LIVING STANDARDS, SOCIAL WELFARE AND LABOUR IN ALBANIA
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NATO ECONOMIC Colloqium,
30 June, 1 and 2 July 1993,
Brussels
ECONOMIC DEVELOPMENTS IN COOPERATION PARTNER COUNTRIES
FROM A SECTORAL PERSPECTIVE
EVOLUTION DE LA SITUATION ECONOMIQUE DANS LES PAYS
PARTENAIRES DE LA COOPERATION DU POINT DE VUE SECTORIEL
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PANEL I
Living Standards, Social Welfare and Labour
Chair: Daniel George, Director, NATO Economics Directorate
Panelists: Michel Gaspard
Lulzim Hana
Vladimir Gimpelson
Silvana Malle
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LIVING STANDARDS, SOCIAL WELFARE AND LABOUR IN ALBANIA
Lulzim Hana
At the beginning of the last decade Albania experienced a
grave economic crisis which can hardly be compared with the
crises of other countries during this century in peaceful
periods. Stagnation began in the middle of the 1980s, but
during 1991 the crisis was very severe. During 1992 the
fall in the economy continued though not in such
dimensions. The decline in production in Albania is 1.7 to
fourfold greater than that in other countries of Eastern
Europe (Bulgaria, Czech and Slovak Republics, Poland,
Romania, Hungary, etc.).(1) Further, the level of economic
decline in Albania during 1991 and 1992 is greater than the
crisis the world experienced in 1929-1933.
Theory and experience have proved that periods of change in
systems are accompanied by grave social and economic
crises. These crises are caused by the aggravations of the
rigid former regime, and the objective necessity for
changes in systems is forcibly manifest. The deepness and
the external aggravation of the crisis in Albania is
explained by different factors, among which the most
important are discussed below.
The first factor is the 45 year rule of the most
totalitarian regime in Eastern Europe. It is a fact that
Albania is the last country in Eastern and Middle Europe to
turn to a market economy. Moreover, while in the other
communist countries during the 1970s and 1980s the
processes of liberalisation of the economy and of opening
to the world began, in Albania the contrary was happening:
THE ECONOMY WAS INCREASINGLY CENTRALISED AND THE EARLIER
EXTREME ISOLATION OF THE COUNTRY BECAME TOTAL. State
property absolutely included all the social and economic
life of the country, creating a unique "experience" in the
modern world. All relations with the foreign world were
based on classic ways of trade and every other form of
cooperation with foreign firms was considered treasonous
and was punished as such.(2)
The policy of isolation and "prosperity based on our
efforts alone" exerted a severely negative influence on the
development of productive forces. Almost no capital
investment at all was made during the last 15 years of the
regime. The standard of living fell rapidly and
unemployment increased, although officially, these facts
were denied.
Huge disruptions took place during the process of the
collapse of the old regime and the victory of democracy. As
distinct from other communist states, no minority parties
were permitted to exist in Albania, and no dissidence
within the Communist Party was tolerated. This has caused
devastation and abuse during the transition period mainly
on the part of the former holders of power, the Albanian
nomenklatura. This threatens the fragile new-born democracy
and the prospects for the development of the economy.
The difficulties that have arisen during the transition to
a market economy, and the concurrent political struggles,
have created little opportunity for the development of a
well-founded economic program. A complex program of
economic reform was introduced later than necessary and is
in any event deficient. The old mechanism was destroyed but
was not replaced with a new one, creating a fertile
atmosphere for speculation, which is unavoidable under
these circumstances. In a reaction to our former isolation,
the infantile concept that everything will be given to us
by foreigners was adopted. We realised only later that the
world will support us only if we work ourselves. Other
concepts which deepened the crisis in our country were also
promulgated, such as "to bring every thing to a zero level"
and only after that to restructure the economy, etc.
The economic result of half a century of communist rule is
clearly shown in Table I.
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Table I
GDP/Capita in 1990 (in US $)
Country Value
Italy 18916
Greece 6517
Hungary 6517
Bulgaria 2200
Turkey 1850
Poland 1673
Romania 1622
Albania 700
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Calculated according to:
International Financial Statistics, IMF, May 1992, Volume
XLV, N. 5.
International Bank for Reconstruction and
Development, World Table Socio-Economic Time -Series Access
and Retrieval System, Version 1.1 July 1990.
Statistical Yearbook of Albania, 1991, p. 357.
