2010, having a
significant lead in the values against the rest of the selected ASEAN countries. The researchers
could also see in the said table that there is a great difference between the data of the former
and latter countries.
As stated in the previous chapters the Lucas Paradox is the phenomenon that happens when
capital doesnt flow from developed countries to developing countries. From Table 4.5 we
could observe that the values of Singapore, which is a developed country far surpasses that of
Indonesia, Malaysia, Philippines and Thailand which already shows us the disparity between
the capitals of the developed to the developing countries. Also, the results of the data from
Tables 4.11, 4.21, 4.31, 4.4 and 4.5 show the results in Tables 4.12, 4.22 and 4.32. The Income
per Effective Worker of Singapore overtakes that of the others through the Intercept Variable
of Total Factor Productivity and the Independent Variable Capital per Effective Worker thus
proving that the Lucas Paradox exists in the ASEAN Countries.
5. CONCLUSION AND RECOMMENDATION
The aim of this research is to determine whether Lucas Paradox and the Resource Curse exist
in the 5 ASEAN countries namely, Philippines, Singapore, Indonesia, Malaysia and Thailand.
The researchers found out that Lucas Paradox and Resource Curse is present in the 5 ASEAN
countries. The lack of investments in human capital discourages capital to flow from developed
to developing countries which results to slow economic growth.
Solow (1956) and Lucas (1990) stated that investment in capital per effective worker increases
income per effective worker but based on the results, the researchers found out the statement to
be true but is lacking in the selected developing ASEAN countries capital per effective worker
income per effective worker. On the other hand, the researchers confirmed that investments in
Human Capital increases income per effective worker as previously said by Lucas (1990) and
Solow (1956). This paper also supports the existing studies of Baladicci et al. (2008), Krueger
(1968), Shao and Yang (2014) which says that an increase in education directly affects human
capital stock. The researchers also proved that age is positively related to human capital as
different age groups increase human capital similar to the statements of Frougere et al. (2009),
Crespo et al. (2009) Groujon et al. (2008) Lutz & KC (2011) Philpove (2014). Krueger (1968)
and Sachs and Warner (1997) stated that human capital stock depends upon the distribution of
the population between urban and rural sectors and this holds true in this research.
Based on the results of this research, the researchers recommend that developing countries such
as Philippines, Indonesia, Malaysia and Thailand should make ways to entice and encourage
capital investments to flow from the developed countries such as Singapore. Developing
countries with high resources have the potential to surpass developed countries that have fewer
resources. These developing countries need intuitive policies so that capital investments from
both local and foreign would flow into the country in order for them to take advantage of the
high resource that it has so that they would be able to bolster themselves from a developing
country to become a developed one.
192
Moreover, the government should make policies that would enable the economies of these
resource-rich developing countries to fully utilize their resources while also being able to
replenish used resources so that these countries would be able to sustain themselves and would
not need to import goods but export surplus goods. In addition, maybe with the effective use of
the investments the developing countries not only of the ASEAN but also of the world would
be able to sustain itself and reduce the need for imports.
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APPENDIX
1970
1975
1980
1985
1990
1995
2000
2005
2010
Philippines
Singapore
Indonesia
Malaysia
51.01738
57.87607
53.46209
51.94138
52.40585
63.0572
54.00508
54.09191
53.67721
68.22517
55.33363
57.42514
54.97469
70.42968
57.32436
58.02938
55.92277
72.9446
59.78154
59.29244
57.08706
71.40517
62.18586
60.58766
58.25739
71.20011
64.60457
62.84131
59.49861
72.62946
65.29344
65.50805
61.00096
73.64652
66.18067
67.84787
Table 4.1 Population ages 15-64 (% of total) (World Bank)
Thailand
52.50835
53.98329
56.81757
61.19682
65.27177
67.3636
69.45845
70.13104
71.90584
80
70
60
50
40
30
20
10
0
1970
1975
Philippines
1980
1985
Singapore
1990
Indonesia
1995
2000
Malaysia
2005
2010
Thailand
Graph 4.1 Population ages 15-64 (% of total) (World Bank)

