Jaké reformy a proč (200) Wawrosz: Smart Growth

24. srpen 2014 | 08.00 |

Následující příspěvk byl připraven na mezinárodní konferenci v Turíně a byl zde též přednesen. Obsahuje několik nových prvků oproti materiálům, které byly doposud v rámci diskuse zaměřené na přípravu pracovní části 17. ročníku konference Lidský capital a investice do vzdělání předneseny. Uveřejňuji jej na několik pokračování. Toto je první z nich:

Transferred price and the sector of productive services as the key preconditions to smart, sustainable, and inclusive growth I.

Petr Wawrosz, Radim Valenčík


The article is one of the outputs of the specified research "Reformy systémů sociálního investování a sociálního pojištění, problematika jejich přípravy a realizace” carried out by the University of Finance and Administration and financed by the Ministry of Education, Youth and Sports.

1. Introduction

The issues relating to economic growth are among the most frequently discussed in economics. This is logical. Growth allows people to produce more goods, thereby satisfying more needs. Thanks to new resources that result from economic growth, we are able to cure previously incurable diseases, prolong the human life, and increase its quality. Nevertheless, it appears that economic growth has its limits. For example, it may have adverse environmental impact. As a result of the growing number of opportunities, the stress level of people, who are not able to take advantage of all the opportunities available, may also increase. Even during the period of economic growth, there may be some population groups that have no or only minor benefits (compared to other groups) from such growth. Therefore, other terms are used in addition to the growth itself, such as sustainable growth, inclusive growth or smart growth. These types of growth would address the aforementioned negative factors. There are many publications that deal with these types of growth, analyze their characteristics, and discuss ways of achieving such growth. In terms of factors affecting economic growth, investments in human or social capital, as appropriate, are often mentioned (e.g. Becker 1964; Barro and Sala-I-Martin 1999; Robaliano 2000, Grootaert  and Van Bastelae 2002, Savvides and Stengos 2009; Roy, Roberts and Ali 2012). However, the ways of motivating people not only to invest in their human and social capital, but also to promote human/social capital investments of others, are only seldom discussed. The sector that offers or arranges investments in human and social services to/for its customers may be referred to as the sector of productive services. This sector offers services, through which customers increase their human and social capital, thereby becoming more productive. 

The objective of this paper is to show that transferred price and the sector of productive services represent key preconditions to smart, sustainable, and inclusive growth. The article is organized as follows: First section introduces concepts of sustainable growth, inclusive growth and smart growth. Second section describes characteristics of the sector of productive services. We, in addition to other things, explain why we chose this term and how our description of possibilities offered by the sector resembles the possibilities that were offered by the sector of industry during the Industrial Revolution. The third section then brings connection between the sector of productive services on the one hand and smart, sustainable, and inclusive growth on the other hand.  It is shown why we conjecture the sector of productive sectors is the key precondition to smart, sustainable, and inclusive growth. Fourth section concentrates on the essence of transferred price, explains its principles, and shows how transferred price is able to solve some risk associated with the situation, where some people that wish to invest in their knowledge abilities or skills do not have sufficient funds but other people are willing to lend them the necessary resources. We emphasize that the principle of transferred price is the general principle that can be used in many situations when income of one person depends on the quality of services that are provided to this person provided by another person. Human capital contract, sometimes suggested (e.g. Friedman 1962; Palacios Lleras 2004) as possible means how students can finance their education, then is a specific example of using the transferred price principle. Fifth section suggests how transferred price could be used in the sector of productive services. The suggestion is based on the idea that a provider of productive services should be lender who in some time provides its customers with the services. Customers are borrowers, who pay for the services not at time such services are used, but sometimes in the future, using their future income that is the consequence of such services, provided their income exceeds some threshold defined in the contract between the lender (provider of productive services) and individual customers. Sixth section shows that transferred price provides useful feedback about the productive service quality to its provider, client, and other subjects. The seventh and final section discusses the obstacles that prevent the broad use of transferred price. We believe that some of them are only imaginary, i.e. they only exist only in the people's mind and can be overcome relatively easily. Others are real; however, and their existence is the main reason why the transferred price concept is only seldom used. The barriers to entry into the market (sector) of productive services and tough regulations of the sector are among the most important in our view. We develop our opinion in the section and suggest what should be done for achievement of smart, sustainable, and inclusive growth.