As shown, 1990 per capital GDP in Albania ($700) was from
2.3 to 27 times lower than in other countries. If we
consider the galloping fall of GDP during the last two
years, which brought it to $400 per capita, it is clearly
shown that Albania is proceeding towards the status of the
less developed countries.
The critical situation of the economy is directly reflected
in the very low level of income of the Albanian working
people. In comparison to all other countries of Eastern
Europe, the communist rule in Albania was very rigid in
fixing the level of salaries. The average daily wage of the
working people in Albania in 1990 was less than $1.5.(3)
Increases in the range of 25-70% (4) were based mainly on
length of service or changes in the degree of
qualification. This narrow difference between the wages of
a beginner and the most experienced person in the same
profession was motivated by the fight against
"differentiation" and "against emergence of the new
bourgeoisie". However, most wages in fact did not change
for decades; the concept was that the increase in
well-being would be realized through reduction of
prices.(5) But prices began to increase in a hidden way and
"the marvellous efficiency" of this was clearly shown. This
was the reason why the liberalization of prices in Albania
in the process of the beginning of the market economy could
not be carried out at once for all articles.Figures shown
in Figure 1 indicate the great difference in wages in
Albania compared to other countries.
As shown, the hourly wage of the Albanian worker is from
3.5 to 109.4 times lower than the hourly wage in other
countries. This is reflected in the very low standard of
living. According to figures of the Institute of Statistics
in Tirana (1993), the consumption per capita of some of the
main articles in 1991 was as shown in Table II.
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Table II
Article Measuring 1991
Unit
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Meat and meat products kg 17.0
Milk, milk products kg 175.7
Oil and fat kg 14.2
Beans kg 4.2
Rice kg 6.4
Fruits kg 11.2
Sugar kg 18.5
Eggs pes 89.7
Non-foods
Tissue lm 3.1
Knitwear pes 1.7
Shoes pairs 1.1
Socks and stockings pairs 0.8
Soap and detergents kg 6.9
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Albanian consumption of some products, such as meat, is six
times lower than that of other Eastern European countries.
It is worth mentioning that even this level of per capita
consumption of these products is maintained by foreign
assistance and by approximately $500 million annual income
from Albanian emigrants.
The development and consolidation of the fragile democracy
in Albania, undoubtedly requires that the standard of
living of the Albanian people be raised. The already
complete privatisation of agriculture, trade and services,
as well as that of auto transport of goods; the beginning
of privatisation of small and middle size entreprises in
industry and construction; the reform of the banking
system; the fiscal reform and liberalisation of prices;
abolition of the state monopoly in foreign trade; setting
the course of free fluctuation of the Albanian lek in the
market as a step toward realisation of full convertibility,
etc; all these create the conditions for the stimulation of
free initiative and changing of the economic situation of
the country. But, to realize all these, foreign support is
still necessary in technical assistance as well as in
financial and material aid. Without denying the need of
foodstuffs, each day it becomes more and more crucial to
our economy to carry out its restructuring and
modernisation and to make effective use of our material and
human resources. In such a way, the economic situation will
be stabilized and the Albanian working people will realize
economically the superiority of the market economy system.
Economic collapse and devastation of systems and
infrastructure have greatly reduced the possibility of
finetuning social policy. While the average wage in 1992
compared to 1990 has increased in domestic money
approximately three times, the price index has increased
seven times.(6) The very critical situation in the material
basis of health and education, the necessity of their
radical restructuring, the very high level of unemployment,
the destruction of basic services and of the inherited
system of social insurance, make social policy a key
element of the reform and, perhaps, the most difficult one
during the transitional period. Without an effective
social insurance network, the human cost of the
transitional period may become extreme and the consensus
for reform may be destroyed.
Under such circumstances, in order to create an effective
social insurance system appropriate to the economic and
social development of the country towards a market economy,
the Law of Social Insurance was passed in the Albanian
Parliament in May of this year. Among the elements
introduced by this law are:
FIRST, the scope of the coverage of social insurance was
broadened. In addition to compulsory insurance, voluntary
and supplementary insurance is introduced for the first
time.
SECOND, insurance is reclassified in five groups. In
addition to temporary incapacity; pregnancy; old age,
permanent disability and loss of the head of the family;
work related accidents and professional illness; and
unemployment insurance, separate from social assistance,
have been introduced. The employer will pay an amount equal
to 6% of total wages in order to fund the insurance.