194
1970
1975
1980
1985
1990
1995
2000
2005
2010
Philippines
4.71
5.49
6.21
6.58
7.10
7.56
7.87
8.18
8.43
Singapore
Indonesia
Malaysia
5.20
2.84
4.20
5.07
3.19
4.82
5.26
3.63
5.76
5.97
3.86
6.72
6.66
4.18
6.97
7.98
4.62
8.39
9.15
5.15
9.09
8.83
6.42
6.41
10.81
7.15
7.61
Table 4.2 Education (Barro- Lee Database)
Thailand
2.51
3.01
3.64
4.15
4.85
5.50
5.65
9.71
10.44
12
10
8
6
4
2
0
1970
1975
Philippines
1980
1985
Singapore
1990
Indonesia
1995
2000
Malaysia
2005
2010
Thailand
GRAPH 4.2 Education (Barro- Lee Database)
1970
1975
1980
1985
1990
1995
2000
2005
2010
Philippines
Singapore
Indonesia
Malaysia
11808151
2074500
19603445
3649374
14684963
2262600
25251978
4635632
17765406
2413900
32601271
5816257
23384719
2736000
43050032
7234729
30100867
3047100
55490637
9068034
33612998
3524500
71054512
11541546
37237944
4027900
88851211
14515479
39995260
4265800
103934623
17178671
42288228
5076700
120622937
19940100
Table 4.3a Urban Population (World Bank)
195
Thailand
7704890
10057938
12695002
14621050
16648930
17943401
19680061
24712163
29397844
140000000
120000000
100000000
80000000
60000000
40000000
20000000
0
1970
1975
Philippines
1980
Singapore
1985
1990
Indonesia
1995
2000
Malaysia
2005
2010
Thailand
Graph 4.3a Urban Population (World Bank)
1970
1975
1980
1985
1990
1995
2000
2005
2010
Philippines
23996909
26611332
29633026
30940233
31847821
35993541
40413904
45825954
51156094
Singapore
Indonesia
Malaysia
0
95231336
7259260
0
105472140
7676150
0
114889095
8017482
0
121962163
8529611
0
125946184
9143063
0
125903333
9183828
0
122689217
8905272
0
122320080
8617453
0
120990189
8179400
Table 4.3b Rural Population (World Bank)
Thailand
29180024
32277016
34690323
37420418
39933894
41322688
43013261
41151810
37294180
140000000
120000000
100000000
80000000
60000000
40000000
20000000
0
1970
Philippines
1975
1980
Singapore
1985
1990
Indonesia
1995
2000
Malaysia
2005
Thailand
Graph 4.3b Rural Population (World Bank)

196
2010
1970
1975
1980
1985
1990
1995
2000
2005
2010
Indonesia
Malaysia
Philippines
0.170709996
0.193170001
0.221040003
0.260890003
0.305839998
0.360759999
0.420020002
0.45937
0.49924
0.334539962
0.376519987
0.420439984
0.458930028
0.49794002
0.556879987
0.619770007
0.665940007
0.709120006
Singapore
0.329790007
0.355600012
0.374809994
0.430460003
0.485899992
0.482900005
0.479550004
0.466029996
0.452550001
Thailand
1
1
1
1
1
1
1
1
1
0.20889
0.23758
0.26791
0.28095
0.29424
0.30276
0.31391
0.3752
0.4408
Table 4.3c Sectoral Distribution [Urban/(Urban+Rural)] (World Bank)

1,2
1
0,8
0,6
0,4
0,2
0
1970
1975
1980
Indonesia
1985
Malaysia
1990
Philippines
1995
2000
Singapore
2005
2010
Thailand
Table 4.3c Sectoral Distribution [Urban/(Urban+Rural)] (World Bank)

250.000.000,00
200.000.000,00
150.000.000,00
100.000.000,00
50.000.000,00
0,00
1970 1975 1980 1985 1990 1995 2000 2005 2010
Indonesia
Malaysia
Philippines
Singapore
Thailand
Graph 4.11 Human Capital Invested on the Working Population
197
140000000
120000000
100000000
80000000
60000000
40000000
20000000
0
1970
Indonesia
1975
1980
Malaysia
1985
1990
Philippines
1995
2000
Singapore
2005
2010
Thailand
Graph 4.21 Emphasis on Sectoral Distribution (Sectoral Distribution^0.5)

140.000.000,00
120.000.000,00
100.000.000,00
80.000.000,00
60.000.000,00
40.000.000,00
20.000.000,00
0,00
1970 1975 1980 1985 1990 1995 2000 2005 2010
Indonesia
Malaysia
Philippines
Singapore
Thailand
Graph 4.21 Emphasis on Sectoral Distribution (Sectoral Distribution^0.5)