2. Concept of sustainable growth (development), inclusive growth, and smart growth

This chapter introduces the concept of sustainable growth (development), inclusive growth, and smart growth. Let us start with sustainable growth/development. There are many definitions of these terms, but the most frequently quoted definition comes from the publication Our Common Future, also known as the Brundtland Report (UN 1987): "Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs. It contains within it two key concepts: 1. the concept of needs, in particular the essential needs of the world's poor, to which overriding priority should be given; and 2. the idea of limitations imposed by the state of technology and social organization on the environment's ability to meet present and future needs.” Therefore, what can we derive from the definition? At first glance, it includes a clear ethical motive of responsibility to future generations, which have the right to live at least under the same conditions as the present generation. Moreover, it talks about the meeting of needs of the present; based on this, we can assume that the objective is not to suspend or limit economic growth. Quite the opposite. Only sustainable growth is the basic precondition to escaping the poverty gap and to meeting individual needs. UN (1987) explicitly mentions that the present needs always refer to the basic needs of the poorest people on the planet. Otherwise, the term "needs” could be statistically misinterpreted: although the global situation might seem relatively good, consequences of a potential disaster would most severely affect the poorest population groups (e.g. seaside populations of developing countries in case of more significant ocean level rise, where developed countries would be able to deal with such defect relatively successfully). The development in the term "sustainable development” is a dynamic element, a process of constant change, where the meeting of the needs of the present generation and of the future generations is harmonized. It is not defined, which needs matter more. The decisive measure is the preservation of natural resources and the development of the quality of life. The phrase sustainable development fully characterizes the global perspective of future development. Development characterizes change in time, with the subject improving. Sustainable development emphasizes permanent, long-term nature of the given activity. Our paper will rely on the aforementioned, with some expansion. In our understanding, sustainable growth will refer to the following growth that also:

1. Meets the needs of the present without compromising the ability of future generations to meet their own needs.

2. Does not, in the conceivable future, hit the barriers given by the limitations of natural resources or the barriers determined by the limited ability of natural resources to absorb the consequences of human, and particularly economic, activity.

The expansion consists in the fact that the objective of sustainable growth is not only the preservation of natural resources, but also the limitation of people's dependence on the nature, i.e. to ensure that people need less natural resources to meet their growing needs or that the use of such resources is more effective, as appropriate. This also achieves the goal of the natural resources preservation.

Let us move to the terms inclusive growth and smart growth. OECD defines inclusive growth as[1] "a growth that combines strong economic growth with improvements in living standards and outcomes that matter for people's quality of life (e.g. good health, jobs and skills, clean environment, community support).” Ali and Hyun (2007, p. 1) write: "Growth is defined as inclusive if it increases social opportunity function which depends on two factors: 1. average opportunities available at population; and 2. how opportunities are shared among population.”. Generally speaking, the concept of inclusive growth emphasizes that the growth is beneficial to all people of the given society, where the growth takes place, and that if there are some population groups that do not profit from such growth, there should be instruments for including those groups within those that do. At the same time, the inclusion should not be in the form of redistribution, but by ensuring that those, who were previously excluded, will start contributing to economic growth through their activity, thereby increasing their income and ability to meet their needs.

The term "smart growth” is associated with the terms inclusive growth and sustainable growth and is mainly used within the context of the European Union. All three terms can be found in The Europe 2020 Strategy, where the following is mentioned: "The Europe 2020 Strategy[2] is about delivering growth that is: smart, through more effective investments in education, research and innovation; sustainable, thanks to a decisive move towards a low-carbon economy; and inclusive, with a strong emphasis on job creation and poverty reduction.” The Strategy further declares that: "Smart growth means improving the EU's performance in[3]:

-                     Education (encouraging people to learn, study and update their skills

-                     Research/innovation (creating new products/services that generate growth and jobs and help address social challenges)

-                     Digital society (using information and communication technologies)

[1] The definition is taken from http://www.oecd.org/inclusive-growth/about.htm.

[2] The details about Europe 2020 Strategy are cited from http://ec.europa.eu/europe2020/index_en.htm.

[3] EU targets for smart growth include: 1. Combined public and private investment levels to reach 3% of EU's GDP as well as better conditions for R&D and Innovation. 2. 75% employment rate for women and men aged 20-64 by 2020 – achieved by getting more people into work, especially women, the young, older and low-skilled people, and legal migrants. 3. Better educational attainment, in particular: reducing school drop-out rates below 10% and at least 40% of 30-34–year-olds with third level education (or equivalent).

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