THIRD, contributions cover the expenses for
social insurance. The employer pays 31.5% of the salary
fund, while the employee pays only 10% of salary. Further,
the state formerly subsidized insurance only for state
employees.
FOURTH,the number of persons covered by social insurance
has increased. According to the law, foreigners working in
Albania, as well as Albanians working abroad, are now
included in the system.
FIFTH, protection and guarantee of the social
insurance fund. This law provides for indexing of pensions
in accordance with price increases, creation of an
insurance fund having a three month reserve, etc. The state
guarantees payment to all the insured people in case of
bankruptcy of the social insurance fund caused by
mismanagement or otherwise.
SIXTH, concentration of social insurance activity on
its proper object. Aspects not pertaining to social
insurance, such as assistance for people having genetic
defects etc., have been left out. The separation of social
insurance from social assistance is very important in order
to increase the efficiency and transparency of the social
policy.
SEVENTH, the length of service and the paid leave for women
during and after pregnancy are extended. According to this
law, in order to receive full pension all men and women
must be insured for 35 years. Pension age for men is 60 and
for women 55. Partial pensionwill be available to those
working people reaching retiring age but who have had
social insurance of not less than 20 years.
"The gordian knot" of the Albanian society is the high
level of unemployment. According to the Institute of
Statistics, at present there are 454 thousand unemployed,
out of which 357 thousand receive assistance. 97,000 people
are searching for their first job. Unemployed people in
Albania make up more than one-third of all people capable
of work. The situation in certain regions is even worse.
The beginning of the stagnation during the second half of
the 1980s has introduced unemployment, although official
statistics gave no figures on this. It has been estimated
that there were 80-100 thousand unemployed in the year
1990. (Total population in 1990 was more than 3.2 million.)
The transition and restructuring of the economy caused
unavoidable exacerbation of the existing situation in
this respect. Taking into consideration that the Albanian
economy was a closed one, the process of the integration
into the world economy could not help but sharpen the
unemployment problem, especially among the intelligentsia
of the urban and rural areas, the workers in some branches
of the economy that could not cope with the market economy
and the young generation seeking employment. The young
generation is mentioned because, due to the high natural
growth of the population in our country, a total of 20-25
thousand new working places should be opened every year.
According to reliable figures only 10.5% of the people in
assistance could actually be employed. The crisis and lack
of investment creates little possibility for the retraining
of the working people. In fact, and unfortunately,
emigration now serves as the remedy for Albanian society.
It is imperative under such circumstances that some
branches of the economy be revitalized and that foreign
investment be encouraged. This requires, among other
things, that efforts to stabilize the macroeconomy
be realised in order to better stimulate the microeconomy,
to more production.
It is important to mention that, generally, the economic
decline has stopped and a certain revival is witnessed in
some sectors. The program of the government has been
concentrating on main reforms to insure the macroeconomic
control at the beginning of the transition to the market
economy.Its main targets are:
- To stabilize production during 1993. This will depend
mainly on agricultural production, on efforts to reactivate
industry, and on the pace at which the newly created
private sector opens new places of work for the unemployed.
There are some economic indicators which show that the
economy will prosper during 1993.
- Progress in macroeconomic stabilization.
- Implementation of profound structural changes, focusing
on agriculture, state owned entreprises and the banking and
financial sector.
- Support of the poorest members of the population. The
technical and financial support for implementation of these
targets by the international community and the creative
capabilities of the Albanian people will create the
possibilities to overcome this current critical situation.
Notes
(1) Calculated by "Economic Trends in Eastern Europe",
Budapest, No: 1/1992, p. 33.
(2) Constitution of Socialist Peoples Republic of Albania,
Tirana, 1976, Article 28.
(3) Statistical Yearbook of Albania, 1991, p. 131.
(4) Wage System in Peoples Republic of Albania, Tirana,
1967.
(5) The Political Economy of Socialism, Tirana, 1985.
(6) The Institute of Statistics of the Republic of Albania,
Tirana, 1993.
(7) The Institute of Statistics of the Republic of Albania,
Tirana, 1993.
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First edition 1993
ISBN 92-845-0079-6
This is the latest in a series bringing together papers
presented at the NATO colloquia organised by the NATO
Economics Directorate and Office of Information and Press
on economic issues in the former USSR and Central and
East European countries. For further information please
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