1,4
1,2
1
0,8
0,6
0,4
0,2
0
1970
1975
Indonesia
1980
Malaysia
1985
1990
Philippines
Graph 4.12
198
1995
2000
Singapore
2005
2010
Thailand
1,2
1
0,8
0,6
0,4
0,2
0
1970
1975
Indonesia
1980
Malaysia
1985
1990
Philippines
1995
2000
Singapore
2005
2010
Thailand
Graph 4.22
1
0,9
0,8
0,7
0,6
0,5
0,4
0,3
0,2
0,1
0
1970
1975
Indonesia
1980
Malaysia
1985
1990
Philippines
Graph 4.32
199
1995
2000
Singapore
2005
2010
Thailand

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Varazdin Development and Entrepreneurship Agency

Economic and Social Development

Bangkok, 18-20 February 2016

Varazdin Development and Entrepreneurship Agency

Economic and Social Development

Bangkok, 18-20 February 2016

Trina Mjeda, Mario Tomisa, Marin Milkovic THE IMPACT OF INTELLECTUAL

NATIONAL COHESION IN ECONOMIC DEVELOPMENT OF JAPAN

4. TERRITORIAL AND FINANCIAL REFORMATIONS OF JAPAN AND IRAN

ASSESSMENT OF THE MATURITY LEVEL OF IT FUNCTION IN A

Table 1: Different roles of ICT within the business system (Authors)

Figure 1: CobIT 5 Goals Cascade (Haes, Joshi, Grembergen, 2015)

Figure 2: Business and IT goals alignment (ISACA, CobIT 4.1, 2007)

The effective IT Governance means to define organizational structures, processes, obligations

Figure 3: CobIT framework (ISACA, CobIT 4.1, 2007)

Figure 4: CobIT Maturity Model (ISACA, CobIT 4.1, 2007)

Figure 5: The maturity level of analyzed IT processes

Table 4: Results of the assessed maturity level of analyzed IT processes

INVESTIGATING A QUALITY OF SERVICES IN THE PUBLIC

Public Services Customers N=250

Table 1. - Demographic Distribution of the Data.

Figure 1. - SERVQUAL Dimensions, Overall Customer Satisfaction and Word of Mouth

Table 3. Overall Satisfaction and Positive Word-of-Mouth Regression Models.

(continued below / next page)

P.14 The behavior of

Table 5. - Principal Components Analysis for the Dimensions.

NEOLIBERALISATION AT THE LOCAL SCALE: CONTENT ANALYSIS OF

interventionist state and redistributive ideals of welfare-state liberalism in the 20th

Privatization of the local resources

The influence of neoliberalism on the immigrants in the specific communities, especially

governmentality is that grassroots organizations are increasingly supplanting the managerial

AN ALTERNATIVE APPROACH TO THE

Figure 1: Cross-correlation ITOTg to CAg with lags and leads up to 8 periods

Source: Authors calculation.

Table 2: Cross-correlation REER to CAg with lags and leads up to 8 periods

Source: Authors calculation.

An S-curve describes only unconditional cross-correlations, whereas J-curve describes spots

Correlations of ITOTg and lagged Y

Correlations of QEXg and lagged Y

Correlations of QIMg and lagged Y

Correlations of ITOTg and lagged QEXg

Correlations of ITOTgand lagged QIMg

STUDYING OF URBAN MOVEMENTS THROUGH THE PARADIGMS

ACHIEVING LOCAL CONTENT IN EXTRACTIVE INDUSTRIES OF

developing countries. Historically, foreign companies involvement in developing countries has

of natural resource-based industries (Torres-Fuchslocher, 2010). They are key energizers to

Transfer of technology and

More inter-firm collaboration;

Credit access and competitive

Challenges / Constraints related to other actors

Table 1: Enablers and of local content and their inter-related challenges

ORGANISATION OF THE SUGAR INDUSTRY IN POLAND AND

3. SUGAR FACTORIES AND THEIR PRODUCTION PROFILE

Number of sugar factories

Krajowa Spka Cukrowab

2006 2007 2008 2009 2013

The connections of a spatial, organisational, production (technological) and economic nature

per one sugar